LI PO CHUN ESTATES LTD. v. DIRECTOR OF LANDS

1996, CLR No. 5

Headnote

Property lawcompulsory resumption of privately owned landwhether post-scheme but pre-resumption High Court costs of owner in proceedings to determine disputed development value of land are recoverable as part of the compensation payable on the subsequent resumptioninitial negotiations to purchase scheme land conducted by and in the name of the Land Development Corporationif jurisdiction existed whether in terms of the statutory requirement the High Court costs were reasonably incurred.

Held :

1. The Lands Tribunal had jurisdiction to entertain an application by the owner for compensation to include its own solicitor-client costs incurred in the post-scheme but pre-resumption High Court proceedings;

2. On the facts the High Court costs were reasonably incurred;

3. Director of Lands to pay Applicant such costs as compensation pursuant to Sections 6 and 10 Crown Lands Resumption Ordinance, Cap. 124; the quantum of such costs to be taxed on the High Court solicitor-client scale if not agreed;

4 Order nisi for the costs of and occasioned by the review to be paid to the Applicant on the High Court party and party scale; to be taxed if not agreed.

IN THE LANDS TRIBUNAL OF HONG KONG

1996, CLR No. 5

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REVIEW JUDGMENT

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1. Judgment was delivered in this application on 14th February 1997, after which the Respondent applied for review. On the review, four principal issues were raised. At the review hearing an oral judgment was delivered on three of those issues, while judgment on the remaining issue was reserved. The order made in the original judgment in respect of that remaining reserved issue, was expressed in these terms :

1. The Respondent shall pay the Applicant's own solicitor-client costs in the High Court proceedings; to be taxed if not agreed and it is hereby declared that such costs do not include the party and party costs which by consent the Applicant paid to the defendants therein.

2. I confirm that the High Court proceedings were brought on 16th January 1991 by the Applicant as plaintiff against the Land Development Corporation ("LDC") and the Government as defendants. The High Court proceedings sought a declaration, that the land later resumed, was not subject to any height restriction. The prior stance of the LDC was that part of the land was subject to a height restriction. If so, it would have had an adverse effect, on market value. I record that when the height restriction was in dispute the LDC only offered $51,865,000 for the land, while after this dispute was resolved, it increased its offer to $125,000,000.

3. The pre-trial correspondence indicated that the Government did not share the LDC view that a height restriction affected part of the land. This led to the High Court proceedings being disposed of on 30th August 1991 by various consent orders. The proceedings against the defendants were stayed in terms, which included an acknowledgment by the Government to the Applicant, that there was no height restriction.

4. At the original hearing the Applicant submitted that its solicitor-client costs in the High Court were reasonably incurred in terms of Section 6 (2A) of the Crown Lands Resumption Ordinance, Cap. 124 ("CLRO") and cited, inter alia, this Tribunal's judgment in Suen Sun-yau v. Director of Buildings and Lands [1991] HKDCLR 33. The Respondent submitted that the High Court proceedings preceded the publication on 10th April 1992 of the resumption Gazette notice and therefore were not, in terms of Section 6 (2A), incurred in connection with the CLRO claim. The Respondent further submitted, that the costs were incurred not only pre-resumption but at a time when the Applicant was not dealing with the Government, but with the separate and distinct entity of the LDC. Finally, the Respondent submitted that if the Tribunal had jurisdiction to award costs, it should refuse to do so, as they were not, as required by Section 6 (2A), reasonably incurred. On the review these earlier submissions were substantially repeated.

5. Although the present dispute is not entirely a matter of statutory interpretation, the Tribunal accepts at once that if its jurisdiction under the CLRO is limited to costs reasonably incurred on or after the resolution to resume or the subsequent publication of that resolution in the Gazette, the Applicant's claim would fail. The High Court consent orders were made on 30 August 1991. The Gazette resumption notice was published on 10th April 1992. Fortunately, the jurisdiction of the Tribunal to award compensation, including costs, for periods before a resumption resolution and notice is now, if after earlier stages of uncertainty, tolerably clear.

6. The provisions of Section 6 require to be considered in the context of the whole of the CLRO. It is first necessary to go to the important provisions of Section 10 which provides :

"10	(1)	The Tribunal shall determine the amount of compensation (if any) payable in respect of a claim submitted to it under section 6 (3) or 8 (2) on the basis of the loss or damage suffered by the claimant due to the resumption of the land specified in the claim.
	(2)	The Tribunal shall determine the compensation (if any) payable under subsection (a) on the basis of -- ...... (e) ...... (ii) the amount of any costs or remuneration mentioned in Sections 6 (2A) and 8 (4)."

7. Therefore although costs are also separately referred to in Section 6 (2A), when awarded, they form part of the "compensation" determined by the Tribunal. The fact that compensation, as a matter of law, includes such costs is important when the authorities which follow are considered.

8. The Tribunal has for many years interpreted the words "due to the resumption" in Section 10, as meaning any loss or damage suffered by a claimant, which have a causal connection with the resumption. In earlier years there had been a conflict between English and Scots law whether pre-compulsory acquisition loss or damage, was compensatable. The Tribunal during that earlier period, preferred the Scots approach, that compensation should be awarded for all loss due to or occasioned by a resumption.

9. Under English law, compensation was only awarded for losses consequent upon a compulsory acquisition. Until 1983 pre-acquisition losses were not allowed, on the ground that a loss which preceded an acquisition, could not be a consequence of the acquisition. These historical differences are referred to in Cruden "Land Compensation and Valuation Law in Hong Kong", 75. The English Court of Appeal in Prasad v. Wolverhampton Borough Council [1983] 2 All ER 140, overruled previous English judgments and held that the words "in consequence" required only a causal and not necessarily a temporal relationship, between the resumption and the expenses incurred.

10. The Court of Appeal's judgment resulted in English law thereafter corresponding with Scots and Hong Kong Law. In other words, pre-acquisition losses were compensatable if there were a causal connection with the subsequent acquisition. The Tribunal's historic approach was upheld by the Privy Council in Director of Buildings and Lands v. Shun Fung Ltd. 2 AC 111, which adopted the lower Court phraseology of referring to the pre-resumption period, as the "shadow period".

11. The Privy Council at page 135, Letter G, posed the question whether a loss occurring before resumption can be regarded, for compensation purposes, as a loss caused by the resumption. After observing that a resumption is a coming event which may earlier cast its shadow, Lord Nicholls rejected the statutory dichotomy, advanced by the Government, as both artifical and unfair. Indeed, at page 137 Letter B, Lord Nicholls categorised that approach as indulging in legal pedantry of a most unattractive kind. The proper principle to apply is set out by the Privy Council, at page 137 Letter H, in these terms :

"... losses incurred in anticipation of resumption and because of the threat which resumption presented are to be regarded as losses caused by the resumption as much as losses arising after resumption. This involves giving the concept of causal connection an extended meaning, wide enough to embrace all such losses. To qualify for compensation a loss suffered post-resumption must satisfy the three conditions of being causally connected, not too remote, and not a loss which a reasonable person would have avoided. A loss sustained post-scheme and pre-resumption will not fail for lack of causal connection by reason only that the loss arose before resumption, provided it arose in anticipation of resumption and because of the threat which resumption presented. In terms of the Resumption Ordinance, a pre-resumption loss which satisfies these criteria is as much "due to" the resumption of the land as a post-resumption loss."

12. The compensatable "shadow period" may therefore be defined as the period from the commencement of the scheme to the date of resumption. A scheme arises as a consequence of administrative and statutory steps and is a concept, largely developed by the common law. The law is well settled that scheme losses attract compensation but scheme gains do not. A scheme evolves over time and may not necessarily come to fruition. In the present case the scheme may go back as far as 1989 when the scheme plan was submitted to the Town Planning Board. For present purposes, the Tribunal is content to find, that it certainly existed from at least 21st May 1990, when the Town Planning Board designated the land as part of a Comprehensive Development Area and approved the plan for urban redevelopment. The scheme evolved to a successful fruition when the land was expressly resumed by the Government for the implementation of this Development Scheme, with the land reverting to the Government on 10th July 1992.

13. If the steps taken to acquire and ultimately resume the land from 21st May 1990 to 10th April 1992 or 10th July 1992, had been exclusively taken by the Government, the Tribunal would have had no difficulty in finding that the High Court costs, were losses which were compensatable within the shadow period. Further, in view of the important dispute over height restrictions and the substantial increase in the offer of compensation after the dispute was resolved, it would have had little difficulty in finding, that commencing the High Court proceedings was reasonable.

14. However, this particular resumption occurred only after the LDC requested the Government, to resume the land under the CLRO. It is therefore necessary to go on and consider whether from that factual difference, any legal consequences flow adverse to the Applicant. The scheme was first approved for planning purposes by the Town Planning Board in 1990. The land was thereafter sterilised from being used for any other development. I confirm but will not repeat the unique status of the LDC as a statutory corporation, with the exceptional power to request Government to resume land, it does not voluntary purchase. In view of the powers of the LDC and its relationship with Government set out in the Tribunal's original judgment, I find that the Applicant from at least 21st May 1990 was entitled on reasonable grounds, to conclude, that if it did not voluntarily sell to the LDC, its land would be resumed by the Government for the same purpose. In other words since 1990 the land was under threat of resumption. The Applicant was reasonably entitled to anticipate that resumption was a real possibility.

15. The Respondent submitted that if a voluntary sale had occurred, there would have been no resumption and no right to claim costs under the CLRO. In that event, that would certainly have been the position. However, that possibility did not occur and for present purposes is irrelevant. The possibility after a development scheme, with the ultimate sanction of resumption, becomes known, not proceeding to resumption, is not unusual. It may be abandoned. It may become unnecessary because the land is voluntarily purchased by agreement. In the latter event, the agreement may include provision for the Government to pay any costs already incurred. The possibility of a scheme not culminating in resumption, was adverted to by the Privy Council in Director of Buildings and Lands v. Shun Fung Ltd. . At page 138, Lord Nicholls stated :

"Their Lordships have in mind that, at the outset of a shadow period, there may be no certainty that resumption will take place ... . Of course, many schemes involving resumption or compulsory acquisition do not come to fruition. Meanwhile properties may be unsaleable, and no compensation will be payable ... . The existence of this type of loss, for which the land owner may be without remedy if resumption does not take place, is not a sound reason, when resumption does take place, for drawing the compensation boundary in such a way as to exclude all pre-resumption loss."

16. The Tribunal accepts that if no resumption had occurred the present disputed costs would not be recoverable under the CLRO. If the scheme were abandoned the costs, as a matter of law, would have been irrecoverable. If the Applicant had sold voluntarily during the shadow period, it would have a matter for negotiation, whether in addition to the price for the land, the owner also obtained payment of the High Court costs. These two alternatives are entirely matters of speculation. On the other hand, the undisputed position before the Tribunal, is that the scheme was not abandoned and in the absence of agreement the Government, under the CLRO, compulsorily resumed the land.

17. After reconsidering the provisions of the LDC Ordinance and the findings in the original judgment, the Tribunal remains convinced that the fact that the initial negotiations were by the LDC, is not fatal to the Applicant's claim. Further, the Respondent's submissions ignore two important pre-resumption facts. First, the High Court proceedings were not merely against the LDC but were also brought against the Government, in the person of the then office of the Attorney-General. Secondly, the consent orders in those proceedings, included an acknowledgement by the Attorney General, that the land was not subject to the height restriction. Accordingly, the height dispute, which was central to the issue of compensation, was resolved by the Attorney-General's acknowledgement favourable to the Applicant, expressly incorporated as a term of the consent orders. I am aware that the consent orders included a provision that the Applicant paid the party and party costs of those proceedings. It is not open to this Tribunal to go behind such an order and still less to speculate upon the reasons for it being in those terms.

18. The Tribunal also reminds itself that it has already held in Suen Sun-yau v. Director of Buildings and Lands that under the CLRO, the Tribunal has jurisdiction to award an applicant compensation for the solicitor-client costs of prior High Court proceedings. In that case the Tribunal held that the costs of the High Court proceedings were reasonably incurred. The High Court had ordered the Applicant to pay the Government's party and party costs. The Applicant before the Tribunal only asked to be compensated for his solicitor-client costs. Although there are some differences, the position, in relation to the present case, is not dissimilar. The Applicant in both cases had adverse High Court party and party costs orders. I appreciate that in the present case that order was by consent and that the LDC was also a party to the present High Court proceedings. I hold that those factual differences are not of any legal significance. In each case the Tribunal ordered the reimbursement of the Applicant's solicitor-client costs.

19. To return to Section 6 (2A), the Tribunal confirms that the words "may include a claim for, any costs or remuneration reasonably incurred or paid by him in employing persons to act in a professional capacity in connection with such offer or claim." require to be construed together with the provisions of Section 10. Section 10 defines compensation as including Section 6 (2A) costs. If those two sections are properly construed, costs may be claimed for employing persons to act in a professional capacity in connection with the claim for compensation from the date the scheme came into being. The statutory protection given to the Government, is that such costs must be "reasonably incurred".

20. The Respondent's submission on Section 6(2A) would require the words "in connection with such ... claim", to be restrictively limited to those post-resumption order costs, directly related to the formal application to the Tribunal for compensation and the subsequent steps in those proceedings. Authority, to the contrary, requires those words to be purposively construed in relation to the claim and not temporally confined to the formal application to the Tribunal. On a purposive approach, once the resumption became a reality, the costs "in connection" with the claim, are in effect retrospectively extended to earlier costs reasonably incurred, during any stage of the scheme, while the Applicant was under threat of resumption. The Tribunal has already held that the Applicant was under threat of resumption from at least 21st May 1990.

21. The Respondent also stressed that it was not until 17th October 1991 that the LDC in correspondence to the Applicant, first raised the threat of resumption. The High Court orders were made a little earlier on 30th August 1991. This submission was also misconceived. The LDC letter was merely its first express written reference, to the already existing and growing threat of resumption, if agreement was not reached. The letter is in fact evidence, favourable to the Applicant, of that continuing threat of resumption. It is indicative of the fact that as time passed after 21st May 1990 typically, as adverted to in Director of Buildings and Lands v. Shun Fung Ltd., at page 138, Letter F, the likelihood of resumption increased.

22. The likelihood of resumption, in fact culminated in the resolution of the Governor-in-Council to resume, published in the Gazette on 10th April 1992. On that event occurring, the likelihood of the resumption, passed from a threat to a reality. Against this background, the Tribunal remains satisfied that costs reasonably incurred during the shadow period, relevant to supporting the later formal application for compensation, equally fall within the statutory requirement of being in connection with such claim. To adopt, with respect, the language of the Privy Council, page 138, Letter F, this Tribunal on the disputed costs issue, can see no sound reason for attempting to draw a spurious line somewhere along this penumbra of gradually darkening shadow.

23. The Tribunal also remains satisfied that the disputed costs were reasonably incurred. In passing, the Tribunal reminds itself that the LDC in its Assistant Director's affirmation in the High Court proceedings, welcomed such guidance as the Court could give on the development potential of the land. More importantly, the Government in those proceedings made an acknowledgment favourable to the Applicant, on the disputed height restriction issue, which was elevated to an order of the Court. The fact that the land was not adversely affected by a height restriction, was a crucial factor in determining quantum. It led to the earlier settlement offer of $51,865,000 first being increased on 26th February 1992 to $125,000,000 until later on 5th July 1994, compensation was agreed in the even higher sum of $155,700,000.

24. The Tribunal confirms that its interpretation of Sections 6 (2A) and 10, accords with now well settled principles of purposive construction - Bennion 'Statutory Interpretation' (2nd edition) 549, 660-2. This interpretation is also supported by the Privy Council's purposive approach in Director of Buildings and Lands v. Shun Fung Ltd. where in construing the same Section 10, it rejected a literal and perhaps superficially logical construction, by holding that on a causal and not temporal approach, pre-resumption costs and losses were recoverable.

25. For all these reasons, the Tribunal on the solicitor-client costs issue remains of the view, already expressed in its original judgment. Accordingly, on the remaining reserved issue, it confirms Order 1 of its judgment dated 14th February 1997. I record that the quantum of the allowed costs is a matter for agreement or taxation. To that extent, I declare that the reference at page 4 of the original judgment, to the global sum of $2,292,509 is not precisely relevant to quantum. In fact that sum comprised three elements of which only one related to the disputed solicitor-client costs. On review, the Tribunal expressly refrains from making any observations as to quantum, as these, if not agreed, are taxation matters.

26. The Tribunal in its original judgment made an order nisi as to costs, for the substantive proceedings, in favour of the Applicant. No costs application to the contrary, was made within the stipulated 14 days. In the prior review judgment, dated 10th April 1997, a declaratory order was made that the order nisi had, as a consequence, become absolute. The costs of the review were reserved. Now that the Tribunal has ruled on the remaining issue, the factual position is that the Respondent has largely failed in these review proceedings. I propose to make an order nisi for the costs of the review in favour of the Applicant.

27. Accordingly to complete these review proceedings, the Tribunal now orders :

1. Order 1 of the Tribunal judgment herein dated 14th February 1997 is hereby confirmed ;

2. There shall be an order nisi that the Respondent pay the Applicant's costs of and occasioned by the Lands Tribunal review proceedings; to be taxed if not agreed on the High Court party and party scale with a Certificate for Counsel; to become absolute unless within 14 days there is an application to the contrary ;

3. In the event of any costs application to the contrary being made pursuant to Order 2 hereof, written submissions in support thereof shall be filed with such application; leave is granted to the other party to file written submissions thereon within 14 days thereafter ;

4. Liberty to apply.

DATED this 28th day of August 1997.