LINGRADE DEVELOPMENT LTD v. SECRETARY FOR THE ENVIRONMENT, TRANSPORT AND WORKS

FACV No. 4 of 2010

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

FINAL APPEAL NO. 4 OF 2010 (CIVIL)

(ON APPEAL FROM CACV NO. 295 OF 2008)

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Between :

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J U D G M E N T

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Chief Justice Ma :

1.  At the conclusion of submissions, the Court allowed the appeal and restored the Order of the Lands Tribunal made on 3 September 2008.  It was also ordered that the applicant (Lingrade Development Limited) should have the costs of the appeal and the costs below in the Court of Appeal, such costs to be paid by the respondent (The Secretary for the Environment, Transport and Works), and to be taxed if not agreed.  We also indicated that the Reasons for Judgment would be handed down on a date to be notified.  I agree with the judgment of Lord Hoffmann NPJ.

Mr Justice Bokhary PJ :

2.  I agree with the judgment of Lord Hoffmann NPJ.

Mr Justice Chan PJ :

3.  I agree with the judgment of Lord Hoffmann NPJ.

Mr Justice Ribeiro PJ :

4.  I agree with the judgment of Lord Hoffmann NPJ.

Lord Hoffmann NPJ :

5.  In September 1998 the Kowloon-Canton Railway Company (“KCRC”) obtained approval for its West Rail scheme.  This included the construction of a viaduct at Lam Tei, Tuen Mun.  Nearby the proposed viaduct was land belonging to Lingrade Development Limited (“Lingrade”) on which it was building 8 blocks of three-storey apartment buildings.  Piling work had been completed.  But the KCRC needed temporary occupation of a strip of Lingrade’s land for the purposes of carrying out its own works.  The Railways Ordinance, Cap. 519, provides for the creation of such rights of temporary occupation by notice in the Gazette.  On 15 October 1998 a notice was published giving the KCRC the right to occupy a three-metres strip of Lingrade’s land from 1 May 1999 until 30 November 2003.  This strip of land was referred to in the documents as the TOA – temporary occupation area.  The period was subsequently reduced to permit occupation only until 31 March 2001 and the amendment duly gazetted.  The Occupation Permit for Lingrade’s development was eventually issued on 31 January 2001 and the Certificate of Compliance was issued on 4 June 2001.

6.  The effect of the loss of the TOA was to bring the development to a halt.  The proposed lay-out had to be abandoned and a new one substituted.  There were still to be 8 blocks of three-storey apartment buildings and the saleable floor areas remained the same, but the siting of the blocks, the sizes of some of the apartments and the communal facilities were changed.  The need to start again delayed completion for 14 months.  As a result, Lingrade incurred (among other things) additional financing costs and had to sell the apartments in market conditions that were not as favourable as they would have been at the earlier date.

7.  Under the Railways Ordinance, Lingrade was entitled to compensation for being deprived of the strip, including a “disturbance payment”, defined in para.2 of Part I of the Schedule as a sum equal to –

“the expenditure and loss of money actually and reasonably incurred or to be reasonably incurred and arising from the … disturbance of a trade or business … by reason of [the loss of the TOA] … but a disturbance payment is not to include any expenditure or loss which would not be recoverable, on the grounds that the expenditure or loss was too remote or was not caused by the disturbance, if that disturbance were a tort.”

8.  Paragraph 4 of the Schedule contains more provisions about disturbance payments:

“(1) For assessing a disturbance payment, the Lands Tribunal is required, for any expenditure or loss to be incurred and for which the claimant is entitled under this Ordinance to be compensated, to assess the value of the expenditure or loss at the time of the award as if the expenditure or loss formed part of a claim for damages in tort.”

9.  Lingrade applied to the Lands Tribunal to determine the compensation to which it was entitled. After 14 days of hearing between 6 December 2006 and 29 August 2008, the Tribunal gave a careful and detailed judgment on 3 September 2008. It dealt with the claim under a number of heads, most of which are no longer in issue.  For the purposes of this appeal, we are concerned with only two elements of the compensation: the claim for loss in sale proceeds caused by the 14 month delay and the extra financing costs.

10.  Under the first of these heads, the Tribunal was required to assess the “loss of money actually and reasonably incurred … and arising from the disturbance of [the developer’s trade].”  That required the Tribunal to calculate, first, the money actually realized by the sale of apartments built according to the revised scheme and, secondly, the money which would have been realized by the sale of apartments built according to the original scheme if there had been no disturbance.  The extent to which the first amount fell short of the second would be the loss arising from the disturbance.  This is not a claim for loss of profit.  It is, as the statute says, a claim for loss of money.  It would not have mattered if the development had made a loss.  The loss of sale proceeds would still have been a proper head of claim because the difference in sale proceeds would represent the amount by which, if there had been no disturbance, the loss would have been smaller.

11.  The calculation of the amount actually realized gave the Lands Tribunal little trouble.  The sale of all the apartments had taken 47 months from the date of the issue of the Certificate of Compliance in June 2001 to May 2005.  The sums realized (some $59,538,600) were a matter of historical fact.  The calculation of what would have been realized on sales of apartments built according to the first scheme and commencing 14 months earlier was more difficult.  It involved, as questions of valuation, always do, a hypothesis; namely that apartments, which were never actually built, had been offered to the public at a time 14 months earlier than apartments on that site actually became ready for sale.  But this kind of hypothetical calculation is the daily diet of the Lands Tribunal.

12.  The first matter in controversy between the parties was how long the hypothetical apartments would have taken to sell.  This was an important question because money has a time value and later sales are worth less than early ones.  The parties disagreed on the precise date when the sales would have commenced.  The Lands Tribunal determined this to have been 4 April 2000.  The Secretary for the Environment’s expert witness, Mr Robert Pendleton said that one should assume it would then have taken as long as it took to sell the actual apartments, namely, 47 months.  Lingrade’s expert witness, Mr Memfus Wong, said that demand had fallen off by the time the actual apartments came to be sold and that when the original scheme would have been completed, they could have been sold within 15 months.  He later revised this figure to 23 months and the Tribunal came to the conclusion 24 months was the right figure.

13.  The second issue was the methodology for calculating the prices which the apartments would have fetched.  Mr Pendleton took the figures for actual sales of the apartments built under the revised scheme and then applied a published index of prices realized on sales of developments in the New Territories to work backwards to the prices which would have been realized on sales starting 14 months earlier.  Mr Wong, on the other hand, relied upon what he said were comparable actual sales of apartments in another development in the New Territories at the time when the hypothetical sales would have taken place.  The Tribunal, however, was not satisfied that the sales relied upon by Mr Wong were truly comparable.  In their view, the best comparables were the apartments eventually built under the revised scheme.  These prices had to be adjusted to reflect the fact that the sales took place at a later date.  For this purpose they used an index showing how the property market in the New Territories had moved, as Mr Pendleton had done.  But they did not wholly accept the particular methodology which he had used.  After some careful calculations according to their preferred method, they arrived at a sum which the hypothetical sales would have produced and the rate at which they would have taken place.  By deducting these sums from the amounts actually realized, they assessed the loss on sale proceeds at $10,200,000.

14.  The second head of loss in dispute was the extra finance costs incurred on account of the fact that the commencement of sales was delayed by 14 months, their completion delayed by another 23 months and the actual receipts were lower.  During this time the project was being financed by banks and interest was payable.  The financing arrangements were complicated and Mr Wong produced schedules showing interest which had actually been paid to different banks in respect of loans at different rates of interest.  The schedules showed the capital sums outstanding to the banks increased from time to time by development expenditure and reduced by repayments from the proceeds of the sales of apartments.  He then produced a similar schedule showing what the position would have been if the original scheme had been built and the apartments sold earlier and within a shorter period.  The claim was for the difference between the interest which had actually been paid and the lesser amount which would have been paid on the alternative hypothesis. 

15.  Mr Pendleton did not disagree with this methodology but, as already stated when considering the loss of sale proceeds, took a different view of the amounts which would have been realized from sales and the period over which they would have taken place. He also deducted interest payable on certain heads of expenditure which he had said were not claimable.  The question of whether this expenditure was claimable was one of the matters which had been in dispute before the Tribunal but on which its decision is not now challenged.  The Tribunal therefore said that as it had resolved all the issues which divided the experts, it should be easy for them to agree upon the additional finance costs which had been caused by the disturbance.  It invited them to agree a figure or to return to the Tribunal if they could not do so.

16.  The Secretary appealed to the Court of Appeal (Stock JA, Stone and Wright JJ) on the ground that the Tribunal’s decision had been erroneous in point of law: s.11(2) of the Lands Tribunal Ordinance, Cap. 17.  I shall deal separately with the two disputed heads of claim.

17.  The complaints about the decision on loss of sale proceeds were, first, that the Tribunal had estimated the loss “notwithstanding the absence of factual evidence of loss in any amount being incurred in fact”.  Secondly, it was said that, having rejected Mr Wong’s comparables, they should have dismissed the claim.  Thirdly, the assessment did not have regard to “either the profit that would have been made, or the profit that was made, … or reduction in such profit” caused by the disturbance.

18.  Mr Houghton SC, who appeared for the Secretary both in the Court of Appeal and before this Court, is recorded by Wright J as having elaborated his first complaint by saying that the Tribunal erred in law by basing its hypothetical calculation upon “speculation” as to the proceeds which would have been derived from the original scheme.  The Tribunal was, he said, “driven to embark” upon this course by Lingrade’s failure to adduce “factual evidence” of the original scheme.

19.  The Court of Appeal accepted this submission.  Wright J said:

“23. … it must be that the respondent, before embarking upon the proposed development, would have formulated a detailed plan, if for no purpose other than submission to its financiers, and which plan would have contained, at the least, assessments of costs; financing proposals; time schedules as to the various stages of work; estimations of dates for issuance of Occupation and Completion Certificates; anticipated timescales of sales; projected revenue; cash flow mile posts; the profitability of the scheme; and the like.

…

25. If this information had been placed before the Tribunal it then would have had a solid basis, assuming that it accepted the data as credible, upon which to base its calculations, to extrapolate the figures so as to enable it properly to assess the difference between the costs of, gross sales proceeds from, and profit to be derived from each of the Original and the Revised Schemes so as to arrive at an informed calculation of any potential shortfall arising.

26.       Without this information before it, it seems to us that the Tribunal’s calculations amounted to mere speculation. That is no basis in law upon which to award compensation where a claimant bears the onus of establishing the quantum of any compensation due to it.”

20.  These remarks seem to me to demonstrate some degree of misapprehension about the exercise which the Tribunal was required to undertake.  It had to form the most accurate view it could about what apartments built according to the original scheme would have fetched, and how quickly they would have sold, if they had been ready for sale in April 2000. For this purpose, the best evidence would have been what apartments in all respects comparable were actually being sold for at the time.  However, as is often the case, there was no such evidence.  They had evidence of what apartments in Mr Wong’s other development were actually selling for, but did not think that they were sufficiently comparable to be helpful.  So they took instead the actual sales of Lingrade apartments under the revised scheme in 2001-2003 and adjusted them to reflect the general decline in the market since 2000.  Valuation is not of course an exact science, but the Tribunal’s assessment was solidly based upon which actually happened to very similar apartments soon after the relevant time.

21.  The Court of Appeal, however, thought that the valuation should have been based upon the estimates which Lingrade had made at the time when they sought bank finance (presumably some time between Buildings Authority approval in 1995 and the commencement of the works in 1998) as to the prices they thought they could obtain for the apartments and how quickly they could sell them.  This, said Wright J would have provided the Tribunal with a “solid basis” for its calculations. I am bound to say that I cannot understand why Lingrade’s attempts to peer into the future in 1997 or 1998 should provide a more solid basis for estimating what apartments would have fetched in 2000 than evidence of what actually happened.  As Aneurin Bevan said, “why look into the crystal ball when you can read the book?”  It is true that the evidence before the Tribunal about what had happened was not perfect.  But the sale prices actually achieved and the index applied to them both reflected historical reality and seem to me a much better basis for valuation that the doubtless optimistic projections which Lingrade had submitted to its bank some years earlier.  It is the latter which deserve the epithet “speculative”.

22.  If the Secretary had thought that Lingrade’s original estimates were helpful in calculating the prices for which the apartments would have sold in 2000, he could have applied for their production under s.10(2) of the Lands Tribunal Ordinance.  But he did not do so, presumably because he thought (in my view rightly) that they were worthless.

23.  I should briefly deal with Mr Houghton’s other two complaints about the assessment of loss of sales proceeds.  One was that the claim should have been dismissed because the Tribunal did not accept Mr Wong’s comparables.  There is nothing in this point.  The question is not whether Mr Wong’s evidence was accepted or rejected but whether there was evidence to support the decision of the Tribunal.  They had before them the evidence of the sales of apartments by Lingrade and the index which they thought appropriate.  There is no challenge to the methodology which they, as an expert specialist tribunal, chose to adopt.

24.  The other point is that the Tribunal did not have regard to “the profit that would have been made, or the profit that was made, or reduction in such profit.”  I have already said that the statute is not concerned with loss of profit but with loss of money, whether the effect is to reduce the profit or to increase the loss.  Of course the Secretary is entitled to say that, as against any money lost on account of the disturbance, he is entitled to set off any money saved on account of the disturbance.  So Lingrade rightly gave credit for the fact that the delay in the development resulted in a saving in building costs.  But that is all.

25.  The complaint about the additional finance costs is of a different kind.  Here the Court of Appeal said that the amount of additional finance charges should have been proved by “calling as a witness a representative of its banker or a director of the respondent, either of whom could have testified to the actual charges raised, rather than leave it to the expert to testify based on speculative calculations.”  The challenge here is to whether the interest charges recorded in Mr Wong’s schedules were those which Lingrade actually paid.  There was nothing speculative about them.  They were either true or false.  So the challenge is to the authenticity of the records which Mr Wong used to make up his schedules.

26.  It appears that Mr Wong was given the figures by one of Lingrade’s employees.  Mr Houghton made the same complaint before the Tribunal and, although the Tribunal commented that “something in the nature of a certificate of payment of interest and bank statements would dispose of the lack of evidence point”, it accepted Mr Wong’s figures.  It referred to s.10(6) of the Lands Tribunal Ordinance, which says:

“The Tribunal may admit in evidence any statement, document, information or matter, whether or not it would otherwise be admissible in evidence and attach such weight to it as may be appropriate in the circumstances.”

Section 10(5) of the Ordinance says that the proceedings of the Tribunal “shall be conducted with as much informality as is consistent with attaining justice.”  If there had been any suggestion that Mr Wong’s interest figures did not reflect what had been actually paid, the Tribunal could have asked for them to be supported in the way they suggested.  Or Mr Houghton could have asked, under s.10(2), for the documents to be produced.  But this was not a criminal trial and s.10(6) gave them power to admit the information provided by Mr Wong, hearsay though it was. Doing so cannot have been an error of law.