Fung Kai Yin and Others t/a Hang Lam Tong Sun Yung Seafood and Medicine Co. v. Director of Lands

Crown Lands Resumption
Reference No. 12 of 1995

-----------------

HEADNOTE

-----------------

Property law - Crown Lands Resumption - Chinese Medicine Shop - Business Losses - Valuation of Goodwill - Valuation of Stock - Valuation of Fixtures and Fittings - Crown Lands Resumption Ordinance, Cap. 124, s. 10(2)(d)

Chinese medicine shop selling herbs and foodstuff on rented ground floor premises ceased business upon resumption of the premises by the Crown. At the time of resumption, the lease for the subject premises had less than two years to run. The stock held by the business in September 1993 was checked and recorded but not re-checked prior to auction in April 1994. The applicants who were partners of the business claim, inter alia, loss of goodwill, loss of profits, loss on forced sale of stock by auction and recovery of decoration expenses totalling over $9.243 million. The applicants valued their stock as recorded and sold by auction at over $3.355 million whereas the price fetched at the auction was $45,000 only. The respondent contends that compensation should be on relocation basis because the business continued under the same name by two shops in different areas after the subject premises were vacated. Counsel for the respondent suggests that the test for a total extinguishment claim should be that propounded in Director of Buildings and Lands v. Shun Fung Ironworks Ltd. [1995] 1 HKC 417, i.e. (a) could the business be relocated; or had it effectively extinguished; (b) did the claimant intend to relocate; and (c) would a reasonable businessman relocate the business? An expert for the respondent suggests that business goodwill can be determined by reference to the amount of compensation for loss of goodwill received by similarly affected business operators. Quantum for each item claimed is also disputed.

Held: (1) In accordance with s. 10(2)(d) of the Crown Lands Resumption Ordinance, the applicants are entitled to compensation that would restore them to the business position where it would be had there been no resumption, i.e. an amount of compensation so as to restore the applicants to the position where they were at the time of resumption. (2) The test for a total extinguishment claim is not that as suggested by counsel. The test propounded in Director of Buildings and Lands v. Shun Fung Ironworks Ltd. is applicable to a relocation claim only. The test for a total extinguishment claim is whether, taking into account all factors and circumstances, a business operator can be reasonably expected to continue the business elsewhere. (3) The business cannot be regarded as having re-located for the shops under the same trade name had different partners. Businesses with different combinations of partners should be regarded as separate and distinct entities. (4) The established method for determining goodwill is to first ascertain the normal profit trends of the business before resumption. Conceivably, the reported profits of the business, the rental value of the premises at which the business was conducted or the wages and salary costs of the business may be used as basis for this purpose because each of them may somewhat relate to the profitability of the business. Once the annual profit trends of the business has been arrived at, it must be related by multiplication to the anticipated future life of the business, had the business premises not been resumed. Then the product is discounted, if appropriate, for interest on capitalized profits immediately available for investment or other use. (5) Comparables suggested for determining goodwill rejected for they are not real comparables. (6) Using reported taxable profits of the business, goodwill valued at $1.2 million, being $0.6 million profitability per year multiplied by a factor of two. (7) Using auction price as a reliable objective indicator, ordinary market value of the stock of the business determined at $157,000 being $45,000 multiplied by a factor of 3.5. (8) After adding other items allowed, total $2.06 million awarded.

IN THE LANDS TRIBUNAL OF HONG KONG

(Crown Lands Resumption Reference No. 12 of 1995)

__________________

----------------

------------------------------------

JUDGMENT

------------------------------------

The Applicants are the partners of a shop known as Hang Lam Tong Sun Yung Seafood and Medicine Co. ("the business") at rented premises situated at No. 11, Ground Floor, Ma Tau Kok Road, Kowloon ("the subject premises"). The subject premises were resumed by the Crown pursuant to section 3 of the Crown Lands Resumption Ordinance, Cap. 124 ("the Ordinance") under a Notice of Resumption dated 26th June 1992, published in Volume CXXXIV Hong Kong Government Gazette on 3rd July 1992 as G.N. No. 2264 of 1992 and reverted to the Crown on 3rd October, 1992.

2. Despite advice given by several members of the Tribunal at various stages, the Applicants decided not to engage legal representatives or valuers of any speciality to help them to prepare their case. The Tribunal has also repeatedly emphasized in open court that the burden was on the Applicants to prove each and every element of their claim. During the trial, Mr. Fung representing all the partners of the business was given ample opportunities to adduce more evidence, if any, and to canvass more effectively for the Applicants' case.

3. It is common ground that the Applicants are entitled to compensation for business loss calculated under section 10(2)(d) of the Ordinance as -

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

In practical terms, the Applicants are entitled to reimbursement that would restore them to the business position where it would be had there been no resumption. In this regard, they claim the following business losses:-

4. Miss Fung, counsel for the Respondent, contends that compensation should be assessed on the basis of re-location of the business. And, the quantum for each item claimed is disputed. The Respondent's assessment of the losses suffered by the Applicants, assuming compensation is payable, has been revised several times during the course of these proceedings. By way of final submission, counsel for the Respondent contends that the compensation due to the Applicants should be as follows:-

(a) If on total extinguishment basis

(b) If on relocation of business basis

5. Before we proceed further, we should point out that the subject premises were part of a major resumption of more than one hundred properties for the Hong Kong Housing Society's Urban Improvement Scheme ("the Scheme"). In addition to Ma Tau Kok Road, the Scheme site extended to Sui Lun Street, Wang Cheung Street, Pak Tai Street, San Shan Road and Pau Chung Street in Ma Tau Kok. The present case is one of nearly thirty applications by business operators affected by the Scheme for compensation who felt unable to accept the Crown's offer for settlement. Whilst each case must be decided on its own facts, an understanding of the background circumstances helps us to appreciate the proper context and understand the differences between the parties on specific issues. Having considered and otherwise dealt with a number of these claims, examined photographs of the area in general and of the individual streets and heard quite a few estate surveyors and witnesses involved, we believe we now have a fairly good idea of the locality and the resumption process.

6. The area affected by the scheme was essentially an old residential area. Most buildings were constructed immediately after the Second World War. All the buildings we have had to consider were not higher than six storeys and did not have a lift. The upper floors were mainly tenement flats with perhaps the odd business or other trade. We have heard evidence that some of the buildings were issued with occupation permits for "domestic use" from the ground floor upwards. But nearly all ground floor units in the area were used as shops, restaurants or workshops. Many of these enterprises and over-grown small operations were run by families who, as can be expected, are poor managers; business takings went straight to meeting family, personal and trading expenses. Few, if any, had an accounting system; single entry records at best. And because it was a run down area, landlords and local residents were more tolerant of environmental, building and land use abuse. Most, if not all, ground floor units in the area had some sort of cockloft and an open yard which might be covered and protected from the elements by some overhead structure. Retail and food businesses in the area would hardly be able to find elsewhere with comparable cheap rent or purchase price and yet more storage or useful space. Moreover, the area was also partially industrial, with a significant number of factory buildings right outside the fringes of the plots affected by the Scheme. This means that the clientele for retailers and food businesses were not limited to local residents, but also workers who filled the streets in the area during lunch hour and for a period before and after work.

7. The Scheme was actually in the winds well before the resumption notices were issued in July 1992. Earlier, the Housing Society had begun to buy out some of the landlords and tenants in the area. After the resumption was gazetted in July 1992, the intention clearly was all the owners, occupiers and business operators would clear out in October 1992. Some did. Apparently, the landlords and tenants on the upper floors were dealt with first. The business operators on the ground level were given several extensions of time for moving out. Eviction was postponed first to the end of 1992, then to the beginning of 1993, then to September 1993 and eventually to April 1994. During all this time, the tenants were allowed to occupy and business operators permitted to trade (if there was still business) without having to pay rent. At first, claims for compensation were handled by the staff of the Housing Society which had a field office in situ. Later, processing of these claims was taken over by the Lands Department. It was in September 1993 that the Housing Society and the Lands Department sent staff to the ground floor businesses to take stock and inventory with the view to clearing them out then. Many of the claimants say that they handed over original documents and papers substantiating their claims to the Housing Society or the Lands Department during this period, hence they no longer have all the proof for their claims now. There is no doubt that a number of representatives of those affected by the Scheme had several meetings with officials of the Lands Department. They also sought help or mediation from local politicians and OMELCO. There were definitely letters passing between the parties, including offers of ex-gratia compensation. Some of the disputes were settled. Some claimants allege that they were given the impression that if they wanted to preserve their right to full compensation they had to cease trading, auction off their stock and not continue business in another locality. Others say that the ex-gratia payments they received on account from the Government were not enough to cover the costs of setting up elsewhere and the Government refused to lend them money, so that they were unable to re-locate. In any event, even if they could move to elsewhere, with higher rent, more restricted land use, different clientele and perhaps difficulties with labour supply, business would not be the same. But we hear from counsel for the Respondent that the Housing Society and the Lands Department had not advised the claimants to close their businesses altogether. We think there may be some misunderstanding there. In many cases, counsel for the Respondent says, the Housing Society and the Lands Department do not have the documents which the claimants allege they have handed over. We cannot determine who is right or wrong in fact in this respect; but, during the change over from a Housing Society operation to Lands Department processing, the possibility of some bureaucratic mix-up cannot be ruled out. In any event, it is pointless to argue and ponder over irretrievable papers now.

8. It was in April 1994 that the authorities managed to evict the remaining affected ones. There was a furore at the time, with angry words uttered, force displayed and the attention of the mass media attracted. The claims we have to deal with are mainly concerned with those who moved out in April 1994. Probably due to the confusion and urgency at the time to clear the remaining business operators, their stock and inventory were not checked again. Some operators were able to remove their stock as they planned, some were locked out first and then allowed to retrieve their possessions. Some claimants say that their business books and records were left and lost in the resumed premises as they left in a hurry or were forced out. Upon eviction, most of the business operators had their stock, plant and machinery transported to a place in the New Territories and auctioned off by one common auctioneer. It is now undisputed fact that there is no reliable inventory of the actual stock, plant and machinery sold by auction for each claimant. Divers counsel for the Respondent in these cases have explicitly or impliedly wondered whether the stock, plant and machinery sold by auction were the same as those recorded in September 1993. This is a problem we encounter in virtually every case before us.

9. We now consider each of the issues and items of claim under separate heading.

Total Extinguishment

10. The Respondent has, in fact, in other related cases challenged the parties in those cases their claim for loss of goodwill based on total extinguishment of business. We thought we have explained our approach convincingly to the parties earlier. However, the same issue is raised again with weighty authority cited in support. In deference to counsel's submission, we feel obliged to address the issue with the required attention.

11. Miss Fung for the Respondent says that the criteria for deciding whether compensation should be assessed on total extinguishment or relocation basis are set out in Director of Buildings and Lands v. Shun Fung Ironworks Ltd. [1995] 1 HKC 417. These are :

(a) could the business be relocated; or had it effectively extinguished;

(b) did the claimant intend to relocate;

(c) would a reasonable businessman relocate the business?

12. The relevant part of the advice of the Judicial Committee of the Privy Council at p. 429 is in these terms:-

"Three principal questions arise on relocation claims (1) Can the business be relocated, or has it effectively been extinguished?............ (2) Does the claimant intend to relocate?.........(3) Would a reasonable businessman relocate the business?"

The preamble in this part of the Board's advice says quite clearly that the three questions posed were directed at a relocation claim. In fact, the Board rejected the claim on relocation basis. We have no doubt that where the claim is for total extinguishment, the three questions would be irrelevant and the authority under consideration is distinguishable from this case. Nonetheless, some guidance can be found in the Board's advice at p. 428 as follows:-

"It all depends on how a reasonable businessman, using his own money, would behave in the circumstances. Such a case, however, the tribunal or court will need to scrutinize the relocation claim with care, to see whether a reasonable businessman with adequate funds of his own might incur the expenditure. This is particularly so when, as in the case of Shun Fung, compensation assessed on a relocation basis would greatly exceed the amount of compensation payable on an extinguishment basis. The greater the disparity, the more closely the claim should be examined, because the less likely would it be that a reasonable businessman would behave in this way. Compensation is not intended to provide a means whereby a dispossessed owner can finance a business venture which, were he using his own money, he would not countenance."

13. We have pointed out in other cases that goodwill consists of the elements of personality and location. In some cases, the element of location may be far more important than personality. The most charming proprietor would not be able to generate enough profitable business at a location where there is no or lesser demand for the goods or services the business provides. Once it re-locates, a business has to contend with another catchment area where even if the same kind of clientele is there the competition scenario may be quite different. Moreover, the initial costs of setting up elsewhere cannot be ignored. Resumption albeit for the public good is a tortious interference with the rights and interests of legitimate property owners and business operators. It is trite law that a tortfeaser is obliged to compensate even if the victim happens to have a thin skull. It would not be fair to expect every business to have standby financial resources for re-location at any time the authorities see fit to resume the site on which the business was operating. Nor can we assume that an operator may readily acquire a similar undertaking in another area. It appears implicit in the Privy Council's advice that a businessman should not be expected to relocate if he does not have adequate funds of his own. We also consider it a truism in life that the operator of a profitable business is most unlikely to fold his business before giving careful consideration to and making serious efforts for relocation so as to preserve the pride embodied in the business establishment and to continue to reap the profits of an established undertaking.

14. Mr. Clarke, valuation expert for the Respondent, says in evidence that it should not be difficult to set up an operation like the business in other parts of Hong Kong and hence the business should have relocated. We do not think Mr. Clarke really knows what it takes to set up and to run a shop for selling Chinese medicine and foodstuffs. Such a business involves far more than just finding a shop space. Hence we attach no weight to Mr. Clarke's bland opinion in this regard.

15. The Respondent also relies on undisputed evidence that Mr. Fung among the Applicants is also a partner in two similar businesses bearing the same name of Hang Lam Tong, one in Prat Avenue, Tsim Sha Tsui registered in 1993 and one in Ma Tau Kok Road registered in 1994. Counsel for the Respondent says that such are evidence of continuation of the business and hence there was no total extinguishment. We observe that each of the two other Hang Lam Tong has a different set of partners including strangers not found in this case. It is trite law that they must be regarded as different businesses. Therefore, with respect, we cannot treat either one of the other two Hang Lam Tong as a continuation of the business.

16. Mr. Fung for the Applicants said in evidence at first that they would have no problem at all in moving to other premises, but they were told by the Lands Department to cease business. During re-examination, Mr. Fung added that the Applicants had to cease business because, inter alia, they could not move with only $200,000 advance compensation payment. They needed much more for decorating new premises. We take all these to mean that whilst the Applicants would have no problem at all in finding alternative accommodation, they did not have sufficient means to meet the costs outlay for relocation. The other two Hang Lam Tong might well be started with new finance from other partners. Having considered all the evidence, and taking into account all factors and circumstances, we conclude that the Applicants cannot be reasonably expected to continue the business elsewhere. We also find that the business has not relocated. In the premises, we treat this case as one for total extinguishment.

Goodwill

17. A classic definition of business goodwill can be found in the formidable work - Land Compensation and Valuation Law in Hong Kong by H.H. Judge Cruden at pp. 79-80 as follows:-

"Goodwill is the value of that element of profitability which arises from either one of two factors or a combination of both. Those factors are first, the specific business connections in respect of the resumed premises and secondly, those due to the personality of the owner. In some cases a resumption may only affect or extinguish the former species of goodwill. The personal goodwill of the owner may only be partially affected or not affected at all if the business can promptly be relocated to a new suitable site." (Page 16 of the judgment in Callwin International Electric Co. Ltd. v. Director of Engineering Development MTR 3 of 1984).

This definition must be properly understood. Whilst goodwill is often valued by reference to profits, it is profitability on account of shop location and personal connection that is the true measure of goodwill. In Director of Buildings and Lands v. Shun Fung Ironworks Ltd. [1995] 1 HKC 417, the Judicial Committee of the Privy Council at page 436 of the Board's advice further observed that:-

"However, this must not lead the tribunal into the error of equating the amount of a claimant's loss with the price he could obtain if he sought to sell the future profit stream to an outside commercial investor. Even on the willing seller basis, a prudent landowner running his own business might be prepared to pay more to keep his land and business and the expected profits than would an outside investor to acquire them. He might be prepared to accept a lower rate of return than an outsider who has no personal links in the business. In appropriate circumstances a tribunal may properly recognize this and make a modest allowance accordingly."

18. In Callwin International Electric Co. Ltd. v. Director of Engineering Development MTR 3 of 1984, at page 17, the Tribunal stated that:-

"There are several methods of valuing goodwill and each has its advantages and disadvantages. Some methods are more appropriate for certain cases than others. The selection of a particular method will often depend on the factual situation. At times it may be helpful to use more than one method so that each may be a check on the goodwill figure arrived at by the other. This is a complex area of valuation."

The Tribunal also observed that:-

"Any assessment of goodwill includes an element of arbitrariness for it involves projections into the future often on the basis of minimal information of even existing factors. The employment of scientific methods should tend to improve the soundness of the ultimate assessment. However, in most cases it will merely narrow the range within which a realistic assessment may be made. In making a final assessment within that range experience and at times even intuition will be of importance." (Page 16 of the judgment and quoted in Land Compensation and Valuation Law in Hong Kong by H.H. Judge Cruden at page 81.)

19. The method we adopt is the one explained in Land Compensation and Valuation Law in Hong Kong by H.H. Judge Cruden at pp. 80-81 and which we have applied in other cases arising from the Scheme. First, we establish the normal profit trends of the business before resumption. Conceivably, the reported profits of the business, the rental value of the premises at which the business was conducted or the wages and salary costs of the business may be used as basis for this purpose because each of them may somewhat relate to the profitability of the business. Once the annual profit trends of the business has been arrived at, it must be related by multiplication to the anticipated future life of the business, had the business premises not been resumed. Then the product is discounted for interest to take into account the fact that the business operator will have capitalized profits immediately available for investment or other use.

20. Mr. Fung for the Applicants produced a Notice of Assessment for Profits for the year 1992-93 which shows profits for that year as $611,838 and urge the Tribunal to adopt $600,000 for annual profits as basis for calculating loss of goodwill. The Respondent contends that it is not safe to rely on taxable profits for one year only. Mr. Clarke, expert for the Respondent, suggests instead that determination be based on amounts agreed as compensation for loss of goodwill for two other businesses of the same type also affected by the Scheme or, on the statistical average wages of a salaried employee increased by 40%.

21. We have no difficulty in rejecting the comparison method suggested by Mr. Clarke. There may be vast differences between businesses of the same type. Mr. Clarke found "similar" businesses by merely comparing the area size of the "comparables" with that of the subject premises. For certain Mr. Clarke does not have information relating to the range and class of goods the "comparables" were selling. The trade names of the "comparables" used by Mr. Clarke suggest that neither of them sold seafood. Also, we do not know if the other two medicine shops had a resident Chinese herbalist doctor as in this case. As to calculating goodwill by the average salary level of a statistical employee, we thought we have impressed upon the parties in WONG Sau Hing, LEE Wing Tau, LI Sai Kuen and LEE Sai Ho trading as Shing Kee Metal Dealer v. Director of Lands, CLR No. 20 of 1994 and in TSANG Ling-chu trading as Wrench Engineering Co. v. Director of Lands, CLR No. 23 of 1994 that this approach is not fair and appropriate where a business has several or more employees. We still hold this view and would add that this approach should be applied with caution, discriminating between workers who are directly productive and support workers whose contribution to the profits is obviously not of the same weight.

22. We note that the tenancy for the business commenced in October 1991. It was at around that time that the subject premises were decorated. In the absence of evidence to the contrary, we think the best measure of the profit trends of the business would not be in the openning accounts of the business for the year 1991-1992. During the year 1993-94, the business was already affected by the resumption and had to sell off its stock at reduced prices; hence again the accounts for that year are also not a good measure of normal profit trends. The taxable profits for the year 1992-93 are the only reliable indicator of profitability. We accept the Applicants' suggestion and take $600,000 per annum as basis for calculating goodwill. Since the Applicant's tenancy in April 1994, assuming they would exercise the option to renew for two more years, would have less than two years to run, the appropriate multiplier to use is obviously 2. For a relatively small multiplier, we usually do not further discount for interest on advance payment.

23. Accordingly, we determine the goodwill of the business at $0.6 million x 2 = $1.2 million.

Loss of profits for 1993-94

24. The Applicants claim $300,000 as loss of profits for 1993-94. This is not supported by any objective evidence other than a bare assertion that there was no business in 1993-1994. As we shall see later, there was in fact trading in 1993-1994 but we have no idea how much was made or lost over that year. The burden of proof is on the Applicants. The Applicants have furnished no reliable material at all to enable us to make a determination. Accordingly, we dismiss this item of claim.

Profit Rent

25. Before the profit rent can be calculated, the full market rent of the subject premises has to be ascertained. The Applicants rely on the rent for Shop C on the Ground Floor of 54 Pak Tai Street and contend that the market rent for the subject premises should be at $114,000 per month. In WAN Yiu-ling and TSUI Tan-fai trading as Lucky Money v. Director of Lands, CLR No. 9 of 1995, we have found this comparable unacceptable because it is much smaller in size. Mr. Clarke for the Respondent supports a unit rate of $600 per square metre justified by reference to 4 comparables, i.e. the Ground Floor shops of Nos. 3, 33 and 59 Ma Tau Kok Road and No 99 Pak Tai Street. See pp. 14-15 of Exhibit R4. After examining the rents of those shops in similar size range, i.e. Nos. 3 and 33 Ma Tau Kok Road, Ground Floor, we conclude that the ground floor unit rate of $600 per square metre suggested by Mr. Clarke is reasonable for shops in this stretch of Ma Tau Kok Road. However, we increase the rate to $630 per square metre to reflect the better location of the subject premises by being adjacent to a lane.

26. In the premises, the profit rent for the unexpired term of the tenancy as at the date of resumption is calculated as follows:-

27. The Applicants had an option to renew the tenancy for a further two years at the revised rent of $37,700 per month. Mr. Clarke, valuer for the Respondent, concedes that profit rent may be realized for the option term. In assessing the market rent for the option term, the expert uses an inflation rate of 18.44% calculated from the Jones Lang Wootton Index. In broad terms, we apply a rate of 20% for adjustment for the option term, producing a projected market rent for the subject premises of $49,200 per month. It follows that the profit rent for the option term should be

28. Accordingly, we determine profit rent at $(139,043.00 + 256,629.00) = $395,672, say $400,000.

Trading Stock

29. The business had a huge stock of Chinese medicine, tonic herbs and dried seafood which were auctioned off in April 1994 for a gross sum of $45,000. The Applicants themselves put the market value of these at over $3 million. The Respondent's experts put the value at $374,300 and, after deducting therefrom the auction proceeds and making allowance for the duty of the Applicants to mitigate their loss, they assess the loss at $164,650 under this head. Since the Applicants use later, retail sale prices for their valuation, we must reject their figure.

30. The problems with the Applicants' stock are not just in the value to be assigned. In September, 1993, officers of the Lands Department went to the subject premises and made a record of the stock held by the business at that time. There are altogether 105 items of them in all; see pp. 5-10 in Exhibit R3. The parties do not dispute the number of items. They argue over the quality of many of the items. We understand from experience in life, and this is not really disputed by the Respondent's experts, that the price or cost may vary greatly between high and low quality or even fake Chinese medicine and tonic herbs. An added complication is that the Applicants say their stock was divided into two portions, one in the shop front to be sold off at reduced prices in relation to which they do not claim compensation, the other consists of items in storage at the back of the shop and some in window cases at the shop front which they did not sell by retail but demand compensation for losses due to forced sale by auction. The Respondent's witnesses say that they counted the entire stock, and they also saw part of the stock being displayed for sale or being sold. The Applicants say that, due to confusion during the process of stock taking, the photographs taken of the goods in their shop at the time were not the part of the stock for which they are claiming compensation. Hence we should not determine the quality of their stock by reference to the photographs. The Respondent's witnesses, on the other hand, say that the pictures do show the stock as was.

31. We attach very little weight to the evidence of the Respondent's witnesses because the overall impression we obtain from them is that their recollection of the events is not based on memory of actual experience at the subject premises at the time but rather on what they were to do as a matter of standard procedure. But we do think it highly probable that some of the items, or part of them, in the inventory list may have been sold during the clearance sale. We also accept the Applicants' case that the photographs cannot be relied upon for determining the quality of their stock. In the premises, the paper valuation by the Respondent's expert should be rejected too. Since it is no longer possible to do an item by item assessment, a broad approach is the only fair and practical appraoch.

32. It is common experience, also supported by expert evidence in the cases we have heard, that goods on auction should fetch 20% to 80% of the ordinary market value. In Callwin International Electric Co. Ltd. v. Director of Engineering Development MTR 3 of 1984, the Tribunal, comprised of H.H. Judge Cruden and Mr. Phillips, held that auction price is an acceptable basis for determining loss for purposes akin to section 10(2)(d) of the Ordinance. There, the trading stock of the applicant company was sold by auction in large lots to a single purchaser for the total of $1,410,000 which was only 27.4% of the agreed gross value of the entire stock. The Tribunal held that that was a reasonable auction price. In WONG Sau Hing, LEE Wing Tau, LI Sai Kuen and LEE Sai Ho trading as Shing Kee Metal Dealer v. Director of Lands, CLR No. 20 of 1994, taking a broad approach, we believed the price paid by the successful bidder in the auction in April 1994 reflects the variety and quantity of the trading stock, machinery and equipment on auction and took the auction price as the equivalent of 28.5% of the market value of the trading stock, machinery and equipment in that case. In TSANG Ling-chu trading as Wrench Engineering Co. v. Director of Lands, CLR No. 23 of 1994, we again relied on the auction price to determine the value of the machinery, equipment, tools and stock in that case. In the special circumstances of that case we multiplied the auction proceeds by a factor of 5. In the present case, although the stock fetched only $45,000 at an open auction, we have no reason to think that this does not reflect fair auction market price. We adopt this as a reliable objective indicator. It is then necessary to translate this base figure into ordinary market value. Since the stock does have a ready market in the sense that there are plenty of herbalists and Chinese medicine shops in Hong Kong able to absorb it, we do not think we should use a factor higher than 3.5.

33. Accordingly, we value the Applicants' stock at $45,000 x 3.5 = $157,500 and determine compensation payable to the applicants for loss due to forced sale of the stock at $(157,500 - 45,000) = $112,500.

Fixtures and Fittings

34. The Applicants claim for compensation for $434,400 being decoration expenses incurred in 1991. This is supported by a receipt in Exhibit A1. The Respondent's surveyor accepts the amount spent as reasonable but recommends a discount of 40% for depreciation. We think the rate of discount is on the high side and would adopt 30% for 3 years' use, thus arriving at $304,080. In the premises, we determine compensation for fixtures and fittings at $304,080.

Miscellaneous Items

35. The Applicants further claim transportation charges for auction purpose at $3,000, auction storage and security charges at $28,000 and auctioneers' charges at $13,224.80. The Respondent has agreed to pay the amounts of $3,000 and $13,225.00.

36. We gather from evidence in related cases we have heard that the auction exhibition ground and security charges at $28,000 are in fact an apportionment of a much larger amount which all the business operators affected by the Scheme and had to auction their goods had to share. We have no reason to doubt this and would allow the amount as claimed.

37. In summary, compensation for the following items is justified:-

The Order

38. Accordingly, we determine compensation for the Applicants at $2,060,000. Leave is reserved to apply for the rate of interest, if not agreed, to be determined under section 17(3A) of the Ordinance. There is an order nisi that the Respondent shall pay the Applicants' expenses for prosecuting their claim which we assess at $9,000 to be made absolute unless application is made, within 21 days from the date of handing down of this judgment, to the contrary. Liberty to apply is also reserved for ancillary and consequential matters.