GLORY UNITED DEVELOPMENT LTD v. DIRECTOR OF LANDS

LDMR 1/2012

[2019] HKLdT 1

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS REFERENCE APPLICATION NO 1 OF 2012

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D E C I S I O N

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1.  This is the application by the applicant by summons filed on 14 February 2018 (“the Summons”) for leave to amend the Notice of Application filed herein by striking out the name of Glory United Development Limited (“GUDL”) as the applicant and substituting therefor the name of Senso Investment Limited (“Senso”) as the applicant. 

Undisputed/Undisputable Background

2.  GUDL was the registered owner of the Land, namely Sections B, C and Remaining Portion of Inland Lot No. 7106 and Extension thereto (“the Land”).

3.  On 12 November 2012, GUDL filed the Notice of Application to Determine Compensation under the Foreshore and Sea-Bed (Reclamation) Ordinance (Cap. 127) (“FSRO”) with this Tribunal for the assessment of the amount of compensation payable under the FSRO in respect of GUDL’s interest, right or easement in or over the foreshore or sea-bed injuriously affected by the reclamation undertaken under Gazette No. G.N.3087 (A/1-2) (“the Claim”).

4.  At that juncture, the Henderson Land Development Co Ltd (“Henderson”) was all along the ultimate owner of GUDL.  Upon a corporate restructuring on or about 29 September 2017, Henderson wholly owned Profit Best Development Ltd (“Profit Best”), which in turn wholly owned Senso, which in turn wholly owned Trado Investment Ltd (“Trado”), which in turn wholly owned GUDL (corporate structure chart at B/2 & 4).  So, both Senso and GUDL were then indirectly wholly-owned subsidiaries of Henderson, ie Henderson wholly owned GUDL through Profit Best, Senso and Trado.

5.  A commercial decision has been made to enter into a bona fide commercial transaction to sell the sole issued share of Trado held by Senso (and hence along with all the issued shares of GUDL held by Trado) to a third party purchaser outside the Henderson Group for valuable consideration (“the Sale”). Upon the completion of the Sale, Trado and GUDL will no longer be subsidiaries within the Henderson Group.  However, it is Henderson’s intention to retain the Claim and the right to compensation in this action within the Henderson Group despite the Sale.

6.  On 13 February 2018, GUDL and Senso executed a Deed of Assignment in favour of Senso (“the Assignment”) (B/43-49) assigning all the rights, interests, entitlement, liabilities and obligations with respect to the Claim to Senso to give effect to Henderson’s intention.  The result is that the ownership of the Land (by GUDL) is divorced from the ownership of the Claim (assigned to Senso).

7.  On 14 February 2018, GUDL took out the Summons for an order to substitute Senso as the sole applicant in place of GUDL (A/10-12).

8.  On 28 February 2018, the Sale was completed and since then GUDL was no longer a subsidiary within the Henderson Group.

Applicant’s Case

9.  It is the contention of the applicant that the right to compensation under the FSRO is in substance the price payable for the lawful exercise of powers conferred by the FSRO, which has accrued on the date of publication of the notice of authorisation[1] and such a right to compensation is a legal chose in action capable of being assigned at law on its own and separately from the land[2].  Besides, the FSRO, properly construed, does not contain anything to confine the claimant only to the person who got the marine rights at the time of the Notice nor is there any provision in the FSRO prohibiting an assignment of the compensation payable by the Director under the FSRO.  So GUDL’s right to compensation under the FSRO was assignable at law and had been validly assigned to Senso by way of the Assignment.

10.  The applicant disagrees with the contention that the Assignment should be held to be void and ineffective as it involves an assignment of a bare right to litigate and flouts the law of maintenance or champerty.  It is submitted that the facts of this case is similar to that in Massai Aviation Services, Aerostar Limited v The Attorney General, Bahamasair Holdings Limited[3], ie looking at the transaction as a whole, there is nothing in it which is contrary to public policy.  Henderson, being the original owner of the Land and the right to compensation under FSRO (via its subsidiaries) is retaining part of what it owns while selling the rest.  Henderson, Senso and GUDL had legitimate common interests of a commercial character in the Claim and there is no infringement of the law of maintenance or champerty.

Respondent’s Objection

11.  The respondent argued that the Assignment was an assignment of a mere right to litigate which cannot be assigned.  The Claim, caused by the removal of marine rights from land, is an action which would otherwise be a tort but for the authorisation under the FSRO and is a bare right to litigate to recover the compensation. The compensation is calculated by the similar principles as applicable to the assessment of damages in tort[4]. Section 6, 9 and 12 of FSRO required someone whose interest had been affected to claim so this must be the owner of the land and not the assignee of the right.  Senso, being one who neither retains nor acquired an interest in the land, had not been injuriously affected by the reclamation, hence no right to the Claim.  So, irrespective of whether the Assignment is valid or not, Senso cannot step in to replace GUDL and has no standing to pursue the Claim.

12.  In any event, an assignment of such bare right of action, is in general, void because it is against public policy as expressed in the principles of maintenance and champerty unless it falls within the exception that “the assignee had a genuine commercial interest in taking the assignment and in enforcing it for his own benefit”[5]. After the Sale, Senso is no longer the shareholder of GUDL, the assistance from Senso to GUDL is no longer permissible since there is no link of shareholding. The Assignment is made with clear intention that Senso would not remain as shareholder, there is no legitimate commercial interest to justify the same.

13.  Furthermore, the applicant had refused to disclose any particulars or details of the Sale, including the identity of the third party purchaser, the amount and basis of computing the reduction in price attributable to the Claim, whether there is any speculative element in the price reduction and the commercial rationale for the Assignment.  It would be bizarre to argue that GUDL/Senso had showed a genuine commercial interest in the Assignment given their refusal to explain.

14.  Should this Tribunal be minded to accede to grant the application to substitute GUDL by Senso, the respondent asked for the following conditions to be imposed, namely:

a.  The amount of compensation to be awarded to Senso shall not be greater than that amount would have been if no assignment of the Claim had taken place (“Condition 1”);

b.  The applicant shall undertake to indemnify the respondent against the failure of Senso to abide by any order for costs or other monetary order made in favour of the respondent against Senso in this action (“Condition 2”); and

c.  The applicant and/or Senso will, in any event, pay to the respondent all costs reasonably incurred by the respondent in connection with this application (“Condition 3”).

Discussion

15.  As stipulated in s.9 of the FSRO, notice of authorisation of the reclamation (“the Notice”) must be published and upon publication of the Notice, all marine rights over the land designated for reclamation are extinguished (s.10(1)(a) FSRO).  The sole remedy of anyone injuriously affected is a claim for compensation (s.11 FSRO). 

16.  The case of Penny’s Bay Investment Co Ltd v Director of Lands[6] involved an interpretation of the provisions in the FSRO.  It is held by the Court of Final Appeal that:

a.  the right to compensation is a claim “for damages which, but for the statute, would be tortious.  But it does not mandate the same method of assessing the compensation” [7];

b.  “interest on the entire compensation starts running from the date of the authorisation. That too suggests that the whole right to compensation accrues on that date”[8]; and

c.  “the measure of compensation is the difference between the respective values of the land with and without access to the sea”[9]. 

17.  So, judging from the findings above, the contention by the respondent that the compensation is calculated fundamentally by the same principles as applicable to the assessment of damages in tort cannot stand since, though it is a tort if not for the FSRO, it does not mandate the same method of assessing the compensation (§16a above) but instead having its distinct measurement of compensation, ie the difference between the respective values of the land with and without access to the sea (§16c above).  The case of Clift v Welsh Office[10] is a case on the measurement of the amount of compensation for damages arising “from the execution of the works and not from the authorised use of the lands compulsorily acquired following completion of the works”[11] and can be distinguished.

18.  The whole right to compensation accrued on the date the Notice was being published so at the time of accrual, GUDL was the one who was qualified and entitled to claim under s.12 of FSRO and subsequently referred the claim to this Tribunal according to s.13 of FSRO for the amount of compensation to be determined. Once the claim accrued, whether the owner still retained the land after the Notice is irrelevant.  There is nothing in the FSRO to confine the claimant to the person who has made a claim for compensation, nor is there anything in FSRO prohibiting an assignment of the right to compensation once accrued.

19.  As found in Dawson v Great Northern and City Railway Company[12], the accrued right to compensation is “a right, arising directly under the notice to treat served by the defendants, to compensation for damage which might be done in the lawful exercise of powers conferred on them by the Legislature.  The compensation was a sum to be ascertained in the way prescribed by the Legislature, and payment thereof by the defendant was imposed on them as one of the terms of the exercise of those powers.  The payment may be regarded as the price payable for the exercise of the powers, and in our judgment was property.  Even if the assignment be regarded apart from the conveyance of the lands and buildings comprised in the deed…, it appears to us that it is good”[13]. Applying this to the present case, the Assignment by GUDL to Senso of the right to compensation arising from the Notice is a property or a chose in action assignable in law.

20.  It is not in dispute that an assignment of a right of action will escape invalidity on the ground of maintenance or champerty if the assignee has a genuine commercial interest in taking the assignment and enforcing it for his own benefit[14].  However, the interest which is necessary to avoid maintenance must not be generated by the assignment itself, rather the interest must exist apart from the assignment and to that extent must be independent of it[15].

21.  In this regard, I agree with Mr Ma for the applicant that the case of Massai Aviation Services (supra)[16] is a case directly on the point with similar facts.  In Massai, the issue is whether the assignment of the cause of action for damages against the defendants from the 1^st plaintiff to the 2^nd plaintiff was void for champerty.  The 1^st plaintiff had a claim against the Government for breach of covenant and trespass.  After the proceedings against the Government had begun, the 1^st plaintiff transferred its business but sought to retain the claim for damages against the Government by setting up a new company (the 2^nd plaintiff) to take over the same.  It was held that the retention by the 1^st plaintiff of part of what they own (i.e. the claim) whilst selling the rest (i.e. the business) was not contrary to public policy:

“19. … In order to decide whether the particular transaction is permissible, it is essential to look at the transaction as a whole and to ask whether there is anything in it which is contrary to public policy…

…

21. This was not wanton and officious intermeddling in another person’s litigation for no good reason. It was simply the original owners retaining part of what they owned while disposing of the rest. There is nothing contrary to public policy in allowing Aerostar to pursue the claim against these defendants and no good reason why these defendants should be permitted to escape any liability that they may have”[17].

22.  In the present case, having considered the transaction as a whole, I found nothing in it which is contrary to public policy or pose a genuine risk to the integrity of the court’s processes.  As can be seen from the corporate structure, Henderson is the ultimate owner of the Claim via its subsidiaries and, is only trying to keep the benefit of the right to compensation under FSRO through Senso by way of the Assignment.    Senso, being the 100% shareholder of Trado which in turn holds 100% shareholding of GUDL, must have a substantial and commercial interest in the Claim and enforcing it for its own benefit and such an interest is independent of the Assignment.  There is no “wanton and officious intermeddling in another person’s litigation for no good reason” but instead, Senso had interests in the Claim as the shareholder of Trado, the mother company of GUDL.  Like Massai, this is “the original owners retaining part of what they owned while disposing of the rest” and not a speculation or gambling on the part of Senso as suggested by the respondent.  Under such circumstances, the allegation that the applicant had failed to disclose details of the Sale or Senso had paid no consideration under the Assignment is irrelevant.  This is unlike the assignment of claim to an unnamed 3^rd party in Trendtex Trading Corporation v Credit Suisse[18] or to an unrelated person in Simpson v Norfolk and Norwich University Hospital NHS Trust[19] where no commercial interest can be established.

Conclusion

23.  Based on the findings above, I agree with the applicant that the Claim is assignable in law giving Senso the locus to pursue with the Claim and there is no infringement of the law of maintenance or champerty.  Hence the Assignment is valid and effective. 

24.  Leave should be granted for Senso to be substituted and named as the applicant in the action as per paragraph 1 of the Summons.

25.  As for the conditions suggested by the respondent, the applicant agree to Condition 1 and 2.  For Condition 3 which is for costs of this application, costs should follow the event.  Since the respondent had failed in this argument, a split costs order is justified.

Order

26.  Upon the applicant agreeing that the amount of compensation awarded to Senso shall not be greater than that amount would have been if no assignment of the Claim had taken place (“Condition 1”) and upon the applicant undertake to indemnify the respondent against the failure of Senso to abide by any order for costs or other monetary order made in favour of the respondent against Senso in this action (“Condition 2”), it is ordered that:

a.  There shall be an order in terms of paragraph 1 of the summons filed on 14 February 2018; and

b.  Costs order nisi that costs of the summons be to the respondent except costs of this hearing be to the applicant, with certificate for counsel, to be taxed if not agreed at District Court scale.  Unless any of the parties applies by summons to vary it, the costs order nisi shall be made absolute upon expiry of 14 days.