SHAM CHI KEUNG v. 地政總署署長

LDLR 3 OF 2005

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LANDS RESUMPTION Application No. 3 of 2005

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J U D G M E N T

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The Claim and Dispute

1. By these proceedings the Applicant is claiming compensation for pre-resumption loss and for permanent loss under sections 10(2)(d) and 10(2)(e) of the Lands Resumption Ordinance.  The factual basis as contended by the Applicant is that he has not relocated his business. The Respondent disputes this contention and alleged that the Applicant has somehow relocated his business or alternatively it would be unreasonable for him not to do so.  The pre-resumption loss is also disputed.

The Scheme of Resumption and the Subject Business

2. The scheme of resumption is referred to as “K2” at this trial and the site resumed has now been redeveloped into the new landmark of Mongkok, the Langham Hotel Complex.

3. The subject business was a retailing business of LPG gas in cylinders operated by the Applicant on a ground floor side shop premises of about 40 square feet. At all material times, the landlord let the shop to the Applicant on monthly basis at $8,000. 

Relocation of Business and Permanent Loss

4. The resumption of K2 district began in 1993 and the households gradually vacated their premises. The Applicant stayed on operating his business till the final clearance day in December 1997. He claims he has not relocated his business. He has not given his full reasons in his witness statement. The reasons given in the statement by themselves are far from convincing, especially in the light of the steady turn over of some $ 3 millions over a long period up to his vacating from the premises in April 1997 and the nature of the business.

5. Ms Wu, counsel for the Government, pressed the Applicant for full explanation for not relocating his profitable business. In the course, the Applicant was shown to be an unreliable witness. More often than not, he avoided the questions and the answers he eventually gave were confusing at times and incoherent.

6. The crux of explanation eventually emerged can be stated in simple terms. He had looked for premises for relocation but failed.  He then gave away his business to his in-laws, his mother in law and/or his brother-in-law. He had to make such arrangement with the in-laws because he wanted his brother-in-law to take over his liability for the costs of empty cylinders. The way he came up with this full explanation clearly shows he was not a reliable witness.  If his explanation is true, it would be difficult to understand his demeanour in cross-examination.

7. His demeanour is not the only unsatisfactory feature of his evidence. There are others. His attempt to find alternative premises amounted to virtually nothing.  It was not clear how and when he looked for suitable premises. No details were given. He only managed to find and look at two premises which he could not afford. These premises were not comparable to the resumed premises, in terms of size and location. There should be other areas in the neighbourhood, as those suggested by the Government expert, where he should have looked for premises.  The business was profitable and there was ample time for him to look for alternative premises. The effort he described in looking for premises does not tally with the situation to the extent that we could not accept it being true.

8. The expert sought to support the Applicant’s claim for the difficulty of finding suitable premises by citing as an example, a shop in Nathan Road.  That shop is not a good comparable and the Applicant did not need such type of premises to relocate his business. Citing this example did more harm than good to the fairness and neutrality expected of an expert.

9. To support his giving away of his business within such a short period after acquiring distributor’s right from the supplier just for the costs of empty bottles, he relied on the two agreements.  None of these were mentioned in his witness statement and only came out at the very late stage of these proceedings. Yet he prevaricated when he asked how and when these agreements came into being. Despite being asked on many occasions, he failed to explain clearly what part did his supplier play in these agreements. Further none of these agreements or arrangements for empty bottles were referred to in the reply letter of his supplier to the Government answering the latter’s enquiry.

10. The arrangement with his in-laws as related by the Applicant does not make good sense. When he was unable to give a satisfactory explanation of the fact that his business registration certificate was found displayed at the Thistle Street shop, he eventually denied knowledge and simply put the blame on his in-laws. Furthermore, since he had operated his business for a long time, he should have a good idea of what price his profitable business would fetch without his expert telling him. Incidentally his expert assessed the value of business at about $1.6 million. Indeed according to his supplier, whoever operated the business after resumption managed to fulfil the sales required of him under his contract with the supplier and profits must have been made out of it. Yet he transferred his business to the name of his mother-in-law who, he claims, authorised his brother-in-law to operate it.   The obvious fact is that if he had relocated business he did not have to pay for the costs of empty bottles immediately.

11. The conclusion we draw from the facts, assisted by the opinion of the Government expert, is that either the Applicant has in fact successfully relocated his business or it is unreasonable for him not to do so. Either way, he has not suffered permanent loss and is not entitled to compensation under this head.

Pre-resumption Loss

12. The Applicant’s annual sales figures remained stable at the level of  $3 millions during resumption period. In cross-examination, the Applicant’s expert agreed, albeit reluctantly, the sales figures should be a good starting point to assess the effect of resumption.  The sales figures standing alone would lead to the view that the resumption exercise had no effect on the business of the Applicant. The Applicant’s expert maintained that this macro-view should be further analysed because of the substantial increase in sales costs, comprising giving out coupons, advertising etc. In principle this is a sound approach. The next thing that the Applicant’s expert looked into is the sales costs, especially the reasons behind its increase.  Quite unfortunately, his only source of information was the Applicant himself.  His findings in respect of the sales costs is nothing more than repetition of what the Applicant claims.

13. Even if the Applicant were to be believed that these sales costs were necessary in order to obtain the new clients to offset the loss of clients in K2 district, such expenditures must be a result of a decision of the most unreasonable kind.  The Applicant’s expert sought to argue that the sales costs were incurred by the Applicant in the process of mitigation of loss, and as such should be taken into consideration when assessing compensation. The increase in sales costs bears an unrealistic proportion to the loss of sales attributable to loss of custom in K2 district. Simple arithmetic can demonstrate that it would be unreasonable to incur these costs for the sole purpose of offsetting the custom in K2 district. This should be obvious to the Applicant. Yet the sales costs were maintained throughout the years during the resumption period. In fact we find that these increases in costs cannot all be attributed to the resumption. The Applicant has not been frank with us or with the experts, his own and the Government.  In these circumstances we are unable to apportion the sales costs so that part of it could be attributed to the loss as caused by the resumption.

14. Furthermore we accept the argument of Ms Wu and the opinion of the Government expert in respect of these sales costs.  There is nothing in the evidence to show the nexus between these sales costs and resumption save and except the assertion of the Applicant who is not a reliable witness.

15. The Government expert quite rightly pointed out the difficulties he has encountered in assessing the loss.  We find that he is a reliable witness.  He is entitled to his view in the light of the circumstances he was in. The various documents he would like to have were not available and it was the fault of the Applicant.   He came to the conclusion that there was no pre-resumption loss.  The basis is simply that sales during the resumption were not dropping at all.

16. The Applicant presented and prosecuted its claim in a messy way from the very early stage. But for his able counsel’s argument we were very much inclined to dismiss his claim.  Mr. Lui, quite rightly pointed out that the Respondent did not dispute the Applicant had an average annual profit of about $400,000 before resumption. What in fact disputed is what portion of these profits was derived from the K2 district. The Applicant alleged that about 35% of the profits came from K2 district before the resumption period. The Applicant’s expert undertook an exercise during adjournment remedying the criticism by the Government of its reliability.   As a result the Government is not in a position to dispute the veracity of the results of the exercise.

17. While the Government expert quite rightly proceeded to adopt his own method of assessment in view of the above-mentioned matters, we could not.   The Government expert used his expertise and knowledge about the area at the material time to assess the reliability of materials provided by the Applicant to support his claim.  Using the telephone lists and sales figures furnished by the Applicant, he demonstrated a ridiculous scenario relating to the consumption of LPG gas assuming the Applicant’s claim on the material supplied.  He therefore decided on an approach arriving at the conclusion that no pre-resumption loss. 

18. The Government expert is quite entitled to assess the compensation the way he did, just like we were much inclined to dismiss the claim simply on account of the lack of credibility of the Applicant.  The primary contention of the Government is that the loss in sales in K2 district was offset by new sales elsewhere. If that is the case, the increase- in- sales –costs argument would stand.

19. We accept Mr. Lui’s able argument that the Applicant must have suffered losses because of the moving out of clients from K2 district. The loss should be assessed from two figures, $460,000, the rounded off average annual net profit before resumption; and 35%. , the percentage of profit generated from K2 district.  In the circumstances we also have to make certain assumptions most favourable to the Applicant in assessing the loss before resumption. Firstly clients of the Applicant moving out at a steady rate over the four years. Secondly the Applicant did not need to incur expenses to retain his clients in K2 in a no-scheme world. Thirdly profit rent, interest on capital and owner’s remuneration were not deducted.  The result would be $322,000 (460,000 X .35 X 2). 

Conclusion

20. To the pre-resumption loss of $322,000, we add relocation expenses of $24,000. The total award is therefore $346,000. There also be a order nisi for costs in favour of the Applicant on High Court Scale to be taxed if not agreed with certificate for counsel.