NG YUEN KANG t/a WING LEE METAL CO v. SECRETARY FOR TRANSPORT

LDMR 27/2000

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

Miscellaneous Reference Application No. LDMR 27 of 2000

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J U D G M E N T

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The Claim

1. The Applicant operated a scrap metal business on a site in Lam Tei, Tuen Mun, New Territories, which comprised 5 pieces of land, namely, Lot Nos. 766RP, 769RP, 774RP, 770RP and STT0673 in Demarcation District No. 130 ("the Site"). These 5 lots of land were leased to the Applicant by 5 different owners under 5 different leases, particulars of which are agreed by the Parties as follows:-

Lot No.	Agreed Area		Agreed Rental	Date of Renewal
	Registered	Occupied
766RP	8,308 sq. ft.	685 sq. m.	$7,000 p.a.	2 years from 1.8.97
769RP	5,038 sq. ft.	382 sq. m.	$2,000 p.m.	Periodic 3 months
774RP	2,341 sq. ft.	218 sq. m.	$37,500 p.a.	2 years from 1.8.97
770RP	5,540 sq. ft.	487 sq. m.	$10,000 p.m.	2 years from 1.2.98
STT0673	2,045 sq. ft.	220 sq. m.	$1,823 p.m.	Periodic 3 months

2. The Applicant occupied the Site since 1 August 1995 and conducted his business in the collection and trading of scrap metal as well as old and used electrical appliances. The business was purchased and taken over by the Applicant from its previous owner who had conducted the business on the Site since 1987. The Applicant acquired the business with payment of premium of about $250,000 to $260,000, but the premium did not include any transfer of goodwill.

3. On 16 January 1999, part of the Site was resumed by the Government under section 18(2) of the Railways Ordinance, Cap 519 ("the RO") pursuant to a Resumption Notice dated 15 October 1998 (Government Notice No. 4958) for the West Rail (Phase I) Scheme. The resumed land was within lot No. 766RP in the Site. It is agreed by the Parties that the area of the resumed land was about 490 sq. m. It is also agreed by the Parties that the total area of the Site was about 2,380 sq. m. Hence, the remaining portion of the Site not resumed was about 1,890 sq. m. We note that the figure of 2,380 sq. m. does not tally with the total area of the 5 pieces of land mentioned in paragraph 1 above. Nevertheless, since the Parties have agreed to use the figure of 2,380 sq. m. as the total area of the Site, we shall adopt this figure as well.

4. On 16 September 1999, the Applicant submitted a claim to the Respondent pursuant to section 34 of the RO for compensation on business disturbance and loss caused by the resumption. The claim was amended on 9 October 1999, and it included the following items:-

Disturbance
Profit Rent	$37,400.00
Loss of Goodwill	$602,000.00
Reinstatement Costs	$114,018.00
Total	$753,418.00
Say	$754,000.00
Fee
Surveyor's Fee and Disbursement	$31,743.25
Surveyor's Co-ordination Fee	$6,750.00
Valuation Fee of Goodwill	$14,375.00
Valuation Fee for Reinstatement Costs of Special Properties	$5,700.90
Total	$58,569.15
Say	$58,600.00

5. The claim was not accepted by the Respondent and hence the Applicant seeks the determination of this Tribunal on his claim for compensation pursuant to section 34(7) of the RO.

Claim for Professional Fees, Interest and Costs

6. It has been agreed by the Parties that the question of professional fees, interest and costs can be adjourned until after the determination of the amount of compensation for disturbance. Thus, it is not necessary for this Tribunal to deal with these items of the claim at this stage.

Claim for Disturbance

7. As to the claim for disturbance including Profit Rent, Loss of Goodwill and Reinstatement Costs, they are made under Item 1 in Part II of the Schedule to the RO, which stipulates the basis of assessing the compensation as follows:-

"As if the claim were made under the Lands Resumption Ordinance (Cap. 124) for land resumed under that Ordinance."

8. Section 10 of the Lands Resumption Ordinance, Cap. 124 ("the LRO") states that:-

"(1) The Tribunal shall determine the amount of compensation (if any) payable in respect of a claim submitted to it... on the basis of the loss or damage suffered by the claimant due to the resumption of the land specified in the claim.

(2) The Tribunal shall determine the compensation (if any) payable under subsection (1) on the basis of -

(a) the value of the land resumed and any buildings erected thereon at the date of resumption;

(b) ...

(c) ...

(d) the amount of loss or damage to a business conducted by a claimant at the date of resumption on the land resumed or in any building erected thereon, due to the removal of the business from that land or building as a result of the resumption;

(e) ..."

9. Compensation for disturbance is not expressly mentioned in section 10 or other provisions of the LRO. There are definitions for "disturbance" and "disturbance payment" in the RO, but they are only applicable to Part II in the Schedule of the RO, where those words appear. Since we have to assess the compensation as if the claim were made under the LRO, we have to follow the interpretation of disturbance in relation to the LRO.

10. In Lee Chun v. Director of Lands [1983-85] CPR 426, compensation for disturbance was recognized in the following terms:-

"The law is well settled that on a resumption the Crown is obliged to pay an applicant, over and above the value of his interest in the land, compensation for disturbance.... In determining the value of the applicant's leasehold interest we were only concerned with ascertaining its open market value but in the case of disturbance we are not concerned with that objective task. Instead in determining compensation for disturbance we may grant compensation for other actual costs or losses incurred by the applicant as a consequence of the resumption. The disturbance compensation will necessarily be in addition to the leasehold interest's open market value and unlike the latter is a subjective and not an objective assessment."

11. The Respondent does not dispute that the Applicant is entitled to claim compensation for disturbance. The Respondent, however, contends that the amounts claimed were excessive. According to the Respondent's expert, Mr. YIP Ho-chuen, the compensation for disturbance should be as follows:-

Loss of Profit Rent	$5,000.00
Loss of Goodwill on partial extinguishment	$0.00
Reinstatement costs	$17,800.00
Total	$22,800.00

12. The Respondent also contends that the applicable provision is section 10(2)(a), not section 10(2)(d), of the LRO. The Respondent relies on the case of Director of Public Works v. Leung Sze [1977] HKLTLR 158 to make this contention.

13. However, it was recently held in Hon Mei Hing trading as Wing Tat Iron and Steel Engineering v. The Secretary for Transport LDMR 19 of 2000 that section 10(2)(d) should apply instead of section 10(2)(a). This decision has been upheld on review.

14. This point has not been fully argued before us, but we agree with the decision in Wing Tat's case. We therefore hold that section 10(2)(d) of the LRO is the applicable provision for a claim for disturbance compensation.

Additional Claim for Post-Resumption Loss of Profit

15. At the trial, the Applicant sought to introduce one more item of claim, i.e. Post-Resumption Loss of Profit. This item, however, was not mentioned at all in the claim or the amended claim submitted by the Applicant to the Respondent.

16. We do not think that we have jurisdiction to deal with this claim, as it is not a claim that has been referred to us under section 34(7) of the RO. Section 36(1) of the RO stipulates that:-

"The Lands Tribunal has jurisdiction to hear and determine-

(a) all claims for compensation which the Secretary or the claimant may refer to it under section 34(6) or (7); and

(b) ..."

17. Section 34(1) of the RO states that:-

"A person who claims to be entitled to compensation under this Ordinance must serve on the Secretary a written claim setting out such of the following particulars as are applicable to his claim-

(a) ..........

(b) ..........

(c) ..........

(d) ..........

(e) ..........

(f) particulars of the claim showing -

(i) the amount of the claim;

(ii) under which item in Part II of the Schedule the claim is made; and

(iii) how the amount claimed under each item is calculated."

18. Section 34(7) of the RO states that:-

"If, after the expiry of 7 months from the receipt of a claim by the Secretary, it has not been settled by agreement, either the claimant or the Secretary may commence proceedings in the Lands Tribunal to have the claim, or so much thereof as is still then in dispute heard and determined by it under this Ordinance."

19. Since the applicant's claim or the amended claim did not contain any particulars for the additional item of Post-Resumption Loss of Profit, such claim was not submitted to the Respondent pursuant to section 34(1) of the RO. When it was not submitted to the Respondent, the Applicant did not refer such a claim to this Tribunal under section 34(7) of the RO. When the claim was not referred to this Tribunal under section 34(7), this Tribunal has no jurisdiction to hear or determine it by virtue of section 36(1) of the RO.

20. Thus, we shall dismiss the claim for Post-Resumption Loss of Profit for want of jurisdiction.

21. For the sake of completeness, even assuming we have jurisdiction to determine this additional claim, we are of the view that the Applicant has not adduced any sufficient evidence to prove that the post-resumption drop in profit was caused by the reduction in size of the Site. There could be many other factors that had caused the drop in profit. In fact, it shows from the Applicant's accounts that the scale of business expanded after the resumption and the stock value almost doubled. This clearly contradicts the Applicant's contention that the decrease in operational area had affected the business.

22. The burden is on the Applicant to prove that the loss was caused by the resumption. We do not accept the Applicant's submission that the burden rests on the Respondent to show that similar business shows a similar decline in profitability or indices to show a worsening economic climate in this sector so as to eliminate the effect of the resumption.

23. As the Applicant bears the burden of proof and has failed to adduce sufficient evidence to link the drop in profit to the resumption as aforesaid, his claim for Post-Resumption Loss of Profit must fail.

Loss of Profit Rent

24. Profit rent arises when the actual or passing rent is less than the market rent. The passing rent for Lot No. 766RP was $7,000.00 per annum. As the total area of Lot No. 766RP was 685 sq. m., the unit rent was $0.85 per sq. m. per month. The Respondent does not dispute this unit rent, but contends that the market rent should not be based on the single comparable used by the Applicant's expert, Mr. NAM Chi-kwong.

Assessment of the unit market rent for the Lot

25. The experts for both Parties adopted the same direct comparison method in assessing the unit market rent for the Site. It is also undisputed that the rent should be assessed as at the date of 16th January 1999. Therefore, this Tribunal has to determine firstly, what the appropriate comparables are and secondly, what adjustments ought to be made to these comparables before arriving at the unit market rent for the Site.

26. The two surveyor experts have adopted different comparables as their choice of the best comparable or comparables in the course of their valuations. Mr. Nam, the Applicant's expert, provided a single comparable, a car repairing workshop site at Lot No. 767 R.P. (Portion) in D. D. 130 located opposite the Site. This comparable lot had a site area of about 210 sq. m. and was let at a rent of $12,000 per month for a one-year renewal term commencing from 1 June 1998. He considered this comparable lot, which was also resumed for the West Rail project, as the most appropriate comparable as it was close to the subject Site. Mr. Nam's justification for his choice, in his own words, is as follows:-

"In terms of location and accessibility, that site is very similar to the lot and as such, it is a very good comparable. No adjustment for location and accessibility should be made. In view of the prominent location and scarcity in supply of such sites, and in the absence of any information relating to the performance of the agricultural land market in Lam Tei, I do not propose to make any adjustment for time difference. As for zoning, both the comparable and the lot have been in their present use for many years. Bearing in mind the tenure of the particular tenancies, I do not suggest any adjustment for zoning or term. Nor would I propose any adjustment for size due to the lack of information to conclude which one is better; both are small sites."

27. Mr. Nam in his evidence highlighted the difficulties of obtaining information regarding rental comparables, as such information is not public information. He further confirmed that he had also considered other comparables but found them to be not suitable comparables for the Site. These comparables included several rental comparables in Ma Tso Lung, which was located close to the restricted border area and with a completely different sub-market. He also considered and determined that the Respondent's comparables were too remote in location and were hence not appropriate for the Site. In the end, Mr. Nam made two adjustments of -15% and -20% for the factors of shape and use to his comparable. Applying a total adjustment of -35% to the comparable gave an adjusted unit rate of $37 per sq. m. per month for the Site. The Applicant in the closing submission submitted that this assessed full market rental unit rate for the Site compares favourably with the unit rate of $32.53 for the Short Term Tenancy No. 970, Area 40, Lung Mun Road, Tuen Mun (Exhibit AR-1 at page 261).

28. On the other hand, Mr. Yip, the Respondent's expert, in his Supplementary Report (Exhibit AR-1 at page 245) considered and analyzed 4 rental comparables in the Yick Yuen Area, about 1 km. north of the Site. After applying adjustments to these comparables referenced C1, C2, C3 and C4, he arrived at adjusted unit rental rates of $15.6, $9.1, $2.1 and $8.7 per sq. m. per month respectively. After reconciliation of these unit rates, Mr. Yip proposed to discard his comparables C2 and C4, and suggested to adopt the average of his comparables C1 and C3, i.e. $8.9 per sq. m. per month as the unit rate for the assessment of the open market rent for the Site.

29. Mr. Yip regarded the transacted unit rate of Mr. Nam's comparable to be "out of range" with other rental transactions for open storage or related uses in the New Territories from February 1997 to January 2001 (See Exhibit AR-1 at p.261). The Applicant submitted that this reason "was not only groundless but also wholly erroneous, as such a small sample of wide ranging rentals can hardly be used as a useful guide." In addition, Mr. Yip also regarded that "when the tenancy agreement (of Mr. Nam's comparable) was signed, both the tenant and landlord should have been aware of the (West Rail) scheme and know that the Comparable Lot would be resumed some time in the future. Therefore, the transacted rental might be affected by the scheme and render it less reliable. The Respondent submits that the scheme effect can be discounted "as evidence shows that only a $200 increase was imposed on the rental renewal and as such was insignificant."

30. After detailed consideration of the evidence and the submissions, we rule against using the comparable quoted by Mr. Nam and prefer that the best comparables are the Comparables C1 and C2 analyzed by Mr. Yip. We find it appropriate to restrict the comparables to those that have been considered in details by the Parties. Otherwise, we will not have sufficient information to judge on whether the comparables are appropriate and also to decide on the type and quantum of adjustments that have to be made to the comparables so chosen. Thus, although some comparables listed in Appendix 1 of Mr. Yip's supplementary report (Exhibit AR-1 at page 261) should have been considered in more details by the experts, they were not analysed in the experts' reports and in their evidence. As a result, we decide against using any of those comparables in this valuation.

31. We find that the underlying use as a car-repairing workshop is very different from the use of the Site by the Applicant. Mr. Nam admitted that the car-repairing use of his comparable is a higher value use than the scrap metal dismantling and trading yard use of the Site and proposed to use a -20% adjustment to account for the difference in value due to the difference in use. However, we consider the uses of the Site and the comparables to be so different that it does not provide a good guidance to market rental value for the Site.

32. We have considered the analysis of the four comparables C1, C2, C3 and C4 by Mr. Yip. We find that they are located on either side of Yick Yuen Road. Although Mr. Yip described C1, C2 and C3 as directly adjoining Yick Yuen Road, we find from viewing the air photographs that in fact C3 and C4 were located directly next to Yick Yuen Road whilst C1 and C2 were either accessible from a track or some private lots branching off from Yick Yuen Road. Therefore, in terms of accessibility, C1 and C2 are closer to the subject Site than the other two comparables. Also, we find that C3 and C4 have areas substantially larger in size than C1 and C2, which have areas similar in size to that of Lot 766 R.P. of the subject Site. In addition, in terms of the dates of transaction, we find that C1 and C2 were much better comparables than C3 and C4, which had tenancies dated from January 1998. Therefore, in summary, we find that for the valuation of Lot 766 R.P. of the Site, Comparables C1 and C2 are much better comparables than Comparables C3 and C4. Although Mr. Yip in his supplementary valuation report suggested that after his adjustments, he found that the adjusted unit rental of both C1 and C3 are much higher or lower than adjusted unit rent of C2 and C4. He therefore proposed to discard C2 & C4 to minimize distortion by the abnormal comparables. We find his reasoning in this part of his report to be faulty. As a result, we pay no regard to his conclusion and decide to use these two comparables in our valuation below.

33. Next, we decide to apply the following adjustments to the best comparables, Comparables C1 and C2 of the Respondent, as follows: -

Ref.	Accessibility & Location	Use	Size	Time	Lease Term	Shape	Total
C1	+15%	0	0	0	-2.5%	-2.5%	+10%
C2	+15%	0	0	0	-5%	-2.5%	+7.5%

34. Applying the above total adjustments to the unadjusted unit rates of these two comparables, C1 and C2, give adjusted unit rates of $20.13 and $11.50 per sq. m. respectively. Although the unit rates appear to be quite far apart, we decide that the best we could obtain from these figures is to adopt the average of the two figures, i.e. $15.82, as to be appropriate unit market rental rate for the Site.

Capitalization Rate

35. The Respondent used a capitalization rate of 18%, based on the 12.5% yield for upper-floor flatted factories. On the other hand, Mr. Nam, the Applicant's expert analyzed a land sale and a rental for sites on Kam Tin Road and suggested that the analyzed yield of 8.5% from that transaction would be more appropriate. We follow the Tribunal's decision in Wing Tat's case and prefer to use the upper-floor flatted factories' yield as the base. We also decide to increase the yield to 15% to reflect the fact that the lease of Lot 766RP of subject Site was subject to a higher risk because the Site comprised a total of 5 different lots held under different tenancies.

Multiplier for Profit Rent

36. The lease for Lot No. 766RP expired at the end of July 1999. Thus, the unexpired term of the lease at the date of resumption on 16 January 1999 was 6.5 months. The Applicant contends that under section 10(2)(d) of the LRO, the compensation should be assessed on the basis of "the amount of loss or damage to a business conducted by a claimant at the date of resumption." Thus, the period of 6.5 months representing the unexpired terms of the lease should be adopted as the multiplier for Profit Rent.

37. However, the resumed land was only cleared on 16 June 1999, and the Applicant had exclusively occupied the resumed land until the clearance date without paying any rent to the Government. The Respondent contends that the Applicant should not receive double compensation and hence the profit rent should only be assessed from the date of clearance to the expiry of the lease i.e. 1.5 months.

38. In Director of Public Work v. Leung Sze, supra, it was held that the compensation under section 10(2)(a) must be determined at the date of reversion, whereas the compensation under section 10(2)(d) must be determined as at the date of removal of the business from the land.

39. It was also held in Lee Chun v. Director of Lands, supra, that, unlike the relevant date for assessing compensation for the resumed interest in land, the assessment of compensation for disturbance "is made as at the date when the costs or losses are actually incurred".

40. We therefore agree with the Respondent that the relevant date is the date of removal of business from the land, not the date of resumption. The Applicant's submission that we should simply look at the wording of "at the date of resumption" cannot be right because he has omitted the other important part in section 10(2)(d), i.e. "due to the removal of the business from the land or building as a result of the resumption."

Computation of Profit Rent

41. We therefore assess the loss of profit rent to be in the sum of $10,166 as follows:-

Estimated full market rent of Lot 766 R.P.
(685 sq. m. x $15.82 sq. m.)			$10,836.70
Less	Rent reserved (per month)		$583.30
	Profit rent (per month)		$10,253.40
		X	12
	Profit rent (per annum)		$123,040.80
	Years' purchase for 1.5 months at 15%		0.1155
Loss of profit rent if the whole of Lot 766 R.P.
was resumed			$14,211
	Ratio of resumed portion to the whole	X	490/685
	Loss of profit rent by the Applicant		$10,166

42. Thus, the loss of profit rent to the Applicant due to the resumption of the portion of Lot 766 R.P. is assessed to be $10,166.

Loss of Goodwill

43. Goodwill is the intangible value of a business arising from the business and personal reputation of the owner. In Callwin International Electric Co. Ltd. v. Director of engineering Development [1983-84] CPR 448, goodwill is expressed in the following terms:-

"Goodwill is the value of that element of profitability which arises from either one of two factors or a combination of both. Those factors are first, the specific business connections in respect of the resumed premises and secondly, those due to the personality of the owner. In some cases a resumption may only affect or extinguish the former species of goodwill. The personal goodwill of the owner may only be partially affected or not affected at all if the business can promptly be relocated to a new suitable site."

44. It is important not to mix up goodwill and loss of profits as they are two separate and distinct claims. Loss of profits is an income and not a capital item and represents an actual loss of profits. Goodwill, on the other hand, is more properly used to refer to the capitalized loss of future profit. Mr. HO on behalf of the Respondent submits that the Applicant has failed to prove any loss and the drop in profit is not indicative of loss of goodwill. However, the valuation of goodwill should be based on the profitability of the resumed business, rather than the actual loss of profits.

45. In valuing the goodwill, the potential profitability of a business is determined by referring to the past annual profit, and then making the necessary adjustments by eliminating distorting factors such as interest on capital and profit rent enjoyed. The annual profit is then used as the basis to calculate the future annual loss of profit caused by the resumption. The anticipated residual life of the business should also be determined. Finally, the adjusted annual profit is capitalized to arrive at the value of goodwill destroyed by the resumption.

Annual Profit

46. The Applicant adopts the "Salary approach" in assessing the profitability of the business. We do not agree with this approach as the salary cost is not necessarily an indicator of profitability : WONG Hoi-nung formerly trading as Bailey Trading Company v. The Secretary for Transport CACV 521 of 2001. There are in fact several years' accounts available to calculate the annual profit. It is not necessary to resort to the "Salary approach" at all.

47. In this regard, we agree with the approach of the Respondent's expert, Mr. TO Chi-kai, and adopt the figure of $158,373 calculated by him as the annual profit. We adopt the weighted average obtained for the years 96/97 and 97/98, and discard 95/96 as it was the start up year. We reject the Applicant's submission that the account for 96/97 should not be relied on, as we do not find that it is reasonable to allow two years as the start up years for the business in question.

48. We also agree that the proportion of the area of the resumed land to the Site should be used to reflect the percentage of partial loss of goodwill, but the figure should be 21% instead of 25% as suggested by the Applicant.

Interest on Capital

49. The capital invested in a business could be invested elsewhere to produce income, such as deposit the capital in the bank and earn the interest income. Thus, interest on capital should be deducted from the net profit in order to give a true figure of the profit.

50. Nevertheless, we accept the explanation of the Applicant that there was no "lock-up" capital in the business, and his evidence that the money was used for purchasing the business, down payment for a flat, 3 new vehicles, 2 new fork-lifts, 2 separator machines and 2 compactor machines, as well as for the purchase of stock and as running capital.

51. Since all the capital has been utilized and according to the Callwin's case, supra, interest should not be calculated on stocks and assets of the business, we find that it is not necessary to have any deduction from the annual profit for interest on capital.

Deduction for Profit Rent

52. Profit rent should be deducted from the annual profit in order to normalize the profit. The Applicant's expert, Mr. NAM, however, opined that when the amount of profit rent involved was relatively small, no deduction of profit rent needed to be made. He relied on the case of CHIU Chi-wo, CHAN Shing-lee and CHOW Chiu-shui trading as Hang Hing v. Director of Lands CLR 3/1995 to give this opinion.

53. We do not agree with this approach. When the amount is small, it will not give any significant difference in the amount of the profit rent before and after the deduction. In practical terms, it may not be necessary to make this deduction because it will not affect the result significantly. However, in principle, this amount should be deducted to avoid any distortion to the annual profit.

Owners' Remunerations

54. The Applicant and his wife have both worked for the business. It can be argued that their remunerations should be deducted from the annual profit as it is in the nature of a return on capital. In Pevezic v. Bristal Corporation [1955] 5P & CR 237, however, it was held that no such deduction should be made. The English Lands Tribunal "appears to be inclined towards the view that someone would part with capital in order to be self-employed or more strictly that the business has some value to the owner who prefers to be his own boss."

55. There is also no clear evidence on the actual amounts of remunerations drawn by the Applicant and his wife from the business. Without such evidence, it would not be fair to impose arbitrary sums to represent their remunerations and then deduct them from the annual profit.

56. In the circumstances, we are not prepared to make any deduction for owners' remunerations.

Years' Purchase

57. The Applicant contends that a years' purchase of 5 should be appropriate in view of the following circumstances:-

(1) The potential profitability of the Applicant's business;

(2) The escalating level of past profits;

(3) The business having been established for 4 years prior to resumption;

(4) The type of trade;

(5) Established customer base;

(6) Small size of the company making it flexible and adaptable to changes;

(7) Experienced management;

(8) The suppliers have been long term trading partners;

(9) Intangible assets in possessing specialist knowledge and reputation the trade;

(10) Little financial risk, little capital expenditure;

(11) No contingent liabilities; and

(12) Favorable external forces, economic and industrial outlook (10.5% real growth in GPD in 2000, China's accession to WTO, declining interest rates).

58. The Respondent, on the other hand, contends that:-

(1) The growth potential cannot be determined because the business has only been run for 3 years, in which 2 years revealed a loss;

(2) The use of "Salary approach" to determine the potential profitability is not reliable;

(3) Customer base is narrow and the competition is fierce. Also, 3 years trading history is not considered to be long term;

(4) The size of the company is small and it is vulnerable to competition from a large company; and

(5) Personal goodwill is very difficult to be transferred.

59. The Respondent submits that a years' purchase of 2 is more appropriate for the following factors:-

(1) Customer base of the Applicant is narrow;

(2) The business faces strong competition even without the resumption, as there are many similar business in the same area;

(3) Uncertainty on renewal of tenancy because there are 5 different tenancies;

(4) The Site has a high potential to be developed into residential development in future.

60. Having considered all these factors submitted by the Applicant and the Respondent, we are of the view that the Applicant's business should be able to last for a relatively long period of time. The Applicant is only 43 and has started the business for a few years only. He is still carrying on business in the remaining portion of the Site. The business is profitable. There are no immediate factors that would cause the Applicant to cease business within the next few years. We are therefore of the view that the Respondent's assessment of a 2 years' Purchase is too low in the circumstances.

61. However, the possibility of not having all 5 tenancies renewed by the 5 different owners or any of them is there, particularly in view of the fact that the surrounding area is developing. If the Applicant cannot renew just one tenancy, there is already a possibility that he might not be able to continue the business on the Site. On the other hand, we do not think that it is likely to happen within 1 or 2 years.

62. We are therefore of the view that a years' purchase of 4 is more appropriate in the circumstances.

Loss of partial extinguishment of goodwill

63. We therefore compute the partial extinguishments of goodwill as follows:-

Annual profit before adjustment	$158,373
Less
Interest on Capital	Nil
	$158,373
% extinguishment of goodwill
(based on ratio of resumed portion to the whole site)	x 490/2380
Pro-rata annual profit for the resumed portion of  Lot No. 766RP	$32,606
Less
Annual profit rent for the resumed portion of Lot No. 766RP ($123,040.80 x 490/685)	(88,014)
Adjusted annual profit for the resumed Portion of Lot No. 766RP	(55,408)

Therefore, we came to the same conclusion as Mr. YIP in that after deducting the annual profit rent attributable to the resumed portion, the adopted annual profit for the business reveals a loss. Hence, no compensation for partial extinguishment of goodwill can be assessed.

Computation for Partial Loss of Goodwill Reinstatement Costs

64. The Applicant claims Reinstatement Costs as follows:-

Dismantle and Rebuild Partial of Fencing Wall
(Corrugated Sheet)	$54,000
Removal Cost	$20,000
Site leveling and Formation Approx. 748 sq. m.	$40,018
Total	$114,018

65. The Applicant provided invoices showing the actual expenditure for the above items, and submits that we should consider the invoices and if the cost incurred was reasonable, then no reference should be made to the estimates: Bwelfa and Merthur Dave Stream Colleries (1891) v. Portypridd Waterworks Co. [1903] AC 426.

66. However, it is clear that the invoices are not accurate in representing the loss suffered by the Applicant. There should be no dismantling cost for the Applicant because the Applicant has confirmed that the old fencing was demolished by West Rail contractors. We shall therefore adopt the figures of $17,800 submitted by the Respondent as the cost to rebuild part of the fence as affected by the resumption.

67. The Removal cost for removing stocks is also inaccurate because as admitted by the Applicant, not all 8 workers worked everyday. There were only 1 or 2 workers working each day. The daily wage of $500 is also very high for workers doing removal works. We agree with the Respondent that the daily wage should be $300 only.

68. We agree that the Respondent's assessment of $4,500 (1 x $300 x 5 days + 2 x $300 x 5 days) is more reasonable and accurate to represent the Applicant's loss for Removal cost than the amounts stated on the invoice, and hence we shall adopt the same figure proposed by the Respondent.

69. As to the Site leveling and formation, we accept the Respondent's submission that the Applicant is not entitled to recover such expenses at all, because the Applicant did not replace the site leveling and formation elsewhere and such expenses could not be recovered in any event upon expiration of the tenancy. The Applicant incurred these expenses long before the resumption and they were not incurred due to the resumption. Thus, we shall not make any award for this item.

70. The total Reinstatement Cost is therefore is the sum of $22,300 ($17,800 + $4,500).

Conclusion

71. By reasons of the matters aforesaid, we assess the compensation for disturbance as follows:-

Profit Rent	$10,166
Partial Loss of Goodwill1	$0
Reinstatement Cost	$22,300
Total	$32,466

Orders

72. We therefore grant the following orders:-

(1) The Respondent shall pay the Applicant compensation for disturbance in the sum of $32,466.

(2) The claim for professional fees, interest and costs be adjourned to a date to be fixed by the Assistant Registrar, after consultation with Counsel's diaries.

(3) Liberty to apply for any other consequential matters.