LINGRADE DEVELOPMENT LTD v. SECRETARY FOR THE ENVIRONMENT, TRANSPORT AND WORKS

LDRW 2/2005

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

RAILWAYS ORDINANCE Application No. 2 of 2005

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J U D G M E N T

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Background

(I) TOA-Temporary Occupation Area

1. To facilitate the construction of the West Rail, KCRC required a small strip of land (“TOA”) for temporary occupation.  It invoked the relevant provisions of the Railways Ordinance, Cap 519 (“the Ordinance”) and notified the Applicant the period for occupation would be for 23 months.   Needless to say the Applicant would be dispossessed accordingly.  The TOA was at the edge of a lot of land of the Applicant.  At all material times, the Applicant was in the process of developing the land into a number of 3-storey blocks of flats for sale.

(II) Impact of TOA on the Original Scheme

2. Though the TOA is small, of area about 188 m², it would have been necessary to have it reverted back to the Applicant before an Occupation Permit for the project would be issued, even if the Applicant chose to proceed with the project as planned.  Without an Occupation Permit, the Government would  not issue the  Certificate of Compliance which must be obtained before any sale of flats could be launched.  Mr. Wong, the Applicant’s expert/sales agent in his report explained how and why this was the case. His contention  was not challenged.      

(III)Uncertainty as to Date of  Reversion of TOA 

3. It would have been within the right and power of the KCRC to extend the occupation period when the progress of its work so required. This gave rise to uncertainty as to the date when the Applicant could have the TOA back. As a consequence, not only the date of commencement of sale of flats would be delayed but delayed for an uncertain period.   This proposition is one of the reasons put forward to justify the Applicant’s  abandonment of the original scheme and its adoption of a revised scheme.  It so turned out that KCRC did not seek to extend the occupation period. That being the case, it is arguable that this particular worry of the Applicant did not arise from or was caused by the TOA and could not be used to justify the change or revision of scheme so far as mitigation of loss or damage was concerned.  This point has become academic as the Government does not challenge the revision of scheme as a legitimate measure of mitigation of loss.  

(IV) Revising the Development Scheme to Mitigate Loss

4. Mr. Wong asserted in his report that there were three options considered by the Applicant. The one adopted by the Applicant was to carry on with the development of the site with a view to realize the profits of investment in the site as soon as possible by disposing the flats to be built.  This option required the modification of the Original Scheme and piling work already done would have to be wasted. It also involved some other incidental expenditures.

5. There is no direct evidence from the Applicant as to hatching out and deliberation of these options. Mr. Wong must have simply related what he came to know from others personally involved in the process and /or has deducted from the circumstances.  His assertion is supported by evidence of documents and surrounding circumstances. It cannot be disputed that there was such Original Scheme and that it was abandoned. A new scheme was made and approval for it obtained from the Government.  The change of scheme must have been a response to the TOA.  It cannot be imagined that this move was not aimed at achieving some economic and monetary benefit for the Applicant.  The revision of the Original Scheme and carrying on developing the site with the Revised Scheme is in law and fact an act of mitigation of loss.  In any event the Government accepted that it was reasonable for the Applicant to carry on with the development with the Revised Scheme. In fact the Government has now paid for the expenditures wasted on the Original Scheme  and expenditures incidental to the revision of the scheme as set out in the following paragraph.

6. following 8 items of claim have been agreed and paid:

1.	Rental value of land taken	$118,498
2.	extra professional fees and Government charges paid for having to re-design the development scheme	$280,608
3.	Costs for additional piling works required under the Revised Scheme	$1,890,537
4.	Bank charges paid in connection with the use of Government Land to construct temporary vehicular access road and vehicular bridge to the Site over the delay period	$5,250
5.	Rent paid for use of adjoining land to provide ary vehicular access to the Site over the delay period	$240,000
6.	Costs expended on the erection and the subsequent demolition of a temporary walkway and hoardings required by the Buildings Department	$637,500
7.	Extra professional fee incurred in employing the service of a surveying firm to deal with the Lands Department on the issue of Certificate of Compliance because of the complications brought about by the “TOA”	$50,000
8.	Government rent paid over the delay period	$34,836
	Total:	$3,257,229

(V) Remaining Items in Dispute

7. By these proceedings the Applicant  is claiming compensation under Item 2(a)(ii) and (b) of Part II of the Schedule to “the Ordinance” which allows two types of compensation following the creation of a right of temporary occupation of land: under Item 2(a)(ii), open market rent for the period of occupation; and under Item 2(b), a disturbance payment.

8. There are six heads of claim all under Item 2(b), disturbance payment, remaining in dispute. They are: -

Head A - Loss in sales proceeds

Head B - Extra premium for extension of building covenant

Head C - Extra cost for fence wall

Head D - Cost for installation of cable trench

Head E - Extra finance costs

Head F - Professional fees in connection with the claim for compensation

Head F--- Professional Fees

9. The professional fees is a matter of costs which can only be determined at a later stage in case the parties cannot reach sensible agreement.

Head B- Extra Premium for Extension of the Building Covenant

10. A Building Covenant in a Government lease requires the owner of the land under lease to complete the development by a deadline date. Failure to comply with the Building Covenant will entitle the Government to re-enter the land under lease. However, Government would normally grant an extension of the deadline by way of Lease Modification subject to payment of a premium and an administrative fee. The premium fee for the first 12-month extension is 2% on the open market site value of the land, increasing to 4%, 8%, 14%, 22%, and 32% for subsequent 12-month extensions.

11.The Applicant claimed that because of the “TOA”, an additional extension from 10 December 1999 to 9 December 2000 with premium charged at 14% of open market site value had become necessary. The total amount claimed is $3,370,440 (premium and administrative fee at $3,204,600 plus consultancy fee $165,840 for application for extension of Building Covenant and negotiation of premium). Another sum of premium and administrative fee of $1,258,950 for extending the deadline for a further 3 months from 10 December 2000 to 9 March 2001 was also paid but subsequently refunded by Government as the OP of the development was issued on 31 January 2001, within the 3 months grace period allowed by Government. Thus, the claim excluded this sum of $1,258,950.

12. The Respondent’s expert argued that there should be no compensation for the extra premium paid for the extension of Building Covenant in this case. He said in his report dated 22 June 2006 (Hearing Bundle No.1, Page 25): “It is arguable that compensation should not be payable by Government because of an expectation or hope that without the scheme that Government would give an extension to the Building Covenant period specified in the lease.” However, the Applicant’s expert in his report pointed out that there was an established Government policy to grant extension of Building Covenant provided that the Lands Department was satisfied that the developer was genuinely proceeding with the development project. He added in his closing submissions that the Lands Department had in fact extended the Building Covenant, so there had been no hope value at all. Further, he considered that section 12(c) of the Lands Resumption Ordinance, Cap.124, which excluded hope value from compensation for resumption under that Ordinance, had no application in this case which was a claim under the Railways Ordinance, Cap.519, because section 43(a) of the Railways Ordinance excluded the application of the Lands Resumption Ordinance to any claim or determination of compensation for land resumption. He also pointed out that section 12(c) of the Lands Resumption Ordinance only applied to resumption of land, whereas the present case did not involve any land resumption but temporary resumption of land.

13. Having considered all the arguments and available evidence, we determine that the Applicant is entitled to compensation for the extra premium and the administrative fee paid for the extension of Building Covenant amounting to $3,370,440. We are astonished by and cannot agree with the Respondent’s Expert’s suggestion that the Government could probably have chosen not to extend the Building Covenant and to exercise the right of re-entry so as to avoid payment of compensation.

14. As a fallback position, the Respondent’s expert reasoned that since it had been the Applicant’s failure to complete the development within the original Building Covenant period that had   led to the penal fate of 14% on open market site value, the compensation for extra premium should be based on the rate of 2% for initial extension rather than the penal rate of 14%. In that case, the compensation for extra premium would be assessed at $ 457,800 plus consultancy fee $50,000 totalling $507,800. The Applicant’s   counsel argued that before the Respondent decided to compulsorily occupy the “Site”, the Respondent had had full knowledge of the fact that there had been previous extensions of the Building Covenant and the premium for the next extension would be calculated at 14% of open market site value, then because of Government’s compulsory occupation of the “Site”, an additional extension of the Building Covenant had become necessary and the premium for this additional extension had been charged by the Lands Department at 14% and paid by the Applicant. He thus submitted that the Respondent must take the victim as they find him—the thin skull rule must apply. We accept this argument and rule that the compensation should be awarded on the basis of 14% on open market site value.

15. The Respondent’s counsel did not pursue the argument for “hope value” any further in his closing submissions but instead argued that the Applicant’s entitlement for compensation under this head should be nil because the extension would have been needed in any event even if there were no “TOA”. It is understood that the estimated date for the issue of OP would have a bearing on the calculation of premium for Building Covenant extension. We have  under Head A ruled that the estimate date for the issue of CC for the “Original Scheme” be 4 April 2000, i.e. 14 months before the actual date for the issue of CC for the “Revised Scheme”. Normally, OP would be issued about 2 months before the issue of CC. Following from this, it is reasonable to estimate that the date for the issue of OP for the “Original Scheme” be 4 February 2000. As the Building Covenant had previously been extended to 9 December 1999, the estimated date of 4 February 2000 for the issue of OP for the “Original Scheme” fell within the 3 months grace period allowed by Government and hence there would have been no need for the additional extension of the Building Covenant for another year from 10 December 1999 to 9 December 2000 in this case had it not been for the “TOA”. We therefore determine compensation under this head at $3,370,440, the full amount claimed by the Applicant.

Heads C --- Cable Trench

16. The evidence or rather the reasons for incurring the cost for these items were given by Mr. Wong in his report as follows:

 Bundle B1-63:

  “But when the project was practically completed in December 2000, construction of KCRC’s West Rail viaducts outside the Site was under active progress such that KCRC refused to approve underground cable connection works to be carried out by CLP within the cartilage of KCRC’s work site. In order to minimize further delay on project completion -----had to agree—for power supply to be routed along---

  “---had there been no TOA the construction of project would have been completed –KCRC should have no ground to disapprove ---the underground cable connection works---”

It is plain and obvious that the cost of installing the cable trench was the direct result of KCRC’s disapproval which is unconnected with TOA.  Therefore there is some force in the argument of Mr. Houghton, counsel for the Government that this item should not be allowed.  However he was in a difficult position. There was some delay in connection with this cable trench matter, there had been prior delay and subsequent delay. The total of these delays was agreed by the Government expert to have been reasonably caused by TOA. That being the case, it would be difficult to argue that the cost of routing the cable trench had not also been caused by TOA.  Bearing that in mind we have made assessment of this head of claim as follows.

17. The Applicant’s expert in his report dated 23 June 2006 (Hearing Bundle No.1, Page 63) gave the following justification for the claim: -

   “The creation of the TOA and the consequential delay on project completion had resulted in Lingrade having to incur extra expenditure in obtaining electricity supply from China Light and Power Company (“CLP”) for the completed development. The reason being that for permanent electricity supply to the completed development, CLP’s planning was to have electricity supply cable to run below ground form Castle Peak Road to the Site passing underneath the LRT tracks, the West Rail viaducts, the bicycle track and the public footpath before entering the Site. But when the project was practically completed in December 2000, construction of KCRC’s West Rail viaducts outside the Site was under active progress such that KCRC refused to approve underground cable connection works to be carried out by CLP within the cartilage of KCRC’s work site. In order to minimize further delay on project completion, Lingrade had to agree with CLP for power supply to be routed along the temporary vehicular bridge by providing a cable trench. The necessary works for the cable trench were carried out by Hoo Cheong in June 2001 at a cost of $191,980 and electricity power was available to Lingrade Garden in the same month.

Similar to the temporary covered walkway referred to in Paragraph 13.6, works for installing cable trench for temporary electricity supply would not have been required had there been no creation of TOA- had there been no TOA, construction of the project would have been practically completed by December 1999 and at that time, construction of the West Rail viaducts had not started outside the Site and KCRC should have no ground to disapprove the carrying out of underground cable connection works by CLP. In other words, as a result of the creation of TOA and hence delay of the project, Lingrade had suffered in having to incur extra expenditure in installing cable trench for power supply and such expenditure should therefore be a claimable item.”

In his subsequent report dated 12 September 2006 (Hearing Bundle No.1, Page 91), the Applicant’s expert produced copies of 3 letters (Hearing Bundle No.2, Pages 294-297) showing (a) KCRC had disapproved China Light and Power’s proposed routing of permanent electricity supply cable as it would affect their entire access; (b) China Light and Power had proposed the routing for the temporary electricity supply cable to run across the bridge west of the development site; and (c) construction of the cable trench along the temporary access bridge had been completed.

18. The Respondent’s expert was of the view that to lay a cable trench over a temporary bridge might not have been the best solution and KCRC would probably have been able to solve the access problem for electricity supply at a much lower cost (Hearing Bundle No.1, Page 106). We are unable to see the logic of this view point, as firstly there should not be any incentive for the Applicant not to seek a better solution at a lower cost and secondly the Respondent’s expert did not suggest what the best solution would have been or any better solution. Further, it seemed to the Respondent’s expert that the problem of electricity supply would have been existed whether or not the “TOA” had been created because the problem was that the routing of the electricity supply cable submitted to KCRC by China Light and Power would affect their entire access (Hearing Bundle No.1 Page 106). On the other hand, as already mentioned, the Applicant’s expert reasoned that should there be no “TOA”, the development could have been practically completed by December 1999 when KCRC had not yet started construction works for the West Rail viaducts outside the subject site and should therefore have no objection to the carrying out of cable connection works by China Light and Power.

19. It have been accepted by both parties that “TOA” had delayed the project. We have already ruled that the estimated date for the issue of OC for the “Original Scheme” be 4 February 2000 and this supports the estimated practical completion date of the project by December 1999 or early January 2000. The Applicant’s expert gave evidence that at that time, KCRC had not started the construction works for the West Rail viaducts outside the “Site”. We agree with the Applicant’s expert that KCRC would have no ground to disapprove the routing of electricity supply cable submitted by China Light and Power when KCRC had not started construction of the West Rail viaducts outside the “Site”. We consider that the need for the installation of the cable trench to obtain temporary electricity supply along the temporary vehicular bridge was caused by the creation of the “TOA” which delayed the completion of the project. The works of the cable trench had been completed, invoiced and paid (Hearing Bundle No.2 Page 297 & 299 and Exhibit A2). Having considered all the evidence available, we on balance determine to award the claim of $191,980 under this Head.

Head D---Fence Wall

20. Mr. Houghton criticised the Applicant’s failure to produce cogent evidence of payment. Apart from showing that such cost relating to this head is reasonable it is equally necessary for the Applicant to prove that it had actually incurred such cost.  The documentary evidence to support this head of claim is an estimate by a quantity surveyor.  Indeed this is the shortcoming of the state of evidence which we should bear in mind in evaluating this head of claim. 

21. The Applicant’s expert in Paragraph 13.8.1 of his report dated 23 June 2006 (Hearing Bundle No.1, Page 64) reported: “Both the Original and the Revised Schemes provided for fence walls to be erected along the entire site boundary. But due to the existence of the TOA, a section of the front fence wall of 2.5m tall and about 73.9m long had to be erected temporarily behind the TOA. After the issuance of OP and CC and the expiration of the temporary occupation period with possession of the TOA reverted back to Lingrade, that section of the temporary fence wall had therefore to be demolished and a new permanent section was erected along the front site boundary.” We note there is no dispute between the parties on these facts. Whilst accepting the claim of $342,000 as costs for construction and demolition of the temporary fence wall, the Respondent’s expert did not agree to the claim of $249,000 for the extra cost on the construction of the permanent fence wall, being the difference between the actual cost of construction of that section of permanent fence wall in question ($620,000) and the estimated cost of construction of the same section of permanent fence wall ($371,000) had this been included in the original construction contract, on grounds that this section of the permanent fence wall had to be constructed in the original contract anyway and that there was no evidence that the cost of construction would have been lower had the cost been incurred earlier in view of the falling tender prices for construction works during the relevant period. The Applicant’s expert explained that the cost of constructing the permanent fence wall, almost 9 months after practical completion of the project under a separate contract for a single work item, would inevitably be higher than what would have been had such work been included in the main construction contract for the development. He further elaborated that after completion of the development, occupation by residents necessitated the removal of all construction equipments, including the construction crane, from the site, thus everything had to be virtually carted into the site for the construction of the permanent fence wall, causing extra labour costs. In addition, he pointed out that with residents already moved in, the site condition would be comparatively more inconvenient to work in because of residents’ safety considerations (e.g. children running around). He also told the Tribunal that extra preliminary costs had been involved, such as taking out another insurance policy. We consider that these explanations are reasonable although the Applicant’s expert appeared to give explanations for the contractor to charge more. To justify the amount of claim, the Applicant’s expert produced detailed assessments of each item of work as well as an estimate of the additional cost for the relocation of the fence wall, all prepared by Levett & Baily, Chartered Quantity Surveyors Ltd (Hearing Bundle No.2, Pages 239-247). The additional cost was calculated therein as follows: -

		HK$
1.	Construction of temporary fence wall	255,000
2.	Demolition of temporary Fence wall	87,000
3.	Construction of permanent fence wall after practical completion	620,000
4.	Less Original construction cost as allowed in the Contract should the fence wall have been built within contract period	(370,000)
	Total:	591,000

During cross-examination, the Applicant’s expert gave evidence: “------- items 1, 2 and 3 were actually done, so there would be an actual cost.” It is obvious that item 4 is necessarily an estimate only.

22. In his closing submissions, Counsel for the Respondent canvassed that as the Applicant’s claim for the cost of the permanent fence wall works had only relied on a quantity surveyor’s estimate years ago without evidence of actual expenditure, there should be no recovery. However, the Applicant’s expert in giving evidence had already shown that the sum for constructing the permanent fence wall had been included in the final account between the contractor and the Respondent (Bundle No.2, Page 236, 244 and 245).

23.With the evidence before us, we are convinced that the fence wall works were in fact carried out. It is unreasonable to assume that the Applicant was not required to pay for the works done. We also accept the assessments for the actual fence wall works done and the estimate for what would have been the cost of building the permanent fence wall had it been included in the original main contract for the development, both prepared by Levett & Baily, Chartered Quantity Surveyor’s Ltd. According, we award the total claim of $591,000 under this Head.

HEAD A ---Loss in Sales Proceeds

As Disturbance Payment

24. TOA caused a delay of the commencement of sales of flats. There is no dispute as to the actual sales proceeds of flats of the Revised Scheme. It took 47 months for the Applicant to sell all of the flats. Mr. Wong then made an estimate of the sale proceeds for the hypothetical sale of flats under the Original Scheme which would have been completed on a hypothetical date had there been no TOA.  According to Mr. Wong’s estimate, the hypothetical sales proceeds exceeds the actual sales figure by about 24 millions.  The Applicant argued that it should be compensated for the same amount as a disturbance payment.

Evidence Required

25. Applicant must show he has actually suffered loss and damage as if in an action in tort. For example if the owner is building the blocks of flats for donation on their completion to charity, say to one operating a home for the old age and if a mere delay in completion and handing over the flats to the charity does not make him liable for damage, he would not have suffered any damage. Under these circumstances, he could not claim compensation as if he had intended to sell the flats for profits and claims for loss of sales proceeds.  Take another example, if the Applicant had had a much larger but otherwise identical project concurrent in the adjoining land and the flats of which larger project the Applicant found it difficult to sell, stock-piling a large number of flats during the relevant period, he could not have claimed any loss.  This illustrates the point that evidence is needed to show exactly in what way a Applicant has suffered loss and damage because of the delay.

26. Mr. Houghton contended that loss in value of land is not recoverable. He is right to a certain extent. The value of the Applicant’s land has fallen between the hypothetical date of completion under the Original Scheme and the actual date of completion. The fall in value per se is not recoverable. Evidence must be adduced to show that the Applicant has suffered loss and damage and that it was caused by the delay, there being no dispute that the delay was caused by the TOA. The ordinary test of remoteness of damage in tort applies, not the simple “but for” test as appears to be adopted by both experts.

27. Mr. Houghton argued that the Applicant is framing its claim in a way claiming for loss in value of land. He had good ground for saying so. Be that as it may, implicitly the Applicant is claiming loss of profits though it relied on  the fall in value of its land in support.  From the documentary evidence and its conduct it is an irresistible inference that the Applicant is a developer for profits. The blocks of flats were built for sale and not for rentals or other purpose.  The flats or land formed his stock in trade.  It can be rightly inferred that he had been deprived of an opportunity during the delay period of dealing with his stock in trade. This is a disturbance of trade within the meaning of the Ordinance.  The ability of his making a profit of its investment or reducing its loss for that matter must depend on the value of his stock in trade.  The starting point of assessing its loss of profits is exactly that amount of fall in value of his flats during the period when he could not trade with its stocks.  Unless there is evidence to show that the Applicant would have held on to these hypothetical flats up to the point when it was able to commence the sale, it  has suffered loss and damage in the amount representing the fall in value. 

28. Both experts did not make an estimate of the bulk values of the flats at these two relevant dates.  Mr. Houghton had reservation about our belated invitation to the experts to give us assistance in the valuation in this respect. Even though Mr. Wong was able and ready to give his, we did not allow him to do so in view of the stance quite rightly taken by Mr. Houghton.  Nonetheless we are able to do the valuation from the data and evidence of the experts.  Needless to say this valuation can only be as good as the data and evidence before us.   The figure we arrived at is 13.9 million. The details of valuation are to follow.  This figure represents the loss as at the date of issue of Certificate of Compliance, i.e. 4 June 2001. We do not know what Mr. Wong’s assessment would have been in this respect, though, as said before, he was ready to give us his figure.

29. It took Mr. Wong about 47 months to complete the sale of flats incurring a loss of proceeds of sales of about 24 million much greater than the loss as at 4 June 2001.  As a matter of law the Applicant  can recover from the Government further losses beyond 4 June 2001 but only if the Applicant suffered such loss in mitigation of loss or damage.  To succeed in claiming further losses, evidence of mitigation of loss and damage is required.  The  merits of counsels’ respective argument on its sufficiency or insufficiency is no longer relevant.  It is because the assessment of the loss we made adopting the framework used by the experts, we arrived at a figure even smaller than the loss as it stood at 4 June 2001.

30. A few factors we must bear in mind in assessing the evidence of the experts. Firstly, Mr. Wong played two roles in the Applicant’s claim. He gave expert opinion on the estimation of proceeds from the hypothetical sales. Secondly he was also the sales agent responsible for marketing the flats of the Revised Scheme.  In the course of arguing for his assessment he had to assume there is nothing wrong or unreasonable in his marketing strategy.  There is no evidence before us to judge what he said was correct.

31.Both experts in fact used the same or similar framework for assessing loss of sale proceeds. We accept that it is no surprise for valuation experts to adopt this framework under similar circumstances.  The experts in this case differ mainly in the valuation methods to be employed. The relative merits would be noted even if not mentioned specifically  in our assessment and determination that follows.  Had it not been for the TOA the Applicant could have started selling the units in April 2000. By relying on the R&V Index (August 2001=76.5 and April  2000=93.5---see New Bundle, Page 174) and using the August 2001 average unit price of $26,458 per m²  (see valuation schedule above) as base, the April 2000 average unit price can be calculated at $32,338 per m^2.  (26458 ¸ 76.5x93.5). The total estimated value of the completed “Original Scheme” as at April 2000 can then be calculated by multiplying the April 2001average unit price of $32,338 per m² by the total saleable area of the development of 2631.733 m²  (see New Bundle page 116) and this will give a valuation of $85,104,982, say $85,100,000. Similarly, the Applicant could start selling the units in the Revised Scheme in June 2001 after the issue of Certificate of Compliance. The total value of the completed Revised Scheme as June 2001 can likewise be calculated by multiplying the June 2001 average price of $27,047 per  m² (see valuation schedule above) by the total saleable area of the development of 2631.733 m² and this will give a valuation of $71,177,851 say $71,200,000. With these valuations, the loss in value by comparing the valuations as at these two dates is therefore $13,900,000.

Assessment

32. The Applicant alleged that the “TOA” had delayed the completion of the development and the sales of the units and these had caused loss of sales proceeds in a falling property market. Neither the fact of delayed completion nor the fact that the property market had been falling was in dispute. We were told by counsel of both parties that the extent of delay had been agreed between the experts of the parties at 14 months. However, the experts disputed on the method of valuation and on the estimated length of time required for completing the sales of units in the “Original Scheme”.

33.Firstly, the Respondent’s counsel canvassed that the claim in truth purported to be for loss of profits but as there was no evidence of anticipated or actual profits, there should be no compensation. We note that the wording of the definition of “disturbance payment” in Paragraph 2 of Part I of the Schedule to “the Ordinance” does not contain the word “profit” or the term “loss of profit”. The definition merely says that “disturbance payment” means a sum equal to the expenditure and loss of money actually and reasonably incurred or to be reasonably incurred and arising from dispossession of land; and for disturbance of a trade or business on any land, the expenditure and loss of money actually and reasonably incurred or to be reasonably incurred and arising from the disturbance of that trade or business. So all expenditure and/or loss of money as defined can be compensated under “the Ordinance”. Furthermore, the amount of loss of sales proceeds must form a part of the loss of  profit or a part of the loss in the business of property development. We therefore rule that the loss of sales proceeds is eligible for a “disturbance payment” under “the Ordinance”.

34. Having been affected by the “TOA”, the development (the “Revised Scheme”) was eventually completed in 2001, with Occupation Permit (OP) issued on 31 January 2001 and Certificate of Compliance (CC) issued on 4 June 2001. The Applicant finally completed selling all the units in the “Revised Scheme” in May 2005 producing sales proceeds totaling $59,538,600.

35.The Applicant’s expert estimated that had it not be for the “TOA”, the “Original Scheme” should have been completed at the end of 1999, with OP issued in January 2000 and CC issued on 31 March 2000. This means that he estimated the delay caused to the issue of OP to be12 months (from January 2000 to January 2001) and the delay of the issue of CC to be 14 months (from 31 March 2000 to 4 June 2001). He further estimated that all the units in the “Original Scheme” should have been sold within a period of 15 months starting from the issue of CC for the “Original Scheme”. By comparing with the sale prices in a medium-scale estate known as Botania Villas completed in 1998 in the same area (Lam Tei), he valued the amount of total proceeds for the “Original Scheme” at $84,057,500. He then calculated the loss of sales proceeds at $24,518,900 (i.e. estimated sales proceeds for the “Original Scheme” $84,057,500 minus the actual sales proceeds from the “Revised Scheme” $59,538,600).

36. The Respondent’s expert, while not disputing the 14 month delay period, he estimated June 2000 as the starting date for the sale period of the units in the “Original Scheme”, 14 months before the date when the first unit of the “Revised Scheme” was sold. He opined that the sale period for the “Original Scheme” should be 47 months, that is the same as that for the “Revised Scheme”. Applying reverse indices of 14 months backwards to the actual sale prices of units in the “Revised Scheme” by reference to a table of indices entitled “Index for Sale Prices of Selected Popular Developments in the New Territories” published by the Rating and Valuation Department, he estimated the total sale prices of the units in the “Original Scheme” at $64,536,000 before arriving at his calculation for the loss of sale proceeds at $4,979,000 (i.e. total estimated sale prices for the “Original Scheme” of $64,536,000 minus the total actual sale prices for the “Revised Scheme” of $59,539,000).

37. The difference in valuation between the experts is the result of the different bases they adopted in their valuations, namely (i) the different starting dates for the hypothetical sale of units in the “Original Scheme”, (ii) the different time frames for the sale period of the “Original Scheme” and (iii) the different methods of valuation. It was the latter two that made a huge difference in their valuations.

38. The difference of 2 months for the starting dates of the sale of flats in the “Original Scheme” is not much. There was little change in market value of these flats in a matter of 2 months. Having said that we still like to make a ruling on this point as the ruling will make the assessment more definite and the same may affect the calculation of other losses.

39. The Respondent’s expert in Paragraphs 11.1 to 11.5 of his report dated 23 June 2006 (see Hearing Bundle No.1, Pages 47-50) gave a full account of how the development had been affected by the “TOA” resulting in a delay of 12 months for obtaining OP and 14 months for obtaining CC. He justified with considerable detail that were it not for the ”TOA”, the “Original Scheme” would have been completed with OP and CC issued at the end of January and the end of March 2000 respectively. We note that the CC for the “Revised Scheme” was issued on 4 June 2001.Working backwards to account for the delay of 14 months will mean that the estimated date for the issue of CC for the “Original Scheme” should be 4 April 2000. This supports the argument that the Applicant could have started selling the flats in the “Original Scheme” in April 2000 after the issue of CC which is a prerequisite for starting the sale of the flats under the Government lease conditions for the “Site”.

40. In his closing submissions, the Defendant’s counsel submitted that the delay described in Paragraph 11.3 of the Respondent’s expert’s report dated 23 June 2006 (see Hearing Bundle No.1, Page 47 and 48) relied on matters all of which stemmed from the KCRC works, not the “TOA”. He then worked out 19 August 2000 as the possible date for obtaining the CC for the “Original Scheme”. He also pointed out that by 5 February 2001, the contractor, Hoo Cheong, was threatened with liquidated damages for late completion, thus the delay to completion of construction work was not because of “TOA” but because of some default on the part of the contractor. We have examined the delays as described in the above-mentioned experts report and are satisfied that they are delays reasonably caused by the “TOA”. As for the possible delay of construction work by the contractor, the so called threats with deduction of liquidated damages merely appeared as footnotes on Architect’s Certificate No.MC-8 (dated 5 February 2001), No.MC-9 (dated 2 April 2001), No.M-C10 (dated 12 June 2001), No.MC-11 (dated 5 February 2002) and No. MC-12 (dated 17 May 2002)—see Exhibit A5. The standard footnotes on these certificates read: “The certificate is issued without prejudice to the right of the Employer to claim future date, Liquidated and Ascertained damages for the non-completion of the works by the date for completion”. We also note that the OP of the development was actually issued on 31 March 2001 while the above-mentioned footnotes only appeared on architect’s certificates issued on or after 5 February 2001. We do not consider these standard footnotes give concrete evidence to prove that the delay was because of some default on the part of the contractor. Considering all the evidence before us, including the agreement by the experts of both parties of a 14-month delay caused to the development, we on balance rule that the CC for the “Original Scheme” would have been issued on 4 April 2000 and that the Applicant could have started selling the flats in the “Original Scheme” in April 2000.

41. Now we turn to the probable speed of sale for the “Original Scheme”. It took the Applicant 47 months to finish selling all the flats of the “Revised Scheme”. However, the Applicant’s expert opined that as the selling of flats in the “Original Scheme” could have started in April 2000, the flats could have been sold much faster in view of the better economic conditions in 2000 as compared with those in 2001. He compared the GDP growth rate, the unemployment rate and the Heng Seng Index figures for these two years to support his point. He further quoted 3 projects in Tuen Mun, Hung Shui Kiu and Yuen Long, first put up for sale in February to May 2000, indicating that all the flats in these developments were either completely sold or mostly sold within periods of 4 to 14 months ( see Hearing Bundle No.1, Page 68). As these projects were built by big developers (Cheung Kong, the Sino Group and the Emperor Group), he reckoned that it would take longer than 4 to14 months for a small developer as in the present case to dispose of the flats in the “Original Scheme” and consequently arrived at a disposal period of 15 months.

42. The Respondent’s expert regarded that while the 15-month sale period and sale prices assumed by the Applicant for the “Original Scheme” was reasonable in the hypothetical situation, there seemed to be no reason to adopt a length of time any different from the actual 47 months spent for the disposal of the “ Revised Scheme”. Accordingly, he adopted the same length of time of 47 months for the sale of the “Original Scheme” in his valuations. In addition, he was of the opinion that secondary sales were a better indicator of demand than the overall or primary sales as the primary market (new home sales) tended to be distorted by flat releases and special marketing tactics in large developments. He produced a table (Hearing Bundle No.2, Page 122) showing the number of secondary residential sales in the New Territories over a 5-year period: 24,766 sales in Year 2000; 24,711 sales in Year 2001; 22,058 sales in Year 2002; 20,800 sales in Year 2003; and 33571 sales in Year 2004. This table, in our view, does provide a good indication of the level of activities in the residential sales market in those years and provides useful guidance for estimating the speed of sale of residential units in the New Territories in 2001 to 2004.

43.We consider that it is more probable than not that the delay in the competition of the development would affect the speed of sale in changing property market conditions. In the present case, the property market was falling and there was a definite fall in the number of sales in 2002 and 2003. It is therefore more probable that the sales of flats in the “Original Scheme” would have been completed in a shorter period than the 47 months actually took place for the “Revised Scheme”. The question is how much shorter.

44. The applicant’s expert relied on three developments with primary sales completed in 4 to 14 months to arrive at his estimate of 15 months for completion of sales for the “Original Scheme”, taking into consideration that those three developments could achieve quicker sales as they were sold by big developers. We consider that this is unreliable and over simplified. Big developers have huge resource of funds to embark on all sorts of vigorous and aggressive marketing campaigns including advertisements in all media. It is extremely difficult and unreliable to estimate a reasonable sales period for the “Original Scheme” in this way with limited number of comparables and information about them.

45. In his second report dated 12 December, 2006(Hearing Bundle No.1, Page 94), relying on the information in the aforementioned table “Secondary Residential Sales in the New Territories” (the “ NT Sales Table”) which indicated a relatively steady sales market from April 2000 to September 2002, and by adopting the rate of sales achieved initially by the “Revised Scheme” before the steady market ended, he illustrated that the “Original Scheme” would have been fully sold by February 2002, that is 23 months from the start of sales in April 2000. According to this illustration, the Applicant’s expert regarded that the disposal period for the “Original Scheme” would at most be 23 months. We consider that this is a more reasonable and reliable approach although we note that the Applicant’s expert still maintained that the “Original Scheme” could have been fully sole in 15 months from the start of the sale in April 2000.

46. A table recording the actual sales of units in the “Revised Scheme” (“Revised Scheme Sales Table”) produced by the Respondent’s expert is found in Hearing Bundle No.2, Page 124. We observed that whilst the CC for the “Revised Scheme” was issued on 4 June 2001 when sales could start, the first unit was only sold on 1 August 2001. A 14-month delay of the project means that the CC for the “Original Scheme” would have been issued on 4 April 2000 and the first unit, on the same basis as for the “Revised Scheme”, should be assumed to have been sold on 1 June 2000, not in April 2000 as suggested by the Applicant’s expert. Based on this observation, we have made an amendment to the Applicant’s expert’s calculations. Generally, we accept that the speed of sale achievable for the period May 2000 to September 2002 as illustrated in the “NT Sales Table” should be more or less the same. For the initial 14-month sales period (June 2000 to July 2001), we estimate the number of sales for the “Original Scheme” at 27, which is the same number achieved by the sale of the “Revised Scheme” in its initial period of sale of 14 months starting from August 2001. Then by following the actual sale dates for the units in the “Revised Scheme” which started in August 2001, we estimate that the remaining 17 units in the “Original Scheme” could have been sold by May 2002, 26 months from the estimated date for the issue of CC in April 2000 or 24 months from the estimated date for the sale of the first unit on 1 June 2000. Whilst the estimate of the hypothetical sale period for the “Original Scheme” is a difficult exercise, we consider that given all the available evidence, 24 months from 1 June 2000 is the best estimate one can achieve. We therefore rule that for assessing the loss of sales proceeds and extra finance costs, the sales period for the units in the “Original Scheme” are to be taken to be 24 months from June 2000 to May 2002.

47.We note that the Defendant’s expert queried the actual sales period of 47 months for the “Revised Scheme” more severely than he queried the 15 months estimated for the “Original Scheme”. He said in his second report dated 6 November 2006 (Hearing Bundle No.2, Page 108): “The sale of units in the actual situation and the hypothetical situation could have been achieved in a much shorter period (even one or two months) if the pricing and marketing had been different.” and “ In my view the Applicant could have sold the units in less than 15 months commencing in 2000 or 2001 but he did not do so when commenced in 2001 and the limited difference in liquidity in the market (as shown by transactions) would indicate that the probability is that the sales would have taken on similar time frame if sales had commenced in 2000 or 2001.” However, there is no evidence to suggest that the Applicant deliberately held up prices and unreasonably delayed the sales of the flats of the “Revised Scheme” so as to inflate its loss and claim for more compensation, bearing in mind that there was no benefit of hind sight when the Applicant decided to adopt its marketing and pricing strategy. Although it is generally accepted that sales could have been sped up by reducing prices, but then what would be the right amount of reduction without being queried at a later date? Who should make such pricing decision? Obviously, the Applicant made the decision without the benefit of hind sight. There is no evidence to prove that the Applicant did not make an honest decision. We therefore decide that the actual 47-month sales period for the “Revised Scheme” need not be changed.

48. In valuing the units sold for the “Original Scheme”, the Applicant’s expert made comparisons to the sales of units in Botania Villas, a medium-scale medium-size residential estate in Lam Tei, the same area in which the subject development Lingrade Garden is situated, containing flats of sizes and prices similar to those of the flats in Lingrade Garden. He reported that he had made adjustments for differences between the comparable development and the subject development in terms of location, view and type of recreational and other facilities provided but he did not disclose the details of such differences and adjustments. He adopted a broad brush approach by making comparison to the average prices of Botania Villas flats omitting prices which he thought were out of line without disclosing such omissions. He did not make adjustments to take account of different aspects (e.g. size, floor level, view, parking etc.) of individual flats. His explanation was that in valuing a group of flats by comparison with a group of comparables, the advantages and disadvantages of individual flats tended to even out. Finally, by adopting a spread of sales in the ratio of 70:20:10 for the three 5-month periods of the total 15-month sale period justified by him, he calculated a weighted average unit rate of $31,940 per square metre. Applying this unit rate to the total floor area, he arrived at his valuation of $84,059,500. However, in a muti-million dollar claim such as this, a more detailed valuation is expected.

49. Despite regarding that the use of Botania Villas as a comparable by the Applicant’s expert is not unreasonable, the Respondent’s expert preferred the use of a reverse indexing method. He made use of the “Index for Sale Price of Selected Popular Developments in the New Territories” published by the Rating and Valuation Department to calculate reverse indexes to apply to the actual sale prices of flats in the “Revised Scheme”, bringing the price level back 14 months to arrive at the estimated price level of sales for the “Original Scheme” to account for the 14-month delay caused by the “TOA”, assuming that the sale period for the “Original Scheme” was also 47 months, same as that for the “Revised Scheme”. By this method, he calculated the total estimated sales proceeds for the “Original Scheme” at $64,536,000 (Hearing Bundle No.2, Pages 123-125). He opined that using the actual sale prices for the “Revised Scheme” as bases would eliminate the need for making adjustments for the advantages and disadvantages for each flat. We consider that this method can only provide rough valuations and should only be used when there are no sales evidence of suitable comparable properties. Generally, whenever there are suitable and reliable comparables the Comparable Method is preferred. However, valuation by using an index can sometimes be used for making value adjustments for a time span which is not too long, the greater the time span the less reliable would be the valuation. The expert for the

Applicant criticized that this index was not for a particular class of property. It was only a general index covering 8 large distracts in the whole of New Territories: Sha Tin, Tai Po, Fan Ling, Sheung Shui, Tsuen Wan, Kwai Chung, Tuen Man and Yuen Long. Moreover, it covered 3 ranges of flat sizes—Type A (less than 40 sq. m.), Type B (40-69.9 sq. m.) and Type C (70-79.9 sq. m.).  Obviously, a more detailed valuation based on suitable comparables as opposed to the Applicant’s expert’s broad-brush approach is preferred.

50.At the final submission stage, the Applicant applied for permission to submit a more detailed valuation at a later date showing clearly the choice of comparables and valuation adjustments. As a more detailed valuation will greatly assist the Tribunal to arrive at a fair assessment of the loss of sales proceeds as well as provide a fall back position for the Respondent to produce their valuation based on comparables, we have granted the application to ensure fairness to both parties.

51. The hearing resumed in August 2008.  The parties produced a new bundle (the New Bundle) containing new valuation reports from the Applicant’s expert and the Respondent’s expert. Three additional exhibits A11 to A13 were also submitted by the Applicant’s expert during the resumed hearing.

52. The Applicant’s expert produced revised valuations for various estimated sales periods for the “Original Scheme” based on detailed analyses of sales of units in Lingrade Garden, the subject development, and in Botania Villa.  However, the Respondent’s expert did not regard units in Botania Villa are good comparables and produced revised valuations based on sales of units in Kam Fung Garden which is a New Territories village type house development in an nearby village area named Nai Wai.  The relative positions of Lingrade Garden, Botania Villa and Kam Fung Garden are shown on page 173 of the New Bundle.  In the light of the substantial difference in opinion expressed by the experts the Tribunal carried out a site visit to the above-mentioned three developments on 26 August 2008 in the presence of both parties.

53. The Claimant’s expert carried out revised valuations in commendable details after considering all actual transaction information in Lingrade Garden between July 2001 and May 2005 and those in Botania Villa between January 2000 and May 2005.  In a mass valuation exercise such as this involving 44 units, we accept the valuation method based on an average unit, (a bench mark unit) adopted by the Applicant’s expert.  We find that the adjusted average unit prices for different months for units in Lingrade Garden are reasonable and can mostly be adopted for the assessment of sales proceeds for the “Original Scheme”.

54. The Applicant’s expert’s adjusted average unit prices for units within Botania are on the whole reasonable, although the adjustments for mortgagee sales units and second sale units are a bit arbitrary.  The question is whether these adjusted average unit prices can be adopted for the valuation of units in Lingrade Villa.

55.The Applicant’s expert tried to relate the adjusted average unit prices of Botania Villa to those of Lingrade Villa as follows:

	Valuation Adjustments on Botania Villa
Location	+3%
Development Density/Design	+10%
Facilities Provided	-8%
Building Age & Quality	-3%
Building Management Services	-2%
View	0%
Resultant Adjustment	0%

Whilst we accept that the suggestion of the Respondent’s expert witness of some -70% total adjustment is highly exaggerated, any reasonable variation of the adjustment for location (no vehicular access as compared to close to public transport) to 0% and for Development Density/Design to 5% or below would make the valuation significantly off the mark.  More importantly, we noticed from the site visit that Botania Garden is a completely different type of development with 9 blocks each of 11 storeys with a total of 726 flats, 363 carparks and numerous resident’s amenities.  It is built to a standard much higher than that of Lingrade Garden which comprises eight 3-storey blocks providing 44 units with limited amenities, without vehicular access but close to public transport.  With the benefit of site visit we are convinced that a valuation by comparing Lingrade Garden and Botania Villa is not comparing like with like.  In our view, therefore, the sales in Botania  Villa cannot be accepted as suitable comparables and should be discarded.

56. The Respondent’s expert produced revised valuations based on sales of units in Kam Fung Garden.  Again, with the benefit of site visit, we noted that it is an average New Territories village type house development in the middle of a village environment with no amenities and built to a quality significantly inferior to that of Lingrade Garden.  Its access from Castle Peak Road is through a lengthy village road which makes pedestrian access very difficult.  We consider that Kam Fung Garden is not a suitable comparable for the valuation of units in Lingrade Garden.  Furthermore, we agree with the Applicant counsel’s closing statement “His methodology involves applying the R & V Index to produce prices for those months where there were no transactions.  But by constantly switching the base figure every time where a new comparable arises, he comes up with a set of adjusted value which totally does not tally with the trend of the R & V index which he relies so heavily on.  It is submitted that Pendleton’s methodology is wrong, hence his final adjusted values cannot be relied upon.”

57.As sales in both Botania Villa and Kam Fung Garden are not regarded as suitable comparables, we may only resort to the remaining available evidence which is sales in Lingrade Garden and the Rating and Valuation Department Index for the estimate of sales proceeds for the “Original Scheme”.

58. Now that we have made a decision that the sale period for the “Original Scheme” is estimated to be 24 months from June 2000 to May 2002 with 27 units to have been sold from June 2000 to July 2001 and the remaining 17 units to have been sold from August 2001 to May 2002.  We consider that in the absence of  exact evidence it is reasonable to assume that during the first period (June 2000 to July 2001) units would have been sold at a more or less even rate.  For the sale of units during the second period (August 2001 to May 2002), we decide to adopt the actual sale dates of the “Revised Scheme” with actual sales starting from August 2001 (see Bundle 2, page 124 and 125).  We therefore consider that a reasonable estimate of the sale dates for the units in the “Original Scheme” is as follows:-

	Estimated Number of Units Sold
2000 June	1
July	2
August	2
September	2
October	2
November	2
December	2
2001 January	2
February	2
March	2
April	2
May	2
June	2
July	2
August	1
September	0
October	0
November	2
December	3
2002 January	4
February	1
March	1
April	3
May	2

59. From actual sales, the Applicant’s expert provided Adjusted Monthly Average Unit Price figures for Lingrade Garden starting from August 2001 when the first unit in the development was sold.  Such unit price figures falling within the relevant period (June 2000 to May 2002) are as follows(see New Bundle page 113):

	Adjusted Monthly Average Unit Price ($ per m2)
2001 August	26,458
September	-
October	-
November	20,958
December	23,681
2002 January	23,110
February	24,187
March	24,833
April	24,380
May	24,176

Except for the November 2001 figure with is clearly out of line by referring to the Rating and Valuation Department index (see Bundle 2, page 123), the rest of the above figures are considered to be reasonable for the valuation of sale proceeds for the “Original Scheme”.  The figure for November 2001 can reasonably be adjusted to $24,625 by using the Rating and Valuation Department Index (76.5 for August 2001 and 71.2 for November 2001) and the August 2001 figure of $26,458 as base.

60. There are no actual sales evidence for Lingrade Garden before August 2001.  As there are no acceptable suitable sales comparables, we consider appropriate to rely on the Rating and Valuation Department Index (R & V Index) using the August 2001 figure as base to estimate the figures for the 14-month period from June 2000 to July 2001, in the special circumstances of this case lacking reliable sales comparables.  Accordingly, the figures we adopt for the estimate of sales proceeds for the “Original Scheme” become as follows:

Month of Sale	R & V Index	Adjusted Monthly Average Unit Price($ per m2)
2000 June	82.5	(28,533)
July	83.2	(28,775)
August	84.1	(29,087)
September	85.1	(29,432)
October	86.0	(29,744)
November	83.0	(28,706)
December	79.7	(27,565)
2001 January	79.1	(27,357)
February	78.6	(27,184)
March	80.0	(27,668)
April	79.2	(27,392)
May	78.5	(27,150)
June	78.2	(27,047)
July	77.1	(26,666)
August	76.5	26,458
September	74.2	-
October	72.1	-
November	71.2	(24,625)
December	71.8	23,681
2002 January	72.2	23,110
February	71.8	24,187
March	72.5	24,833
April	71.6	24,380
May	71.0	24,176

Note: Figures in brackets are estimated by relying on the R & V Index and using the August 2001 figure of $26,458 as base.

61. Based on the estimated sale dates for the units in the “Original Scheme” (see Paragraph 44 above), the estimated monthly unit prices (see Paragraph 47 above) and the average unit size of the flats in Lingrade Villa (total saleable area 2631.73 m² ÷ 44 units = 59.812 m² per unit – see New Bundle, Page 116), the estimated total sale proceeds for the “Original Scheme” can be calculated as follows:

	Estimated Number of Units Sold	Average Unit Size (m2)	Adjusted Monthly Average Unit Price ($ per m2)	R & V Index	Estimated Sales Proceeds ($)
2000 June	1   x	59.812  x	(28,533)	82.5	=1,706,616
July	2   x	59.812  x	(28,775)	83.2	=3,442,181
August	2   x	59.812  x	(29,087)	84.1	=3,479,503
September	2   x	59.812  x	(29,432)	85.1	=3,520,774
October	2   x	59.812  x	(29,744)	86.0	=3,558,096
November	2   x	59.812  x	(28,706)	83.0	=3,433,927
December	2   x	59.812  x	(27,565)	79.7	=3,297,436
2001 January	2   x	59.812  x	(27,357)	79.1	=3,272,554
February	2   x	59.812  x	(27,184)	78.6	=3,251,859
March	2   x	59.812  x	(27,668)	80.0	=3,309,757
April	2   x	59.812  x	(27,392)	79.2	=3,276,741
May	2   x	59.812  x	(27,150)	78.5	=3,247,792
June	2   x	59.812  x	(27,047)	78.2	=3,235,351
July	2   x	59.812  x	(26,666)	77.1	=3,189,894
August	1   x	59.812  x	26,458	76.5	=1,582,506
September	0   x	59.812  x	-	74.2	= -
October	0   x	59.812  x	-	72.1	= -
November	2   x	59.812  x	(24,625)	71.2	=2,945,741
December	3   x	59.812  x	23,681	71.8	=4,249,224
2002 January	4   x	59.812  x	23,110	72.2	=5,529,021
February	1   x	59.812  x	24,187	71.8	=1,447,673
March	1   x	59.812  x	24,833	72.5	=1,485,311
April	3   x	59.812  x	24,380	71.6	=4,374,650
May	2   x	59.812  x	24,176	71.0	=2,892,030
				Total	=$69,727.637

Note: Figures in brackets are estimated by relying on the R & V Index and using the August 2001 figure as base.

The estimated total loss of sales proceeds for the delay in completion of the development Lingrade Garden will be the difference between the estimated total sales proceeds for the “Original Scheme” ($69,727,637) and the actual total sales proceeds for the “Revised Scheme” ($59,538,600) which is $10,189,037, say $10,200,000.  We therefore determine the loss of sales proceeds caused by such delay at $10,200,000.

62. In the premises, the loss stood as at 4 June 2001 has been mitigated and reduced and we determine that estimated loss of sale proceeds to be 10.2 million.

Head E- Extra Finance Costs

63. It is the Applicant’s case that the Applicant financed part of the development project from banks. The delay of the completion of the project by the “TOA” caused additional interest payments for bank loans. Against the background of falling property market conditions the delay decreased the amount of sales proceeds as well as prolonged the sales period and all these caused increases in interest payments because of the delay in the repayment of bank loans. In addition, the “TOA” entailed the modification of the project and additional items of development cost, which are also additional items of claim, necessitating additional bank loans and interest payments.

64. The Applicant’s expert produced 5 schedules of interest calculations (Hearing Bundle No.2, Pages 261-276). Schedules 1, 2 and 3, relating to the “Revised Scheme”, showed interest calculations for development costs of the project under 3 separate bank accounts at different rates of interest charges. Schedule 4, also relating to the “Revised Scheme”, indicated interest charge calculations for additional items of development expenses that were drawn from a separate overdraft account bearing rates of interest different from those charged under the 3 bank accounts earlier mentioned. Whenever there were cash inflows from the project, e.g. sales proceeds and provisional compensation payments from Government, they were credited to the bank accounts to reduce the amount of outstanding loan and interest charges. The interest charges shown in Schedules 1-4 added up to the total interest charges for the development expenses for the “Revised Scheme”.

65. The Applicant’s expert also produced a Schedule 5 which contained estimated development expenses and interest charges for the “Original Scheme”. Again the estimated sales proceeds, based on an estimated sales period of 15 months at his own valuation, were credited back to set off the amount of the estimated outstanding loan and reduce the amount of estimated interest charges. The estimated interest charges in Schedule 5 added up to the total estimated interest charges for the “Original Scheme”. The claim under this Head is the difference in total interest charges between the “Revised Scheme” and the “Original Scheme”, i.e. the sum of interest charges shown in Schedules 1 to 4 minus the total interest charges shown in Schedule 5.

66. During the hearing, the Applicant’s expert produced a schedule (Exhibit A5) containing development expenditure items tallying with development expenses of the “Revised Scheme” shown in schedules 2 to 4. After much examination and cross-examination, we were able to follow all the schedules (i.e. Schedules 1 to 5 and Exhibit 5) though not without difficulties.

67 As a fallback position in case the Tribunal considered that the Applicant was entitled to compensation under this Head, the Respondent’s expert worked out a much lower figure for extra interest costs (Exhibit R3). He adopted the Applicant’s expert’s Schedules 1 to 3. For extra development items, he substituted the Applicant’s expert’s Schedule 4 with a “new Schedule 4” (Appendix la to Exhibit R3) omitting items he regarded as not claimable and making adjustments to items he regarded as only partly claimable. For estimated development costs and interest charges for the “Original Scheme’, he substituted the Applicant’s expert’s Schedule 5 with a new “Schedule 5” (Appendix ll to Exhibit R3) based on a sales period of 47 months and using his lower valuation for the sales proceeds. He then added up the interest charges for Schedules 1 to 3 and the “new Schedule 4” to arrive at the total interest charges for development expenses for the “Revised Scheme”. From this sum he deducted his estimated interest charges on estimated development costs in respect of the “Original Scheme” (the “new Schedule 5”) to come to a much lower figure of $835,171.54 for extra finance costs.

68. It is noted that the methods of calculation adopted by both experts wire very similar. Their difference was attributable to their different assumptions for (a) the claimable heads and the amounts of claims to which the Applicant was entitled under the various heads of claim, (b) the estimated length of the sales period for the “Original Scheme” and (c) the valuation of the sales proceeds for the “Original Scheme”. We have already made decisions on (a) and (b) under various heads of claim (Heads A to D) but still have to make a decision on (c) after considering further evidence and submissions to be submitted by the parties. After we have made a decision on (c), the parties should be able to agree on the calculations for extra finance costs, failing which they may apply to this Tribunal for a decision.

69. The Respondent’s counsel argued that the claim should fail on grounds that (i) the amount of claim could not be ascertained and (ii) an expert witness could not give hearsay evidence as to the facts of transactions which lie outside his personal knowledge. He referred us to Tate & Lyle v GLC [1982] 1WLR 149 to support his first ground of argument and to English Exporters v Eldonwall [1973] 1 Ch 415 to support his second ground. We have looked at these decided cases. In the first case, the claim for managerial and supervisory expenses failed because the plaintiffs had kept no records of the time expended on such work and hence such expenses could not be quantified either in cash or as a percentage of the damages awarded.. We consider that the facts in the present case are different from those in the cited case. In the present case there are records based on which interest expenses could be calculated. It is therefore our view that the authority does not lend any weight to the Defendant’s counsel’s argument. The second cited case contained a per curiam that a valuation expert could not give hearsay evidence as to the facts of transactions which lied outside his personal knowledge. However, we agree with the Applicant’s counsel’s submission that by virtue of section 10(6) of the Lands Tribunal Ordinance (together with Evidence Ordinance), all hearsay evidence is admissible in this court. The Respondent’s counsel pointed out that there were neither an accounting expert nor any Applicant’s accounting staff was called to give evidence and that the schedules showing interest calculations were given to the Applicant’s expert by a junior employee of the Applicant and the Applicant’s expert merely told the Tribunal what he had been told by the Applicant’s staff. However, we consider that this alone does not render the evidence inadmissible.

70. With the evidence before us and the expertise we have in this Tribunal, we are convinced that in a case such as the present one, where development had to be modified and consequently delayed against the background of a falling property market, there would often be an increase of development expenses and decrease in sales proceeds, which would in turn increase the amount of interest charges. The only question is how much. Now that experts of both parties adopted a similar method in calculating the extra finance costs based on similar schedules showing interest charges, the amount of extra finance costs can be calculated without much complication in accordance with this Tribunal’s decisions under Heads A to D in previous paragraphs, after a decision is made by the Tribunal at a later date on the valuation of the sale proceeds for the “Original Scheme”. We now determine to award the claim for extra finance costs to be calculated in compliance with this Tribunal’s decisions as just said. We hereby ask the parties to come up with an agreed calculation on the amount of extra finance costs after such later date, failing which parties may apply to this Tribunal for a decision.

71. Both experts calculated the extra finance costs on a cash flow bases for the whole development project. However we feel it is relevant to point out here that the additional items of development costs which are also additional items of claim, even if considered alone, should by themselves entitle the Applicant to the claim for interest costs.

72. The Ordinance specifies clearly the procedure of claim.  Procedure for submitting claim to the Government and for settlement between the parties are laid down in the Ordinance. The function of this Tribunal is to determine residual dispute between the Government and the Applicant.  What has been submitted to the Government and what items have been submitted before commencement of proceedings in this Tribunal is helpful especially when is not set out in the pleadings.  In this particular case, we can only guess from the glimpses of comment on the claim contained in the Government’s expert report. We do not have the complete picture of the history of dispute. Therefore we may not be able to fully grasp the weight of argument of the Applicant.  We must mention by passing that we failed to understand and would not guess at present what is the difficulty of producing some documents evidencing actual payment of interest. Some thing in the nature of certificate of payment of interest and bank statements would dispose of the lack of evidence point.

Costs

73. Order for costs is reserved.