WAN WAI HONG AND ANOTHER v. THE DIRECTOR OF LANDS

LDLR 6/2002

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

Lands Resumption Application No. 6 of 2002

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J U D G M E N T

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1. Mr. Wan Wai Hong ("Hong") and Mr. Wan Wai Shing ("Shing") were the partners of Wai Kee Machinery Workshop ("the Applicant"). The Applicant's business was involved in the repair, adaptation and maintenance of mechanical parts of motor vehicles at the premises known as Ground Floor, No.143, Tai Ho Road, Tsuen Wan, New Territories (the resumed property). By virtue of a resumption notice issued under the Lands Resumption Ordinance, Cap.124, and affixed on the resumed property on 18.2.2000, the resumed property reverted to the Government on 18.5.2000. But Wai and Hong continued the Applicant's business at the resumed property after 18.5.2000.

2. By a letter dated 20.7.2000, Johson Stokes and Master, Solicitors, which was acting for the Financial Secretary Incorporated, demanded them to deliver vacant possession of the resumed property within 1 month from the date of the letter. The demand was ignored and on 28.8.2000 the Financial Secretary Incorporated instituted legal proceedings against the Applicant and others under HCA8590/2000. Pursuant to an order of the Court of First Instance made on 16.12.2000 vacant possession of the resumed property was delivered to the Government on 15.12.2000. Thereafter the Applicant moved to Ground Floor, No.627 Fuk Wa Street, Kowloon (the "replacement property") and continued its business there. The resumed property had a saleable area of 98.55 sq.m. and a yard of 8.50 sq.m, whereas the replacement property has a floor area of 55.74 sq.m.

3. The Applicant submitted a claim for compensation dated 3.10.2000 under section 6(2) of the Lands Resumption Ordinance to the Land Development Corporation.

4. The Applicant's claim comprises the following items:-

(a)	Loss of Machinery and equipment	$177,350.00
(b)	Permanent partial loss of goodwill	$3,089,331.00
(c)	Temporary loss of profit	$988,123.00
(d)	Loss of profit during closure of business	$26,166.00
(e)	Loss of fixture and fittings	$81,046.00
(f)	Costs and expenses incurred in the removal of business	$18,632.50

4.1 The Respondent agreed that (d)(e) and (f) are to be compensated as claimed.

(a) Loss of machinery and equipment

5. The amount claimed under this item was agreed between the parties, but the Respondent denies that it is liable to pay the said amount. The Tribunal has to decide whether, as claimed by the Applicant, it was forced by the resumption to move to the replacement property. During cross-examination Hong said that since 1998 a total of 20 to 30 premises had been viewed in order for the Applicant to locate a suitable alternative premises in the vicinity of Tsuen Wan, so as to maintain their services with customers in the northwest of the New Territories, including those of Tsuen Wan. But such a place could not be found. He produced 7 agreements for viewing premises. The particulars of these agreements are as follows:-

25.4.2000	Hong viewed a premises in Kwai Chung
13.5.2000	Hong viewed a premises in Tsuen Wan
11.8.2000	Hong viewed a premises in Cheung Sha Wan
25.8.2000	Hong viewed 2 premises in Lai Chi Kok
27.8.2000	Shing viewed a premises in Tsuen Wan
3.9.2000	Shing viewed a premises in Tsuen Wan
10.10.2000	Hong viewed the replacement property

Hong said that over 10 premises in Tsuen Wan had been viewed. But apart from the record contained in the 7 agreements there is no evidence in detail as to when the other viewings took place. All such evidence only came out under cross-examination, in the form of bare statements, and not supported by particulars. The Tribunal has to scrutinize his evidence in order to find out whether his evidence is credible. Paragraphs 10 and 11 of his statement states:-

"10. 隨著政府收地限期逐漸迫近，本人和尹惠勝都用盡一切辦法找尋合適地點搬遷，但礙於兩項制約 - 新址的地點和大小，一直未能找到（見附件2-新舊地址平面圖）。我們一方面希望在荃灣區原址附近能找到合適地點，以便繼續服務新界西北，包括荃灣的原來客戶；另一方面我們希望新鋪的大小和高度可容納上述曲軸磨床和撥盤機，以便維持原來的服務範圍。惟這兩方面最終都無法達成（見附件3-地產經紀委託書（看樓紙）。到最後限期屆滿，我們只能在地政署職員的催促脅迫下，在2000年10月與現址的業主簽訂租約，並在同年11月開始搬遷，至同年12月15日，在法庭的交租令下,匆忙撤離收回物業。

11. 由於租址面積太少和形狀不合適，無法容納曲軸磨床，我們被迫放棄曲軸磨床而只保留撥盤機，這樣意味我們將無法繼續原來服務範圍中最主要的一環，並損失因擁有曲軸磨床而隨來的其他服務的生意，在生意不足的情況下，原本股東之一的尹惠勝只能退出，剩下由本人獨力支撐下去。“（Underlines provided）

5.1 This piece of evidence reveals:-

1. Hong and Shing signed, in October 2000, a tenancy agreement with the landlord of the relocation property,

2. They started to move out in November, 2000 and on 15.12.2000 they left the resumed property;

3. Due to insufficient business, Shing withdrew from the business.

5.2 These three "facts" are not correct. Only Hong signed the provisional tenancy agreement on 17.10.2000. Shing signed an agreement to withdraw from the partnership on 14.10.2000. In this regard, the following evidence is given by Hong under cross-examination:-

"	O.	In other words, on 14 October 2000, you were not sure whether the Fuk Wa Street property had been let to another person by the landlord.
	A.	Right.
	O.	So, at that time, you did not know whether, eventually, you or Wai Kee would rent this about 600 square feet premises.
	A.	Wan Wai Shing said he would withdraw from the business; I said I would consider renting that place. I would continue my business there.
	O.	So you decided to enter into the provisional tenancy agreement on 17 October 2000. Your decision was made after Wan Wai-shing told you that he would withdraw from the business.
	A.	Yes"

5.3 Shing decided to withdraw on 14.10.2000 and signed the withdrawal agreement on that day. At that time the Applicant had not yet commenced to move out from the resumed property. It cannot be said that the reason for his withdrawal is due to the insufficient business at the relocation property because on 14.10.2000 the provisional tenancy agreement had not even been signed. The second thing is that when the Applicant continured its business at the relocation property, Shing had already withdrawn from the business. Hong could not have made mistake about this and the Tribunal find that he was not revealing the truth in his statement.

5.4 Hong did not refer to 20-30 viewings of property in his witness statement. He did not refer these viewings in his evidence-in-chief. He was not fully frank in his statement. Apart from the evidence contained in the 7 agreements there are no particulars about the other viewings which made up the 20-30 viewings. The Tribunal therefore cannot make any finding regarding the other viewings.

5.5 The resumed property reverted to the Government on 18.5.2000, and the letter (dated 20.7.2000) issued by Johnson Stokes and Master, Solicitors, demanded the Applicant to deliver vacant possession of the resumed property in 1 month's time. If Hong and Shing had been keen to look for suitable alternative premises in the vicinity of Tsuen Wan, so as to continue their service for the north-west of the New Territories as alleged in Para.10 of Hong's witness statement, they should have put in reasonable efforts to view premises in the vicinity of Tsuen Wan. But according to the viewing records, there were only 2 viewings prior to 18.5.2000. The viewings were made on 25.4.2000, and 13.5.2000. Both dates were too close to the reversion date. Even if they had found a suitable alternative place to move to, it would almost have been impossible for them to have sufficient time to move out before 18.5.2000. After these 2 viewings (i.e. 11.8.2000 and 25.8.2000) were made in Kowloon. How could 2 viewings (1 in Kwai Chung and 1 in Tsuen Wan) exhaust the possibility that alternative premises in Tsuen Wan area would not be available in Tsuen Wan? There was a time gap of about 3 months after the viewing on 13.5.2000. Why did Hong view 2 premises in Kowloon after the viewing on 13.5.2000 in Tsuen Wan?

5.6 The documentary evidence disclosed that the Applicants only made 8 attempts to look for alternative premises. Of these 8 attempts 4 premises were in Kowloon, and not in Tsuen Wan. The burden is on the Applicant to show that they had made reasonable effort to find suitable alternative premises. Even if Hong and Shing did view 20 to 30 premises since 1998, the Tribunal still find that they had not discharged this burden.

5.7 The resumed property reverted to the Government on 18.5.2000. Since this date Hong and Shing could no longer lawfully remained on the resumed property. The burden is on them to prove that prior to 18.5.2000, they had made reasonable effort to locate a suitable alternative accommodation. They only made 2 viewings prior to that day. It is abundantly clear that no reasonable efforts had been made. Even if the viewings after 18.5.2000 were to be taken into account the Tribunal still find that they have not discharged this burden.

6. The next issue the Tribunal has to decide is the true reason of Shing's withdrawal of partnership from the Applicant. According to Hong's evidence, on 14.10.2000 Shing and Hong agreed that Shing was to withdraw from the partnership, and an agreement was signed to that effect. It is doubtful whether it is due to the fact that there was insufficient business that Shing withdrew from the partnership. The agreement states:-

".........經過差不多一年努力仍未能找到地區，面積，樓底高度，交通情況合適，又可作修理機器用途之舖位。現時間緊迫，事急之下，只好考慮租用實用面積只有600多呎而又不在荃灣區之舖位，但尹惠勝認為該舖位面積太細，不能放置全部機器，要放棄其中一些主力生產機器，會令生產大減，而且要離開荃灣區，會使客戶疏生，生意萎縮。但又無時間再找合適舖位，為免投資得不到回報,在無何奈何下，只好被迫放棄，不再繼續經營惠記機器修理廠，現決議在2000年12月31日前，尹惠勝正式退股，尹惠勝並同意以港幣?拾萬元將惠記機器修理廠2/7股份轉讓予尹惠康 ............."

6.1 When the agreement was signed, Wai Kee had not yet moved to the replacement property, and it is thus incorrect for Hong to have said in his statement that under the circumstances because there was insufficient business, Shing could only withdraw from the premises. When the Applicant commenced operating in the replacement property, Shing had already withdrawn. Therefore the business at the replacement property had nothing to do with him. Therefore his withdrawal is not due to the insufficient business. The true reason for Shing to withdraw from the business has yet to be ascertained. The replacement property was viewed on 10.10.2003. When the withdrawal agreement was signed on 14.10.2003, the provisional tenancy agreement had not yet been signed. The question is: why did Shing not wait for the signing of the provisional tenancy agreement of the replacement property before he decided to withdraw from the business, so that he could be sure that the Applicant would move to the replacement property which did not have sufficient room place for the machine which was mainly operated by him? Since the machine provided important services in the Applicant's business, as stated in the withdrawal agreement, it would be very natural for Shing to be sure that the place where Wai Kee move to could not accommodate the machine. This question can only be answered by Shing. But since Shing did not come to the Tribunal to testify, this query was left unansered. The agreement provided the reason for Shing's withdrawal, but as said before, its contents have raised a query which was left unanswered.

6.2 The evidence reveals that after Shing had decided to withdraw from the partnership, he signed the provisional tenancy agreement. At the material time there were only 3 persons operating the business, namely, Hong, Shing and 1 employee, and the machine was mainly operated by Shing. On 16.10.2000 Hong knew that the Applicant had to move out by 16.12.2000. There were still 2 months (16.10.2000-15.12.2000) ahead. But without making further effort to find a place which could accommodate the machine the signed the provisional agreement on 17.10.2000. The Tribunal has no hesitation to find that because of Shing's withdrawal, there was a lack of man power to operate the machine and because of Shing's withdrawal the requirement of looking for an alternative place which could accommodate the machine no longer existed. Alternatively the Applicant has not discharged on the balance of probabilities, its burden of proving that it was forced by the resumption to relocate to the replacement property.

(b) Partial Loss of Permanent Goodwill

7. The Applicant's method of assessment basically followed the principles laid down in the London County Council v. Tobin [1995] 1 WLR 354 and some other precedent cases. The general principles of assessment under the London County Council v. Tobin [1995] 1 WLR 354 were not in dispute between the two parties although they did on the nitty gritties.

8. The two parties, however, held a different view as to the justification for this head of claim. The Respondent was of the view that the business after re-location was not in the same scale and scope of activities (i.e. without the Precision Crane-shaft Grinding Machine) as the business before the resumption. The Applicant held that the resumption was the cause of re-location and the re-location of business to a smaller size ground floor unit at Fuk Wah Street of Cheung Sha Wan was due to unavailability of suitable ground floor units in Tsuen Wan.

9. The Tribunal accept the submission from the Respondent that the unavailability of suitable property was not proven and therefore, cannot award any compensation under this head of claim. The Tribunal accept the Respondent's submission because firstly, there is no evidence that similar properties in Tsuen Wan were not available (see exhibit R7), and secondly the Applicant did not discharge the burden of proving that it has made reasonable effort to look for such a property (see paragraphs 5 to 6 above). The loss of that machine and Shing's expertise (although Hong also knows how to operate the machine, he admitted that his expertise is not as good as Shing) have changed the range of engineering services the Applicant provides and hence, some change in the type of customers.

10. The business after resumption, therefore, cannot be regarded as a continued undertaking of the original business in scale, organization, expertise and range of services provided. The source of income earned from the trade and pattern of outlay are, as a result, also different. The business before and after the resumption becomes two different entities. The business before the resumption has virtually closed down upon resumption. The business after resumption is a somewhat new business. Whether or not the Applicant agrees that it is a new business nevertheless is not crucial. The crux of the matter is that there are also in fact no relevant and sufficient accounting information to indicate the loss of future profit. In the absence of proper evidence on the level of profit after the resumption, the Tribunal is impossible to assess the loss of good-will.

(c) Temporary Loss of Profit

11. The Land Development Corporation's scheme no doubt has affected the profitability of the Applicant's business. The Applicant's preparation for removal elsewhere, the taking of reasonable steps to curb down the volume of business to meet the deadline for removal and the moving out of the conventional customers from the affected area all led to a drop in business volume and consequently the level of profit. The two parties did not seem to have dispute in this regard. Their dispute only lay in the aspect of quantum and also whether or not the economic down-turn since 1997 did affect the business.

12. The Tribunal hold that the business should have been affected by both factors, i.e. the Land Development Corporation scheme and the economic down-turn. The Tribunal consider the real down-turn should count from 1998 or there-about because the down-turn was triggered by the Asian financial turmoil despite the factors leading to the local down-turn being more than one. On the other hand, the start of Land Development Corporation's negotiation with the affected owners/business operators in July 1997 should not have immediate impact on the business as the removal date was still some time afar. There was no imminence for the Applicant and other business operators in business within the same affected area to take unnecessarily early steps to move out. The Tribunal consider 12 months before the date of resumption might be the appropriate time the affected began to plan for the removal and hence, the business volume began to decline.

13. However, by how much the two respective factors should have affected the business, there was no opinion from the Respondent's expert witnesses and hence, there is no evidence. The two parties' expert witnesses appeared to be of the consensus that 1999 was the year when the impact on the business surfaced and had real effect on the profit level. This is agreeable to the Tribunal.

14. The Tribunal note that the resumption took effect on 18.5.2000. As such, the assessment of claim should as a matter of Section 10(2)(d) of the Lands Resumption Ordinance, Cap.124 be made only up to 18.5.2000 notwithstanding the business on the resumed property continued until Dec. 2000. The Tribunal note that the Respondent accepted the period of claim be counted up to 8.12.2002, i.e. the date of the Applicant's removal out of the resumed property.

15. In the Respondent's final submission, the normal year adopted for calculation of the loss had been for unknown reason changed finally. The Applicant opposed to such last minute change. The Applicant's counsel was right that in the absence of a contrary view and justification given by the Respondent's expert witnesses during the course of hearings, there was no ground for a change in the Respondent's final submission to 2000. The Tribunal remain of the view that the year ending 31.3.1999 is the normal year where the business was unaffected by the resumption.

16. The Tribunal find it reasonable to base on the market rent of the property to adjust the profit level. Since the resumed property was self-owned, the rent quoted in the Profit and Account Statement might not have reflected the market condition. The Tribunal's assessment for this head of claim is therefore as follows: -

(1) From 1.4.1999 to 31.3.2000
	Normal Yearly Profit	$1,157,356.36
	Actual Profit as at 31.3. 2000	$1,133,109.96
	Profit Loss	$24, 246.4
(2) From 1.4.2000 to 8.12.2000
	Normal Yearly Profit	$1,157,356.36
	Profit per Month	$96,446.36
	Normal Profit up to 8.12.2000	$796460.26
	Actual Profit as at 8.12.2000	$575965.18
	Profit Loss	$220,495.08
	Total Temporary Loss of Profit = (1) + (2)
	= $244,741.48 or say, $245,000

(d) Loss of Profit during Closure of Business

17. The Respondent held no objection to the Applicant's claim in the sum of $26,166.

(e) Loss of Fixture and Fittings

18. The Respondent agreed that the claim in the amount of $81,046 is reasonable.

(f) Costs and Expenses Incurred in the Removal of Business

19. Again, the Respondent accepted the Applicant's claim in the amount of $18,632.50

Conclusion

20. The Tribunal dismiss the claim for the partial loss of permanent good-will and loss of machinery and equipment but accept the claim for temporary profit loss, which in the opinion of the Tribunal should be $245,000. The Tribunal also note that the Respondent has agreed to the Applicant on the amount of claim for loss of profit during closure of business, loss of fixture and fittings, and costs and expenses incurred in the removal of the business. On this basis, the total amount of compensation that should be awarded to the Applicant for the loss and damage arising from the resumption to the Applicant's business is $370,844.50

Orders

21. The Tribunal hereby order that the Respondent shall pay the Applicant $370,884.50 as the compensation for the loss and damage to the Applicant's business due to the resumption. The matters of professional fees, interest and costs be adjourned to a date to be fixed by the Assistant Registrar, with liberty to apply for any other ancillary and consequential matters.