HAPPY DRAGON RESTAURANT LTD v. DIRECTOR OF LANDS

CACV 115/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 115 OF 2012

(ON APPEAL FROM LDLR NO. 17 OF 2006)

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JUDGMENT

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Hon Yuen JA:

1. This is an appeal from a decision of the Lands Tribunal (Judge M. Wong, Presiding Officer and Member Lo) on the approach to be taken in determining the rate of interest on compensation payable under the Lands Resumption Ordinance Cap.124 (“LRO”).  Leave was granted by the Tribunal on 18 April 2012 but it was limited to one issue which I will set out later in this judgment.

Background

2. The claim for compensation has a long history. Ten years ago, in 2003, Happy Dragon Restaurant Ltd (“the Claimant”) leased from a related company a property in Shaukeiwan for the operation of a restaurant.  The lease was for 10 years even though there had already been some indications that the land might be resumed.  The restaurant business was profitable. 

3. In February 2005, a Notice of Resumption was issued and the land reverted to Government on 25 May 2005.

Claims for disturbance and extinguishment

4. The Claimant made a claim for compensation under the LRO, including losses for (a) Disturbance and (b) Extinguishment of the business, as the Claimant decided not to relocate.  We have not been provided with the claim documents, but we presume there would have been a claim for interest.  In any event, entitlement to interest is mandated in the LRO.

Interest provision under the LRO

5. Section 17 LRO provides (where material):

“(3) Subject to section 16A(3) [provisional payment pending determination of compensation], any sum of money payable as compensation by virtue of a determination of the Lands Tribunal ... shall bear interest from the date of resumption of the land until the expiration of the time specified in the notice [from Government for collection of payment].

(3A) Subject to subsection (3B), the rate of interest for the purposes of subsection (3) shall be such rate as the Lands Tribunal may fix.

(3B) The rate of interest fixed under subsection (3A) -

(a) in respect of a working day must not be lower than the lowest of the interest rates paid on deposits at 24 hours’ call by note-issuing banks at the close of business on that day; and

(b) in respect of a non-working day must not be lower than the lowest of the interest rates paid on deposits at 24 hours’ call by note-issuing banks at the close of business on the last working day before that day”.

For convenience I have called the rates referred to in s.17(3B)(a) and (b) “the stated rate”.

6. The Director of Lands (“the Director”) rejected both the claims for disturbance and for extinguishment on the ground, essentially, that it was unreasonable for the Claimant not to relocate. 

Proceedings

7. In July 2008, the compensation hearing commenced before the Tribunal.  The hearing spanned a period of 8 months. 

Tribunal’s 2009 judgment

8. In a judgment given on 28 April 2009, the Tribunal rejected both the claims for Disturbance and Extinguishment. Understandably it did not consider the issue of interest as no compensation was awarded.

9. The Claimant applied for a review but the application was dismissed by the Tribunal.

CACV201/2009

10. The Claimant then brought an appeal from the Tribunal’s judgment.  The appeal (CACV201/2009) was heard by another division of this court in March 2010.  The Notice of Appeal asked for compensation to be determined but did not ask for an order for interest at a specific rate.  Nor was interest mentioned in the skeleton submissions of either counsel.

Compensation for disturbance

11. In a judgment handed down on 30 March 2010, the court allowed the appeal and set aside the Tribunal’s order rejecting the claims.  The court awarded the Claimant compensation for Disturbance in the sum of about $5.33m but remitted the issue of the quantum of compensation for Extinguishment to the Tribunal.

Interest on compensation for Disturbance

12. Notably the court also awarded interest on the compensation for Disturbance at the rate of 1% over Hong Kong prime rate (“Prime + 1%”) from time to time prevailing for the period commencing from the date of resumption to the date of the judgment of the court (nearly 5 years), and thereafter at judgment rate until payment.

Subsequent proceedings

13. The Director then sought leave to appeal the court’s award, including the award of interest.  However leave was refused by the court on 27 May 2010. 

14. The Director sought leave from the Court of Final Appeal.  The Appeal Committee refused leave on 4 November 2010.  It does not appear from the Determination handed down on 15 November 2010 that the issue of interest was argued.

15. That was the end of the Disturbance claim.

Compensation for Extinguishment

16. The Extinguishment claim having been remitted to the Tribunal, the hearing took place in June 2011.  In a judgment given on 4 October 2011, the Tribunal awarded compensation under this claim in the sum of about $7.02m. 

Interest on compensation for Extinguishment

17. As for interest on this award, the Claimant’s solicitors wrote to the Director proposing that the same rate of interest (Prime + 1%) be applied as that awarded by the court of appeal for the compensation for Disturbance.  That proposal was rejected by the Director.

Tribunal’s Decision on interest

18. On 10 January 2012 the parties appeared before the Tribunal to argue interest.

19. On 17 February 2012 the Tribunal handed down its Decision.  After mentioning that the Tribunal’s discretion is not “unfettered” but is restricted by the provision that the rate “must not be lower than the lowest of the interest rates paid on deposits at 24 hours’ call by note-issuing banks”, the Tribunal went on to refer to Lord Nicholls’ judgment in Director of Buildings and Lands v Shun Fung Ironworks Ltd [1995] 2 AC 111 and held, following that judgment, that interest should be awarded at that rate unless the Claimant could establish a good reason for a different rate.

-  Interest provision at the time of the Shun Fung case

20. At the time of the Shun Fung case, the relevant provision in the Ordinance (then called the Crown Lands Resumption Ordinance) was as follows:

“17(3A) The rate of interest for the purposes of subsection (3) shall be such rate as the Lands Tribunal may fix having regard to the lowest rate payable from time to time by members of the Hong Kong Association of Banks [“HKAB”] on time deposits”. (Emphasis added).

-  Shun Fung

21. In Shun Fung, the Tribunal had awarded the claimant $131m compensation and interest at Prime + 1%.  On appeal, the court of appeal increased the compensation to $519m but reduced the rate of interest to  7-days Call + 2%.  On the Director’s appeal to the Privy Council, the claimant cross-appealed against the court of appeal’s decision on interest. 

22. After quoting the provision set out above, Lord Nicholls held (p.139E-F):

“Under this subsection the Lands Tribunal has a discretion regarding the rate, but it is required to have regard to the lowest deposit rate. The question before the Board concerns the extent of the fetter thus imposed on the tribunal when exercising its discretion.

In their Lordships view, in requiring the tribunal to have regard to the lowest time deposit rate the legislative purpose must be that this should be the rate fixed by the tribunal unless in the particular case there is good reason for departing from it. The rate specified is a low one, but the legislature must be taken to have intended that ordinarily this should be adequate recompense to a claimant for being kept out of his money. This would not cover a case where one of the parties has behaved unreasonably, and by his conduct protracted the time taken in determining the claim. In a suitable case that could furnish good reason for the Tribunal fixing a higher or lower rate, depending on who was at fault”. (Emphasis added).

23. The Privy Council agreed with the court of appeal that the Tribunal had misdirected itself in fixing interest at Prime +1%.  As for the rate of 7-days Call + 2% fixed by the court of appeal, Lord Nicholls remarked that as the court had not elaborated on the reasons for fixing that rate, and as there were unusual features in that case which was a complex one, it would not be justified to infer that the court of appeal had, in turn, misdirected itself.  The rate awarded by the court of appeal was therefore allowed to stand.

24. Pausing there, it would be noted that:

(1)  Lord Nicholls held that the words “having regard to” imposed a fetter on the Tribunal’s discretion; and

(2)  the discretion could be exercised by fixing a rate either higher or lower than the lowest time deposit rate (at that time, the savings rate might have been lower than the lowest time deposit rate).

25. As I have mentioned earlier, the Tribunal in the present case decided that it should follow the approach in Shun Fung.  That was notwithstanding the fact that the provision for interest was amended 6 years after the Shun Fung judgment by the Interest Rates (Miscellaneous Amendments) Ordinance 2001 (“the Amendment Ordinance”). It would be noted that in the present provision, the Tribunal is no longer enjoined to “have regard to” the stated rate, and the stated rate is now a minimum rate.  I shall for convenience refer to the interest provision before the amendment as the “pre-amendment provision” (reproduced at para.20 above) and that after the amendment as the “post-amendment provision” (reproduced at para.5 above).

26. The Tribunal was aware of the amendment.  In its Decision it referred to (amongst others) Mingo Properties Ltd v Director of Lands LDLR6/2005, 9 Jan 2008 (unrep), where the Tribunal (Member Lo) held that the amendment was “never intended to alter the basis upon which the discretion was to be exercised by the Tribunal” (para. 19).

27. Adopting that approach, the Tribunal awarded the Claimant interest on the compensation for Extinguishment at the lowest 24-hours Call rate offered by the note-issuing banks.  From 2007 onwards, this has dropped from 0.05% to 0.001%, rates which leading counsel for the Claimant has described as “derisory”.  At this stage I should say no more than that to a land owner (or other claimant running a profitable business) who has through no fault of his own been deprived of property, and been kept out of his money for a substantial period of time, it would be difficult to see how that would accord with the principle of equivalence.

Leave to appeal the Tribunal’s Decision on interest

28. The Claimant sought leave to appeal the Tribunal’s decision on the rate of interest.  On 18 April 2012, the Tribunal gave leave to appeal “limited to the challenge relating to the Tribunal’s reliance on the decision in Director of Buildings and Lands v Shun Fung Ironworks Ltd [1995] 2 AC 111”. 

29. Put in shorthand, the issue before this court is whether the construction in Shun Fung of the “pre-amendment provision” must be adopted for the “post-amendment provision”.

Discussion

30. It is significant that Mr Ismail counsel for the Director

(1)  does not seek to argue that the language of the “post-amendment provision” is ambiguous or obscure or would lead to an absurdity; and

(2)   concedes that applying the natural and ordinary meaning of the wording of the “post-amendment provision”, the Tribunal’s discretion is wider and expressly more generous to claimants than the “pre-amendment provision”.  In my view this concession is correctly made as the Tribunal is no longer mandated to “have regard to” the stated rate, and the stated rate is a minimum rate.

31. However Mr Ismail argues that the context and purpose of the “post-amendment provision” point to a different meaning from the natural and ordinary meaning.  He refers first to HKSAR v Cheung Kwun Yin (2009) 12 HKCFAR 568, where the Court of Final Appeal held that the context and purpose of a statutory provision should be considered in the purposive interpretation of a statute. 

-  Context should be taken in its widest sense and includes other provisions of the statute and the existing state of the law. 

-  As for the purpose of a statutory provision, the court held (para. 14):

“The purpose of a statutory provision may be evident from the provision itself. Where the legislation in question implements the recommendations of a report, such as a Law Reform Commission report, the report may be referred to in order to identify the purpose of the legislation. The purpose of the statutory provision may be ascertained from the Explanatory Memorandum to the bill. Similarly a statement made by the responsible official of the Government in relation to the bill in the Legislative Council may also be used to this end”.

32. Mr Ismail relies on 4 documents for his argument that notwithstanding the different wording in the “post-amendment provision”, in fact no change has been effected to the approach by the Tribunal in fixing the rate of interest, so that the Tribunal here (similarly to the Tribunal in Shun Fung) is still required to fix the interest at the stated rate, unless the claimant establishes good reason to the contrary.

33. The documents Mr Ismail relies on are:

(i)  an information paper by the Planning and Lands Bureau, Transport Bureau and Environment and Food Bureau for discussion by the LegCo Panel on Planning Lands and Works (“the Legco Panel”) on 21 November 2000;

(ii)  minutes of a special meeting of the Legco Panel held on that day;

(iii)  a brief by the Planning and Lands Bureau for the Legislative Council, annexing the bill for the Amendment Ordinance; and

(iv)  extracts from the Hong Kong Hansard dated 14 March 2001 and 4 April 2001.

34. Mr Ismail argues that these documents show that the only purpose of the Amendment Ordinance was to delete the reference to “the lowest rate payable from time to time by members of the [HKAB] on time deposits” in the “pre-amendment provision” and to replace it with “the lowest of the interest rates paid on deposits at 24 hours’ call by  note-issuing banks” in the “post-amendment provision”.  That was because on 3 July 2000 the interest rate rules on time deposits of less than 7 days were deregulated.  Upon deregulation, interest rates varied among the 150 members of the HKAB, and only 31 banks were prepared to provide the government with information on the rates they offered.  Accordingly it was impracticable to determine the rate stated in the “pre-amendment provision”. As the 3 note-issuing banks were thought to be unlikely to offer an exceptionally high or low rate, it was proposed to replace the rate offered by the members of the HKAB with the rate offered by the  note-issuing banks.

35. Mr Ismail focuses on the following statements:

(i)  in the information paper, the Bureaux said the government’s intention was to make “technical amendments” which were “necessary as a result of the deregulation of interest rate rules on short term deposits by the [HKAB]” (introductory paragraph) and that they intended to amend the provisions “such that the amended provisions are as close to the original formula as possible” (para. 8);

(ii)  in the minutes, the Principal Assistant Secretary for Planning and Lands (Lands) said in response to a question from a legislator, that “since the proposed amendments were similar to the existing arrangement under which the lowest interest rate on time deposit was payable to compensation payments, the affected parties would not be worse off as a result of the amendments” (para. 40) and in response from the chairman of the Panel, that “the existing arrangement of adopting the lowest rate was considered reasonable as the provision of a high interest rate would encourage the affected parties to drag on the negotiation with Government” (para. 43);

(iii)  in the brief, the Planning and Lands Bureau said “the intention is that the re-defined interest rate should be as close to the original formula as possible” (para. 6);

(iv)  in the Hansard, the Secretary for Planning and Lands said “ ... we consider it appropriate to amend the relevant laws to provide a legal basis for paying the relevant interest rates consistent with the original spirit of these statutory provisions.  This is the objective of the present Bill.  We are not proposing any structural changes to the basic mechanism for calculating the interest payment” (p.4001).  

36. When the court adopts a purposive interpretation of the “post-amendment provision”, do those statements point us to a different meaning from the ordinary and natural meaning of the words?  In my view, they do not. 

37. As Mr Ismail accepts, the words of the “post-amendment provision” are not ambiguous or obscure, and they do not lead to an absurdity.  Their ordinary and natural meaning is clear – the Tribunal is to have an unfettered discretion to fix the interest rate for compensation, and the claimant is entitled to a minimum rate.

Purpose

38. As for the purpose of the statute, it is true that the explanatory memorandum referred to the re-definition of interest rates but the word “re-definition” is equivocal.  Whilst the Bureaux’ statements refer to the bill being necessitated by the deregulation of bank interest rates, there is no statement that that was the sole purpose of the provisions.

39. The express wish to be as close as possible to the “original formula” and “existing arrangement” may refer simply to the decision to keep to the formula of calculating interest at rates set by banks – rather than by the government or other institutions – even though the deregulation of bank interest rates posed practical difficulties.  Those statements were made as background to explain the need to amend the statutes, and should not be read as if they were themselves statutes, so as to straitjacket the wording of the amendment to only one interpretation - that there was to be no change at all, except to the stated rate.

40. If that had been the intention, it would have been simple enough (indeed, it would have been simpler) for the draftsman to keep the original reference in the LRO that the Tribunal should award interest “having regard to” the stated rate, only replacing the stated rate in the “pre-amendment provision” with the stated rate in the “post-amendment provision”.  The draftsman must be presumed to know the significance of those words as interpreted in Shun Fung.  However it is notable that those words were deleted in the amendment.  Instead, a different form of words was used - clear words which Mr Ismail accepts in their ordinary and natural meaning gave the Tribunal a wider discretion and claimants a minimum rate. 

41. Mr Ismail argues that there might have been an “oversight” on the part of the draftsman.  There is no evidence in support of that argument, which is not an attractive one coming from the administration. First, the amendment is not the result of an omission; in drafting this amendment, the draftsman had decided to strike a pen (at least metaphorically) through the words in the “pre-amendment provision”. Further, there may (or may not) have been only one draftsman, but three different bureaux tasked with the payment of compensation were involved.  Five officials attended the LegCo Panel meeting.  There was a period of four months between the preparation of the information paper and the reading of the bill in LegCo.  It is difficult to accept Mr Ismail’s argument that everyone, including Bureaux officers whose specialist tasks were to deal with compensation payments, did not notice the change of wording in the proposed amendment and did not appreciate its effect.

42. Accordingly I do not accept the Director’s submissions that the ordinary and natural meaning of the words in the “post-amendment provision” is overridden by the statements in the documents referred to by Mr Ismail.

Context

43. In my view the context of the amendment is fatal to Mr Ismail’s argument. 

44. The Amendment Ordinance bill was an “omnibus” bill amending a total of 11 ordinances containing compensation provisions.  However those provisions were not identical and can be divided into the following 3 categories:

(A)  where the interest to be awarded is at a rate fixed by statute, or which may only be changed by resolution of the Legislative Council (see in the Annex to the information paper, items 4, 5, 6, 7 [the Water Pollution Control Ordinance] and 10);

(B)  where the interest rate is flexible, but “having regard to” the rate referred to in the statutes (items 1 [the LRO], 2 and 3);

(C)  where the interest rate is flexible, without the words “having regard to”, and with a minimum rate (items 7 [the Water Pollution Control Regulations], 8 and 9). 

45. It would thus be seen that before the Amendment bill, there were 2 categories where the interest rate was flexible:

-  category (B) which was construed in Shun Fung, and

-  category (C), which Mr Ismail accepts gave the tribunal a wider discretion and claimants a minimum rate. 

46. Under the Amendment Ordinance bill, the category (A) ordinances retained the fixed rate, but all the category (B) ordinances were amended to follow the category (C) wording.  In my view the clear intention was to adopt a unified approach for statutes with flexible interest rates, and the one chosen was that which gave a wider discretion to the tribunal and a minimum rate to claimants.

47. It is a canon of statutory interpretation that identical words should not be construed to bear different meanings.  This must especially be so where all the ordinances in categories (B) and (C) deal with the same subject matter – i.e. payment of interest for compensation.

-  Since Mr Ismail accepts that the category (C) wording gives a wider discretion to the tribunal and a minimum rate to claimants, it must follow in this context that this was the meaning of the “post-amendment provision” of the LRO as well.

-  Should it be the case that the legislature intended to retain the Shun Fung construction notwithstanding the adoption of the category (C) wording, it would follow that claimants under the original category (C) ordinances would be “worse off” after the amendment.  This would not be consistent with the assurance given by the government to the Legco Panel recorded in para. 40 of the minutes that affected parties would not be “worse off” (see para. 35 (ii) above).

-  The grant of a wider discretion to the Tribunal would also be more consistent with the implementation of the principle of equivalence.   

48. Consequently I take the view with respect that the Tribunal erred in considering that the amendment did not alter the basis on which the Tribunal was to exercise its discretion, and its reliance on the Shun Fung approach when exercising its discretion was in error.

Order

49. I would allow the appeal and remit the matter to the Tribunal to reconsider the issue of interest without being constrained by the approach in Shun Fung.

50. Having heard the parties’ submissions on costs, I would order that the costs of the appeal be paid by the Respondent to the Appellant with certificate for two counsel.  The Respondent should also bear the Appellant’s costs of the application for leave to appeal and of the interest hearing before the Tribunal on the High Court Scale with certificate for counsel.

Hon Fok JA:

51. I agree with the Judgment of Yuen JA.

Hon Barma JA:

52. I agree with the Judgment of Yuen JA.