SO KEE TRANSPORTATION CO LTD v. THE SECRETARY FOR THE ENVIRONMENT, TRANSPORT AND WORKS

LDRW 36/2003

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

RAILWAYS ORDINANCE APPLICATION NO. 36 OF 2003

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JUDGMENT ON INTEREST AND COSTS

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Background

1. On 18 September 2007, we handed down our Judgment on the determination of compensation payable to the Applicant.  The Respondent was ordered to pay $8,542,932 to the Applicant.  The matters of professional fees, interest and costs were adjourned to a date to be fixed by the Listing Officer.  After the Judgment was handed down, the Department of Justice, for the Respondent, wrote a letter dated 20 September 2007 to the Tribunal raising the fact that the amount of severance payments was actually agreed by the parties.  The Applicant’s solicitors, however, wrote another letter of the same date to the Tribunal contending that the letter of the Department of Justice was written without their consent.  We therefore decided to review the Judgment on our own motion to clarify the positions of the parties.

2. The review was heard on 8 October 2007 and the Applicant informed the Tribunal at the hearing that there was in fact no dispute on severance payments because the amount had been agreed.  The Applicant, however, raised another matter concerning the gain on disposal of fixed assets of $1,511,322.  The Applicant did not seek to re-argue this matter, but simply wanted to remind the Tribunal that we had not dealt with this issue in the Judgment.  The Respondent, on the other hand, wanted to raise the issue of costs at the review hearing, but withdrew the same after we had indicated that it was inappropriate to raise that issue at the review hearing.  We handed down our Decision on Review on 7 November 2007.  The amount of compensation was varied to $7,929,399 after taking into account of the agreed amount of severance payments.  We did not find it necessary to include the gain on disposal of fixed assets in our computation of the compensation.  The costs of the review application was reserved and to be argued together with the costs of the main application.

3. The parties cannot agree on the matters concerning interest and costs and hence these matters came back before us on 19 March 2008.  There are three issues for us to resolve:-

(1)  Interest: There is no dispute that interest should be payable in accordance with section 38 of the Railways Ordinance, Cap. 519.  The Applicant contends that interest should be computed at 2% above the lowest rate offered from time to time by three note-issuing banks in Hong Kong on 24-hour call deposits; whereas the Respondent’s case is that interest should be payable at the lowest rate thereon.

(2)  Costs of the proceedings: The Applicant contends that the Respondent should pay the Applicant’s costs of the application (including any costs reserved) on High Court scale with certificate for Counsel to be taxed if not agreed.  The Respondent does not take issue with the High Court scale or the certificate for Counsel, but contends that the Applicant should be awarded at most 50% of the costs of the application.

(3)  Costs of the review hearing: The Applicant contends that the costs of the review hearing should be costs in the main application, but the Respondent contends that the Applicant should pay the Respondent costs of the review hearing.

Interest

4. Section 38 of the Railways Ordinance, Cap. 519, provides that:-

“(1)  The Lands Tribunal may direct that interest be paid on compensation (but not on costs)-

(a)  for compensation payable …

(b)    … at such rate as it may fix.

(2) The rate of interest fixed under subsection (1)(b)-

(a)    …must not be lower than the lowest of the interest rates paid on deposits at 24 hours’ call by note-issuing banks…”

5. It is clear that the Tribunal has discretion to fix the interest rate but it must not be lower than the lowest of the interest rates paid on deposits at 24 hours’ call by note-issuing banks.  As to how the discretion should be exercised, the following judgment of Lord Nicholls in the Privy Council decision of Director of Buildings and Lands v. Shun Fung Ironworks Ltd. [1995] 2 AC 111 is applicable:-

“In their Lordships’ view, 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 the 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.”

6. As stated in the above judgment, the rate fixed by the Tribunal should normally be the lowest time deposit rate unless there is good reason to depart from it.  In arguing that the Applicant is entitled to interest at 2% above the lowest rate, the Applicant submits that the Tribunal should take into account the following:-

(1)  The Respondent has behaved unreasonably and by its conduct protracted the time taken in determining the claim; and

(2)  The relevant interest rate on deposits at 24 hours’ call has been extremely low for the past few years.

7. In particular, the Applicant relies on the following special circumstances:-

(1)  There was much delay and the proceedings had been protracted as a result of the Respondent’s error in its legal objections to the Applicant’s right to claim compensation;

(2) Both the Registration point and the Signature point were held to be wrong by the Court of Appeal and the case was sent back for re-trial.  The Respondent only conceded them on the 2^nd day of the re-trial; and

(3) The Respondent had all along withheld one of the most important materials, i.e. whether Mass Ocean submitted its claim on the basis of vacant possession or subject to tenancy.  The significance of this evidence was that as the Respondent was arguing that the Applicant’s sub-lease was null and void against Mass Ocean (on the Registration point), and if Mass Ocean themselves recognized the legal status of the Applicant, the Respondent’s argument would completely fail.  The Respondent refused to disclose such material even at the hearing of the preliminary issue before the Tribunal in September 2005 on the ground that it was confidential.  It was not until the Applicant served interrogatories on the Respondent in May 2007 compelling them to provide the answer did they disclose such evidence.

8. First of all, we do not accept that the relevant interest rate on deposits at 24 hours’ call being extremely low for the past few years is a relevant factor for consideration.  The 24 hours’ call deposit interest rate has always been low.  As said in Shun Fung’s case, “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.”  We agree with this judgment.  Thus, we do not see any ground to raise the interest rate just because it was extremely low.

9.  We also do not accept that the Respondent has behaved unreasonably and by its conduct protracted the time taken in determining the claim.  The claim first came on for hearing in September 2005, just over 2 years after resumption.  At the first hearing, the Tribunal raised the matter of whether the Applicant’s interest in making the application should be determined as a preliminary issue first.  The Respondent in fact expressed the reservation that hearing preliminary issue separately may result in a delay because of the possibility of an appeal.  The Tribunal then stood down the case and left this matter to the parties to decide.  After the adjournment, the Applicant’s counsel informed the Tribunal that both parties agreed to have the preliminary issue determined first.  Thus, the delay caused by having the preliminary issue determined first, as well as the subsequent appeal, cannot be regarded as being caused by any fault on the part of the Respondent at all.

10. The Respondent is entitled to raise legal objections to the Applicant’s right to claim compensation.  In fact, the Tribunal found in favour of the Respondent on the legal issues, but the Tribunal’s decision was overturned on appeal.  The Respondent has indicated to the Tribunal that it does not agree with the Court of Appeal judgment, but somehow it has not lodged any further appeal.  We are of the view that these legal objections cannot be regarded as totally without merit.  In any event, we simply fail to see how the taking of these legal objections can be regarded as unreasonable behaviour.  The Respondent’s concession in withdrawing these legal objections at the re-trial does not mean that the Respondent was wrong or unreasonable when the legal objections were raised at the first trial.  In fact, the Respondent has indicated very clearly that it is only for practical reasons, they do not want to pursue with the legal objections at the re-trial.

11. As to the assertion that Mass Ocean “recognized the legal status of the Applicant” as a tenant, this was only in the context of the basis of Mass Ocean submitting a claim for compensation.  Another piece of evidence was that Mass Ocean had issued a writ against the Applicant in April 2002, which showed that Mass Ocean did not recognize the Applicant as a tenant.  So the Respondent’s argument would not automatically fail on the disclosure of the basis of Mass Ocean’s claim.  The raising of the argument that the information was confidential is a legal objection that the Respondent can take.  I see nothing unreasonable in raising this legal objection.  Moreover, if the Applicant had been serious in pursuing this challenge, it could have taken out interrogatories before the first trial rather than leaving it until after the appeal.  In fact, despite the Tribunal’s indication that the Applicant might need some factual evidence, the Applicant expressly agreed at the first trial that apart from all the documentary evidence produced, no more factual evidence was required to be called in the determination of the preliminary issue.  We fail to see how the Respondent was to be blamed when the Applicant did not pursue with the matter seriously at the first trial.

12. Thus, we do not find that the Respondent has behaved unreasonably or by its conduct protracted the time taken in determining the claim.  There is no good reason to depart from the general rule in fixing the interest rate.  We shall therefore fix the interest rate at the normal rate, i.e. the lowest of the interest rates paid on deposits at 24 hours’ call by note-issuing banks in Hong Kong, without the extra 2% asked by the Applicant.

Costs of the proceedings

13. The Respondent contends that the Applicant should be entitled to not more than 50% of the costs, and relies on the judgment of Lam J. in Hong Kong Kam Lan Koon Ltd v. Realray Investment Ltd (No. 4) [2005] 4 HKC 162, quoting Lord Carswell in Speepersad v. Persad [2004] UKPC 19 as follows:-

“The general rule which should be observed unless there is sufficient reason to the contrary is that costs will follow the event.  Were the party who has been successful overall has failed on one or more issues, particularly where consideration of those issues has occupied a material amount of hearing time or otherwise led to the incurring of significant expense, the court may in its discretion order a reduction in the award of costs to him, either by a separate assessment of costs attributable to that issue or, as is now preferred, making a percentage reduction in the award of costs…”

14. As the Applicant failed on the issue of whether compensation must be assessed on the basis that the Head Lease would have come to an end by 31 December 2003, which is a separate and distinct issue, the Respondent asks us to consider that, if this point had been conceded by the Applicant, how differently the proceeding would have proceeded, and how much time would have been saved.  The Respondent submits that a fairer order would have been no order as to costs of the whole proceedings, because the Applicant should have paid the Respondent the costs thrown away by the failed issue, and the two costs would have cancelled out, but that is not the order the Respondent seeks.  The Respondent is only asking for an order that the Respondent should pay 50% of the Applicant’s costs, which is an adequate recognition for the fact that we are dealing with a resumption case.  The Respondent further submits that there is no rule (nor should it be encouraged) that in a land resumption case, an applicant can raise all kinds of points, good or bad, and expect to escape with impunity (indeed be rewarded for the costs of making the bad points).

15. However, we agree with the Applicant’s submission that costs in respect of compensation cases should not be dealt with in the same manner as ordinary hostile litigation; the special context in which such claim arises has to be borne in mind.  Lam J. (President of the Lands Tribunal) in Penny’s Bay Investment Company Limited v. Director of Lands, LDMR 23/1999, analyzed the relevant cases (Emslie & Simpson Ltd v. Aberdeen District Council (No. 2) [1995] RVR 159 and Purfleet Farms Ltd v. Secretary of State for Transport [2003] 1 P & CR 20) and set out the principles as stated in those cases as follows:-

“…The principle which applied to litigation …is that the costs of litigation should fall on him who caused it.  The cost of determining the amount of the disputed compensation would seem, according to this principle, to fall on the acquiring authority without those resort to the use of compulsory powers there would have been no need for the owner or occupier to be compensated.  That seems to me to be the proper starting point for an examination of the question of expenses in these cases.”

“In most cases… it is perfectly reasonable that … a claimant should put forward this claim on the maximum basis which he can reasonably support and should be entitled to the expenses of doing so if he is successful in the general assertion of his right.”

“… the proper approach of the Tribunal for the costs of a successful claimant (i.e. a claimant who is awarded more than the amount of an unconditional offer by the respondent) should be that he is entitled to his costs incurred in the proceedings in the absence of some ‘special reason’ to the contrary.  Whether such special reason exists in any given case is a matter for the judgment of the Lands Tribunal.  Plainly it may exist where wasted or unnecessary costs have been incurred for procedural reasons as a result of the conduct of the claimant (e.g. abandoned issues, unnecessary adjournments, or failure to comply with directions of the Tribunal).  However, so far as the nature and substance of the case advanced by the claimant is concerned, special reasons should only be regarded as established where the Tribunal considers that an item of costs incurred or an issue raised was such that it could not on any sensible basis be regarded as part of the reasonable and necessary expenses of determining the amount of the disputed compensation.  This would apply not only to a claim advanced without any statutory basis but to other examples of manifestly unreasonable conduct which may give rise to unnecessary expense in the course of the proceedings.  It means, in my view, that, following the hearing of a compensation reference in the Lands Tribunal in which the claimant has been successful, a special reason for departing from the usual order for costs should only be found to exist in circumstances where the Tribunal can readily identify a situation in which the claimant’s conduct of, or in relation to, the proceedings has led to obvious and substantial escalation in the costs over and above those costs which it was reasonable for the claimant to incur in vindication of his right to compensation.

“…in considering the question of whether or not special reason exists to depart from the usual order, it may usefully “have regard” to … whether or not the claimant has exaggerated his claim.   In considering that last question, however, exaggeration alone is not enough in the event of a large disparity between the sum claimed and the sum awarded.  The matters to which the Tribunal should have regard are (a) the reasons for that disparity, and (b) their effect upon the conduct of the claim.  As to (a), if the reasons are defensible, in the sense that there was a legitimate, albeit unsuccessful, argument put forward in support of the figure concerned, there can be no good reason to regard the claim as exaggerated in the pejorative sense necessary to justify a sanction in costs.  As to (b), if, in any event, the effect on the proceedings in terms of the time spent and the costs incurred in disposing of the issue or argument concerned is relatively insignificant, then again an adverse order is unlikely to be appropriate.”

  (underlines added)  

16. Lam J., having re-instated the applicability of the English approach on costs in compulsory acquisition cases in Hong Kong, went on to consider the costs issue in that case and held that there should not be an adverse costs order against the Applicant notwithstanding that the Tribunal determined the preliminary issued against the Applicant noting that the law is not an exact science and there is scope for reasonable disagreement.

17. In our present case, there is no dispute that the Applicant is successful in its claim and is awarded a sum of about $7.9 millions, which is far in excess of the Respondent’s sealed offer of $1 million.  The Applicant is clearly entitled to costs.  We do not find any “special reason” to depart from the usual order of costs in the sense that the Applicant was guilty of manifestly unreasonable conduct, which led to an obvious and substantial escalation in the costs over and above those costs which it was reasonable for the Applicant to incur in vindication of its right to compensation.  The failed issue concerns the applicability of section 12(c) of the Lands Resumption Ordinance, Cap. 124.  It is a question of law and is not a subject of expert evidence.  In fact, none of the witnesses (including expert witnesses) were ever questioned on the applicability of section 12(c).  We simply could not find any substantial part of the evidence adduced at the trial that could have been saved if the Applicant did not proceed with the failed issue.  Thus, we fail to see how the costs would be escalated by the Applicant’s contention on section 12(c).  We also do not agree that the taking of legal argument on section 12(c) by the Applicant could amount to a manifestly unreasonable conduct on its part, or it would amount to a special reason to depart from the general rule.

18. Even applying the principle in ordinary hostile litigation, it would be wrong in principle to reduce the award of costs to a successful claimant on the basis that the defendant succeeded on reducing one of the heads of damages.  Lord Carswell in Seepersad v. Persad, supra. (as quoted by Lam J. in Hong Kong Kam Lan Koon Ltd v. Realray Investment Ltd (No.4), supra.)  held that:-

  “The Court of Appeal’s order was predicated upon the proposition that the assessment of damages for pain and suffering and loss of amenity was a separate issue from the assessment of the other heads of damage.  This was an incorrect assumption.  An issue for these purposes must be something so distinct and separate in itself that the decision of it constitutes as ‘event’.  The ‘event was the quantum of damages to which the appellant was entitled and he succeeded on his appeal in obtaining a higher award than the judge had given… Their Lordships accordingly consider that the Court of Appeal had insufficient ground for reducing the award of costs made to the appellant and that he should have been awarded full costs in that court…”

19. Lam J. also held in the case of Hong Kong Kam Lan Koon Ltd, supra.that:-

“One therefore starts with the premise that a successful party is prima facie entitled to the full costs of the action.  The burden is on the losing party to show that there is good reason to depart from the general rule.  The exercise is a matter of discretion.  It would be wrong to read Elgindata as laying down that as a rule, the court must (instead of may) deprive a successful litigant of costs for his failure on a discrete issue which caused a significant increase in costs.  The court has to exercise its discretion to achieve a just result having regard to the circumstances of the case.”

20. In the present case, the loss of goodwill is only part of the overall assessment of the Applicant’s claim that the Respondent refused to pay.  It is not a distinct and separate issue that caused a significant increase in costs.  Thus, there is no reason to apportion the costs as suggested by the Respondent.

21. In the circumstances, we do not accept that there should be a deduction of 50%, or any other percentage, of the Applicant’s costs.  The Applicant is entitled to its full costs.

Costs of review hearing

22. The parties had in fact agreed on the amount of the severance payments at the stage of making closing written submission.  However, as a result of the Applicant raising objection to the Respondent’s letter dated 20 September 2007, we ordered a review hearing on our own motion.  Nevertheless, the parties had clarified the position between themselves on the amount of severance payments before the review hearing and could have informed the Tribunal about the agreed amount again before the review hearing.  If they had done that, the review hearing could have been avoided, as the Tribunal would simply vary the amount of compensation in chambers by consent.

23. However, it seems to us that both parties wanted to retain the review hearing because the Applicant suggested that the Tribunal had not dealt with the issue of the gain on disposal of fixed assets in the Judgment.  The Respondent also wanted to argue on costs at the review hearing.  We do not find it appropriate for the parties to adopt this course.  The Tribunal only wanted to review on the amount of severance payments.  When that becomes unnecessary, the parties should inform the Tribunal of the same and vacate the hearing.  If the Applicant wants to review on another ground, it should make its own application for review.  It is clearly inappropriate to ask the Tribunal to deal with the costs of proceedings at the review hearing, when the costs had not even been decided.

24. Although we have touched on the issue of the gain on disposal of fixed assets in our review decision, we actually found it unnecessary to include the gain in our computation.  Thus, this issue has no effect on our assessment of compensation at all.  The Applicant also made it very clear that although it raised this issue to us, it was simply trying to remind us about the issue and did not seek to re-argue the issue.

25. We are of the view that in such circumstances, the fairest costs order for the review hearing is that there be no order as to costs, as we find that both parties were at fault in not vacating the review hearing.

Conclusion

26. We therefore order as follows:-

(1)  The Respondent do pay the Applicant interest on the amount of compensation pursuant to section 38 of the Railways Ordinance, Cap 519, and the rate of interest shall be fixed at the lowest of the interest rates paid on deposits at 24 hours’ call by note-issuing banks in Hong Kong; and

(2)  The Respondent do pay the Applicant its costs of the proceedings (including all costs reserved) to be taxed on High Court Scale with certificate for counsel, if not agreed, save that there be no order as to costs for the review hearing.