PACIFIC KNIGHT LTD v. GOLDEN CROWN RESTAURANT LTD AND ANOTHER

LDNT208/2002

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

Application No.: LDNT No. 208 of 2002 (Review)

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JUDGMENT

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Background

1. Following the delivery of Judgment and the Orders on 24 June 2003 ("Judgment") for the subject application, the Respondent applied on 23 July 2003 for a review of the Orders. The review application was heard on 8 August 2003 and the Counsel representing the parties were the same as before, in the hearing of the original new tenancy application.

2. According to the Affidavit of the occupant of the suit premises ("the Premises"), Mr. Martin Nicholas Lane, there were the following grounds for his review:

(1) The Tribunal erred in the finding of facts as to the knowledge of the parties about the construction site adjacent to the Premises. In this connection, Mr. Lane also sought to produce various correspondences between the parties during the period from 16 August 2002 to 25 October 2002 for the sole purpose of proving the knowledge of the parties about the construction site.

(2) The Tribunal should have taken into account the impact of the construction site when determining the prevailing market rent ("PMR") of the Premises whether or not the Applicant and the Respondents were aware of this fact, before or after the relevant date. This was because as "the prevailing market rent is the rent which a hypothetical landlord and a prospective hypothetical tenant might be expected to agree for the premises so offered, any imperfect knowledge of the hypothetical landlord or the hypothetical tenant when coming to an agreement on the relevant date should be disregarded. Subsequent events can be taken into account in order to determine the proper weight to attach to such circumstances and the valuer is not restricted to the information which would only be available to the hypothetical parties at the date their bargain is struck".

(3) The Tribunal's decision to include Comparable 1 in determining the PMR of the Premises was inconsistent with the basic principles that the Tribunal wished to adopt. Instead, Mr. Lane submitted that Comparable 1 should have been ignored in the valuation exercise.

3. On the other hand, the Respondent opposed to the Applicant's review application, submitting that there was no merit at all. The Respondent set out the following grounds of objection:

(1) The service of Form CR 106 by the Applicant had the effect that under the Landlord & Tenant (Consolidation) Ordinance ("the Ordinance"), "the Tribunal has no jurisdiction to revive and then review an order which has no effect as the Applicant has already selected to invoke the relief under s. 119M(2) of the Ordinance." The Applicant is therefore estopped from denying the legal effect of serving Form CR106.

(2) The inclusion of Comparable 1 in the process of choosing the best comparables did not violate or in any way inconsistent with the basic principles as clearly set out and adopted by the Tribunal in the Judgment.

(3) The Respondent objected to the admissibility of the documents that the Applicant sought to adduce in the Review on the ground of confidentiality and/or privilege.

(4) The Respondent further submitted that although the Applicant sought to refer to the testimonial evidence of the witnesses given in the original hearing, "the Applicant simply put forth its own version but failed and/or refused to obtain a proper and accurate record, namely the transcript."

(5) The determination of the PMR must be subject to the definition of the PMR, which, under Section 115 of the Ordinance stipulates the relevant date that the Tribunal should take into account: "the date on which the current tenancy would have come to an end" (i.e. 16 November 2002). The Respondent submitted that given the clear unequivocal interpretation of the PMR in the Ordinance, any subsequent events which were found later either by the intended landlord or the intended tenant which might affect the rent of the Premises should not and could not be taken into account retrospectively. Therefore, the Tribunal was correct in coming to its conclusion in the Judgment that since after finding that any visitor, including any intending tenant did not become aware of the existence of the construction site at the relevant date of valuation, then obviously, the construction site and its adverse effects, if any, should not be a factor of adjustment, in the minds of any intending tenant.

Effect of service of Form CR106 by the Applicant

4. There is no dispute that the Applicant served through its solicitors on 21 July 2003 by hand a Form CR106 to the Respondent stating that it did not wish to accept the new tenancy as ordered by the Lands Tribunal and it would give up possession of the Premises on 20 August 2003.

5. Section 119M of the Ordinance provides:

"Where the tenant, within 1 month after the determination of the terms of the new tenancy, serves a notice in the specified form on the landlord and the Tribunal stating that he does not wish to accept the new tenancy, the order of the Tribunal shall have no effect and the current tenancy shall continue for such period, not exceeding 2 months from the date of delivery of the notice to the landlord, as the tenant shall state in the notice."

6. It was the Respondent's case that since Section 119M already stated that under the circumstances of Section 119M, the order of the Tribunal shall have no effect, the Applicant could not seek to review the order of the Tribunal made on 24 June 2003, namely the amount of PMR stated in that order. However, I think there was an over-sight in the part of the Respondent when reading the provisions of Section 119M. The matter as to the rent payable by the Applicant up to the end of the current tenancy of the Premises, i.e. 20 August 2003 was provided for under sub-section (4) of Section 119M, which reads,

"(4) During the period from the date on which the current tenancy would, apart from section 119N, have come to an end by virtue of a notice given under section 119(1) or under section 119A(5) until-

(a) the date on which the new tenancy begins; or, as the case may be,

(b) the date on which the current tenancy comes to an end under subsection (2),

the tenant shall be liable to pay the rent fixed in respect of the new tenancy under section 119K;

Provided that....." (underline added)

7. And, the rent fixed in respect of the new tenancy under Section 119K must mean, in the present case, "the rent payable under a new tenancy granted by order of the Tribunal ....as may be determined by the Tribunal..." (see sub-section (1) of Section 119K of the Ordinance).

8. Hence, as it was clearly provided for in the Ordinance that the Respondent as the tenant, upon service of a notice to the Applicant as the landlord under subsection (2) of Section 119K, shall still be liable to pay the rent fixed in respect of the new tenancy granted by order of the Tribunal, there is no reason that the Respondent could not continue with its review application that was first filed on 23 July 2003. Therefore, I find that the service of Form CR106 does not affect the Applicant's review of the PMR of the Tribunal's order of 24 June 2003.

Choice of relevant comparables

9. The dispute between the parties was on the inclusion or otherwise of Comparable 1. It was the Applicant's case that after I stated in the Judgment that I did not have any reason to depart from the basic principles of valuation as summarized in other decided cases, I then chose to include Comparable 1 notwithstanding that firstly, Comparable 1 was not part of the subject estate of Crown Villa which consisted of only 4 units (the Premises, Comparables 5 & 6 and the fourth unit) and secondly, there was sufficient evidence from two comparables (i.e. Comparables 5 & 6) alone, since, apart from the Premises, these two comparables already represented 66% of the rents of the remaining units of the same estate.

10. I do not agree with the reasoning of Mr. Lane and the Applicant. The question of whether the comparables are sufficient in number, in my view, is both a matter of professional judgment and of common sense. Although the two comparables, Comparables 5 & 6 represented 66% of the units of the same estate, after excluding the Premises, the very subject matter of valuation, it does not follow that two comparables would provide sufficient numbers of comparables, as a result of which other comparables, no matter how comparable they were, should be discarded. In my view, I find that it defies common sense that two comparables would necessarily provide sufficient number of comparables. So, what was wrong for me to consider the other comparables if the comparables in the same estate do not provide sufficient number of comparables.

11. Therefore, what I have considered in the original Judgment, after taking into account the evidence of the parties' witnesses and the parties' submissions, was to decide whether the other comparables could also provide suitable comparisons to the Premises. I do not find that I was wrong to form my conclusion in the original Judgment that of all the other comparables, Comparables 1 should also be included as a suitable comparable, for the purpose of determining the PMR for the Premises. I do not intend repeating here all my reasons and findings in the Judgment that set out my reasons for the choice of comparables, including the choice of Comparable 1 as one of the suitable comparables. Moreover, I have gone through the arguments stated in Mr. Lane's affidavit but found that I have considered all his points before reaching my conclusions that were summarized in my Judgment.

12. I therefore find that the Applicant did not have any merit in its review application and that I do not agree to change my finding so as to exclude Comparable 1 from consideration in the valuation of the PMR of the Premises.

Admissibility of new evidence adduced by the Applicant

13. The Applicant sought to produce various correspondence between the parties during the period between 26 August 2002 and 25 October 2002. Since these documents were available to the Applicant at the time of our original hearing but for whatever reasons, the Applicant chose not to produce them prior to the filing of the documents in support the review application, I find that they should not be admitted as there must be a finality of events in litigation. If the Applicant decided not to produce these documents in the original hearing, I do not agree to admit their production in the review hearing. Otherwise, the Tribunal would encourage the withholding of documentary evidence by parties who could choose to introduce them later in a review, whenever they find that these documents might assist them in the review.

14. In addition, I agree with the Respondent that since these documents were marked "without prejudice" documents that were exchanged between the parties for the sole purpose of settlement and/or negotiation prior to the hearing, I should not admit the production of these documents.

Accuracy of the evidence

15. The parties did not produce the transcripts of the original hearing, the reason given by the Applicant being that there was insufficient time to obtain the transcripts of the original hearing prior to the hearing for the review. I have gone through my hand-written notes regarding the oral evidence of the witnesses.

16. I find after reading my Judgment again that I have made a mistake in the 4th line of paragraph 22 of the Judgment. What I found at the time of giving my original Judgment was that neither Mr. Lane, nor any other residents nearby knew, at the relevant valuation date, of the effects of the existence of the construction site prior to the felling of the trees in early December 2002. I have omitted the words "the effects of" in that sentence in the Judgment. That might be the reason behind Mr. Lane's filing the Affidavit stating that I erred in finding that neither the occupants of the Applicant (i.e. Mr. Lane and his family) nor those of either Comparable 5 or 6 (Mrs. Bye and family) knew of the existence of the said construction site.

17. In the original hearing, I have heard evidence from Mr. Lane that he investigated the situation of the nearby construction site. This included enquiries with the responsible project personnel of the site. There was no challenge from the other side, so it was apparent from this that I would have no basis at all for finding that Mr. Lane did not aware of the existence of the construction site until December 2002. However, it was both the evidence of Mr. Lane and Mrs. Bye that "construction works commenced in December 2002, the usual tranquil and heavily treed view was replaced with crane and heavy equipment, see A-13a to e" (summary of evidence, paragraph 21 of the Closing Submission of the Applicant).

18. Moreover, it was also the Applicant's submission that "If Mr. Lee who is an experienced expert in buildings and lands valuation failed to notice the construction site when visiting the Premises on 29 November 2002 - about 2 months after the time when the tenant in Comparable 1 negotiated his tenancy - how could a lay tenant with naked eye spot such a site, especially when the whole area was still covered by trees? According to the Applicant, there was no hoarding up to July 2002 and some 200 trees covered the site were not cut down until December 2002. (underline added) Even though Comparable 1 overlooks the current construction site, in mid-October 2002 the view from Comparable 1 was a lush green view and the site was invisible to the tenant". (see paragraph 32 of the Closing Submission of the Applicant).

19. Summing up, in the original hearing, I found after considering all the evidence of the parties the following facts and conclusions:

(1) Mr. Lane and those tenants of Comparable 5 and 6 did not know of the effects of the existence of the construction site prior to the felling of trees in December 2002.

(2) Mr. Lee was not aware of the existence of the construction site at the time of his first inspecting the site on 29 November 2002

(3) I asked myself the question as to whether any visitor, including any intending tenant of the Premises would be aware of the existence of the construction site on 16 November 2002, the date the current tenancy of the Premises would have come to an end. My answer to this question was no.

Having considered the affidavit of Mr. Lane and reviewed all the evidence before the Tribunal, I still hold the same view as stated in my original Judgment.

20. As to Mr. Lee's opinion that the tenants of Comparables 1, 5 and 6 should have taken into account the existence and hence the effects of the construction site when negotiating for their respective tenancies, I have rejected this in my original Judgment. In this connection, I agreed with the submission by the Respondent that I was not bound by the opinion or conclusion drawn by Mr. Lee. Also, there is of course no conflict that on the one hand I declined to agree with Mr. Lee's opinion whilst on the other hand, I accepted Mr. Lee's evidence as a matter of fact that he was not aware of the existence of the construction site at the time of his first inspecting the site on 29 November 2002.

21. Therefore, after reviewing the evidence, I still decide that "no downward adjustment to Comparable 1, 5 & 6 to reflect the effects of the site should be allowed", as stated in paragraph 22 of the Judgment.

Assumptions for the PMR

22. It was further submitted by the Applicant in the review hearing that the knowledge of the Respondent should be taken into account, and that in the determination of the PMR, any imperfect knowledge of the hypothetical landlord or the hypothetical tenant when coming to any agreement on the relevant date should be disregarded, and finally, events subsequent to the date of valuation should be taken into account.

23. Given the definition of the PMR as stated in the Ordinance, I do not agree with the Applicant that the subsequent events (in this case, the actual felling of trees which took place in December 2002, the particular significance of which was that it aroused everyone's attention to the effects of the construction site nearby) should be taken into account. Next, I disagree with the Applicant's submission as to the assumptions of a hypothetical landlord and tenant. The usual principle is that the matters or consideration personal to the landlord and tenant (for example, that the landlord did not wish to continue granting a tenancy and hence his reluctance to lease out the premises for any rent) should be disregarded. I however do not agree that that the finding of the Tribunal that in the market, there was in general no knowledge of the adverse effects of the existence of the construction site, at around 16 November 2002, should be disregarded entirely and substituted by the assumption that everyone should have foreseen the situation, as was the case in December 2002, after all the hundreds of trees were cut. That was in my view also not the finding of Member Philips in the unreported case of LDLA002513/1988 (PCM & Associates Ltd. v. Tai Wai Yin, Honard) cited by the Applicant.

24. Summing up, I find after review that there is no merit in the Applicant's case. I therefore do not agree to make any change to the orders of 24 June 2002.

Order

The orders of 24 June 2002 shall remain unchanged.