TZE CHAN FAI AND ANOTHER v. THE DIRECTOR OF LANDS

LDLR 10/2018

[2021] HKLdT 63

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LANDS RESUMPTION APPLICATION NO 10 OF 2018

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BETWEEN

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DECISION

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BACKGROUND

1.  On 5 November 2020, the Tribunal handed down its judgment on the applicant’s application pursuant to the Lands Resumption Ordinance, Cap 124 (“the Ordinance”), which determined the compensation for 2/3^rd interest in the subject property (“the Property”) at $18,000,000 (“the Judgment”).  In the Judgment, the Tribunal also ordered the matters of professional fees, interest and costs shall be adjourned to a date to be fixed by parties in consultation with counsel’s diaries if it needs, with liberty to apply for any other ancillary and consequential matters.

2.  The parties dispute on the matters of interest, professional remuneration and costs in this case. By an Order dated 8 July 2021, the Tribunal directed that the outstanding matters be disposed of on paper.

UNDISPUTED EVENTS

3.  The following events are not in dispute between the parties: -

(1) At midnight of 16 January 2016, the ownership of the Property reverted to the Government.

(2) On 26 May 2017, each of the applicants and the respondent entered into an agreement pursuant to which it was agreed that the respondent would make provisional payment of statutory compensation in the sum of $9,707,667 to each of the applicants ie a total sum of $19,415,334 (“the Provisional Payment”) pending full and final settlement of the applicants’ claim for statutory compensation to be determined by the Tribunal. The Provisional Payment was paid to the applicants on 26 May 2017 and interest thereon in the amount of $131.66 was paid to each of the applicants on 19 June 2017 and 13 July 2017 respectively.

(3) On 14 July 2020, the respondent made a sealed offer to pay $19,625,000 (“the Sealed Offer”) to the applicants in full and final settlement of the latter’s claim for statutory compensation which the latter have failed and/or refused to accept.

(4) On 5 November 2020 when the Judgment was handed down, the compensation as determined by the Tribunal was less than the offered sum under the Sealed Offers with a shortfall of $1,625,000 (i.e. $19,625,000 - $18,000,000). That is, the compensation failed to beat the Sealed Offer.

(5) At trial, the applicants claimed the market value of the Property being $33,932,000 and the 2/3^rd interest was $22,621,333, but the respondent contended the market value of the Property should be $28,135,000 only, ie a difference of $5,797,000 or some 21% for the 100% interest.

(6) In the end, the Tribunal determined the market value of the Property a $30,125,680 for the 100% interest or $18,000,000 for 2/3^rd interest.

INTEREST

4.  The applicants claim interest on the statutory compensation pursuant to section 17 of the Ordinance which provides, inter alia, as follows;

“(3) Subject to section 16A(3), any sum of money payable as compensation by virtue of a determination of the Lands Tribunal or an agreement under this Ordinance shall bear interest from the date of resumption of the land until the expiration of the time specified in the notice referred to in subsection (2). No interest shall be payable on any costs or remuneration.

5.  Under section 17(3A) of the Ordinance, the rate of interest “shall be such rate as the Lands Tribunal may fix.”

6.  Under section 17(3B) of the Ordinance further provides for the fixing of the interest rate, being:

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

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

7.  Mr Bosco Cheng (“Mr Cheng”), counsel for the applicants, conceded that under the respective section 16A(1A) and section 17(3B) of the Ordinance, which are almost identical, the rate of interest for both provisional payment and the balance of compensation is set at the lowest of the interest rates paid on deposits at 24 hours’ call. Mr Cheng submitted that the stated rate is the minimum rate of interest the claimant is entitled to.

8.  Mr Cheng submitted that under section 17(3A) of the Ordinance, subject to the said minimum rate of interest, the Tribunal is to have a very wide but not unfettered discretion to fix the interest rate for compensation.

9.  In such regard, Mr Cheng referred to Happy Dragon Restaurant Limited v Director of Lands [2014] 3 HKC 538 where the Lands Tribunal, following the ruling the Court of Appeal[1], observed at §42 that:

“… However, the “broad brush” approach in awarding interest rate at Prime + 1% in the absence of any other evidence may still be relevant for our consideration, as it may well represent an amount that could compensate the applicant fairly and fully for being kept out of the money in accordance with the principle of equivalence.”

10.  The Tribunal went on to accept Prime + 1% as the interest rate to be adopted until judgment and thereafter at judgment rate until payment.

11.  Mr Cheng also referred to Halesweet Limited v Director of Lands, LDLR 8/2015 (unreported, dated 24 January 2018 where Deputy District Judge Lui (as he then was) said at §6 as follows:

“6. For pre-judgment interest, counsel agree that it is the practice of the Tribunal that the starting point is usually fixed at a rate of 1% over prime rate: see Waddington Limited v Chan Chun Hoo Thomas & Ors, CACV10/2014 (unreported, 20 May 2016) and recently applied by this Tribunal in Snowland Ltd v Director of Lands, LDLR2/2014 (unreported, 31 March 2017) and Eltron Development Limited v Director of Lands, LDLR4/2013 (unreported, 28 January 2016 and 18 May 2016). Further, it is also agreed that the party seeking to depart from the usual starting point will carry the burden of satisfying the Tribunal by adducing evidence to prove otherwise. (see Tadjudin Sunny v Bank of America, National Association, CACV 12/2015 (unreported, 20 May 2016) at paragraph 179, namely:-

“179. …With respect to the judge, we are of the view that having regard to the long standing practice of taking 1% over prime as the starting point for the award of pre-judgment interest, any suggestion that this starting point should be changed is something that should be considered only where there is evidence before the court to support such a change. It is, with respect, not satisfactory to proceed on the basis of the impressions (however well founded they may turn out to be) of the individual judge. In the present case, there was simply no evidence to support the suggestion that prime plus 1% was no longer an appropriate point from which to start. On this basic alone, we would be minded to interfere with the judge’s award of pre-judgment interest.””

12.  Further, Mr Cheng referred to Chan Shiu Chong & Another v Director of Lands, LDLR 2/2012 (unreported, dated 14 April 2020) where the applicants in that case contended that as a “default position”, the interest on both the provisional payments and the balance of compensation should be fixed at the rate of Prime + 1%. The Tribunal refuted there existed such a “default position” but agreed that it shall maintain a very wide though not unfettered discretion on the question of interest.

13.  On the other hand, Ms Ebony Ling (“Ms Ling”), counsel for the respondent, referred to Tsan Luk Yuk Yin & Others v The Secretary for the Environment, Transport and Works, LDMR 3/2005 (unreported, 4 September 2014) where the Tribunal, after considering Happy Dragon Restaurant, supra, considered whether there existed any unreasonable behaviour of the applicant in that case that tended to displace the presumption of awarding interest at Prime + 1% and the minimum rate stated.

14.  Ms Ling submitted that the 24 hours’ call rate as stated in section 17(3A) of the Ordinance should be adopted because of the following:

(1) The Provisional Payment totaling $19,415,334 received by the applicants in 2017 exceeded the compensation awarded in the sum of $18,000,000 by the Tribunal in 2020;

(2) The applicants had unreasonably declined the Sealed Offer; and

(3) The compensation of $18,000,000 fell short of the Sealed Offer.

15.  Ms Ling further elaborated that the applicants had not been kept out of their money because the Provisional Payment was received by them 3 years prior actually exceeded the compensation amount to which they were entitled. The amount of Provisional Payment received had already compensated them for being kept out of the money during the period between the date of reversion and the date of payment of the Provisional Payment.

16.  In addition, Ms Ling submitted, by failing to accept the Sealed Offer, which the applicants failed to beat, the applicants had behaved unreasonably and protracted the time taken in determining the claim. Ms Ling submitted that such behavior should not be condoned by the Tribunal, and the applicants should not be allowed to take advantages of their own fault in getting a higher interest rate. Ms Ling argued that awarding the applicants any rate higher than the 24 hours’ call rate would be against the principle of equivalence and will be substantially unfair to the respondent.

17.  I accept the arguments of Ms Ling in total, in particularly what is stated at §14(1) above. I consider the 24 hours’ call rate should be adopted as the interest rate from the date of reversion to the date of payment of the Provisional Payment.

Professional Remuneration and Costs

18.  Section 6(2A) of the Ordinance provides, inter alia, that:

“Where, in the case of land resumed under an order made under section 3 on or after the commencement of the Crown Lands Resumption (Amendment) Ordinance 1984 (5 of 1984), an offer of compensation is made or a claim for compensation is submitted to or by any person under this section, such offer may provide for the payment by the Authority to that person of, or such claim 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.”

19.  The applicants ask the Tribunal to order the respondent to pay the applicants’ professional remuneration and costs from the date of resumption.

20.  Mr Cheng submitted that in the present case, the applicants had engaged Mr K T Liu, a registered Professional Surveyor (General Practice Division) as their expert witness.

21.  Ms Ling, on the other hand, submitted that there is no reason to depart from the principle that costs should follow event, especially in light of the applicants’ unreasonable behaviour set out in §14 above.

22.  However, in Good Faith Properties Ltd v Cibean Development Co Ltd [2014] 5 HKLRD 534, Lam V-P (as he then was), in giving the judgment of the Court of Appeal, had the following to say at §27:

“In compulsory acquisition cases (where land is acquired by the government or public authorities), the general approach on costs is that it should not be dealt with in the same manner as ordinary hostile litigation. Bearing in mind the special context (the process being one for the determination of the proper compensation for the taking of the land compulsorily), the expenses of such determination are regarded as the part of the reasonable and necessary expense attributable to the acquisition process as a whole. The starting point is that such costs should be paid by the acquiring authority, see Emslie & Simpson Ltd v Aberdeen District Council (No 2) [1995] RVR 159; Purfleet Farms Ltd v Secretary of State for Transport [2003] 1 P & CR 20; Blakes Estates Ltd v Government of Montserrat [2006] 1 WLR 297; Penny’s Bay Investment Co Ltd v Director of Lands LDMR 23 of 1999, 7 Nov 2007.” (underline added)

23.  Then Lam V-P (as he then was) referred to the English Court of Appeal judgment in Purfleet Farms Ltd v Secretary of State for Transport, Local Government and the Regions [2002] EWCA Civ 1430, [2003] 1 P & CR 20 as follows:

“29 Leaving aside the impact or influence (if any) of the CPR upon awards of costs in the Lands Tribunal it is my view that the proper approach of the Tribunal for the costs of a successful claimant (i.e. a claimant who is awarded more than the amount of an unconditional offer by the respondent) should be that he is entitled to his costs incurred in the proceedings in the absence of some “special reason” to the contrary. Whether such special reason exists in any given case is a matter for the judgment of the Lands Tribunal. Plainly it may exist where wasted or unnecessary costs have been incurred for procedural reasons as a result of the conduct of the claimant (e.g. abandoned issues, unnecessary adjournments, or failure to comply with directions of the Tribunal). However, so far as the nature and substance of the case advanced by the claimant is concerned, special reasons should only be regarded as established where the Tribunal considers that an item of costs incurred or an issue raised was such that it could not on any sensible basis be regarded as part of the reasonable and necessary expenses of determining the amount of the disputed compensation. This would apply not only to a claim advanced without any statutory basis but to other examples of manifestly unreasonable conduct which may give rise to unnecessary expense in the course of the proceedings. It means, in my view, that, following the hearing of a compensation reference in the Lands Tribunal in which the claimant has been successful, a special reason for departing from the usual order for costs should only be found to exist in circumstances where the Tribunal can readily identify a situation in which the claimant’s conduct of, or in relation to, the proceedings has led to an obvious and substantial escalation in the costs over and above those costs which it was reasonable for the claimant to incur in vindication of his right to compensation.

…

36 I accept Mr Barnes’s submission that, if as a result of applying the principles of ordinary litigation to the hearing of compensation references, the Lands Tribunal adopts a practice of ‘ready departure’ from the principle that the successful claimant is entitled to his costs in the absence of a special reason to the contrary, that would involve a change of approach which has previously and properly been adopted in compensation reference cases. However, I equally consider that, in exercising its wide discretion under s.3(5) of the 1949 Act and r.52(1) of the 1996 Rules, and in considering the question of whether or not special reason exists to depart from the usual order, it may usefully “have regard” to the matters set out in para.19.2 of the Lands Tribunal Practice Directions including whether or not the claimant has exaggerated his claim. In considering that last question, however, exaggeration alone is not enough in the event of a large disparity between the sum claimed and the sum awarded. The matters to which the Tribunal should have regard are (a) the reasons for that disparity, and (b) their effect upon the conduct of the claim. As to (a), if the reasons are defensible, in the sense that there was a legitimate, albeit unsuccessful, argument put forward in support of the figure concerned, there can be no good reason to regard the claim as exaggerated in the pejorative sense necessary to justify a sanction in costs. As to (b), if, in any event, the effect on the proceedings in terms of the time spent and the costs incurred in disposing of the issue or argument concerned is relatively insignificant, then again an adverse order is unlikely to be appropriate.

37 Turning to the question of expert evidence, if the amount of the “exaggerated” claim is based on the valuation, opinion and evidence of the claimant’s expert witness, it will rarely be appropriate in my view to make an adverse costs order against the successful claimant. Valuation is an inexact science. In any case where, by reason of the nature or features of the subject site and/or the state of the market in respect of sites for similar development, there is no close or obvious comparable available, there is bound to be legitimate room for argument and difference of opinion as to the validity or usefulness of a proffered comparable, whether by reason of its location, nature or proposed use. If the Tribunal concludes that, on examination, or as a result of argument, the comparison between the comparable relied on and the subject site is inapt or unhelpful, that should not ordinarily invite a penalty in costs on the grounds that its assertion or resultant discussion has taken up the time of the Tribunal unnecessarily.

38 In my view, Mr Barnes is correct when he submits that, in such cases, disallowance of a proportion of the claimant’s costs will usually only be justified where the Tribunal is satisfied that (a) no competent valuer could reasonably have regarded the comparable as of real relevance or assistance in the valuation exercise; (b) as a result of its introduction and discussion, a significant amount of the Tribunal’s time has been wasted and the proceedings unduly prolonged; (c) no equivalent or near equivalent proportion of the proceedings has been spent dealing with issues unreasonably and unsuccessfully raised by the respondent; (d) the amount or proportion of the costs disallowed is proportionate to the time wasted.” (underline added)

24.  At §30, Lam V-P (as he then was) added:

“As a matter of principle, this must be the correct approach for land resumption cases in view of Article 105 of the Basic Law. A substantial depletion of compensation by costs of the process (which cannot be regarded as unreasonably incurred) will not give the owner whose land was taken the real value of the property.”

25.  Thus in the present case, whether there existed special reasons to depart from the usual order for costs? It may exist where wasted or unnecessary costs have been incurred for procedural reasons as a result of the conduct of the applicants, but a special reason should only be found to exist in circumstances where the Tribunal can readily identify a situation in which the claimant’s conduct of, or in relation to, the proceedings has led to an obvious and substantial escalation in the costs over and above those costs which it was reasonable for the applicants to incur in the vindication of their right to compensation.

26.  Ms Ling submitted the applicants had grossly exaggerated their claim to a sum of $33,932,000 for 100% interest of the Property. But in comparison, this was just 12.6% higher than the determination of the Tribunal at $30,125,680.

27.  As stated, property valuation is not an exact science. In Singer and Friedlander Limited v John D Wood & Co (1977) 243 EG 212; (1977) 2 EGLR 84, Watkins J stated: "The valuation of land by trained, competent and careful professional men is a task which rarely, if ever, admits of precise conclusion. Often beyond certain well-founded facts so many imponderables confront the valuer that he is obliged to proceed on the basis of assumptions. Therefore he cannot be faulted for achieving a result which does not admit of some degree of error." Nevertheless, the learned judge went on to say that it was agreed generally in the profession that a permissible margin was 10 per cent either side of a figure which could be said to be the right figure (assessed as if arrived at when the valuation was made and not with the benefit of hindsight). In exceptional circumstances the margin could be 15 per cent or a little more either way. In Muldoon v Maps of Lilliput Limited (1993) 14 EG 100, Judge Zucker QC used a range of 15-20%[2]; this illustrates that the margin of error is not set by precedent.

28.  It is noted that the applicants’ claim was marginally outside the 10% range and I do not find any exceptional circumstances that may justify a higher margin. However, even if the valuation is outside the range, the professional may not be held to be negligence if he had exercised reasonable skill and care (see Goldstein v Levy Gee [2003] EWHC 1574 (Ch), Lewison J, Dennard v PricewaterhouseCoopers LLP [2010] EWHC 812 (Ch), Vos J, and Capita Alternative Fund Services (Guernsey) Ltd v Drivers Jonas [2011] EWHC 2336 (Comm) where at §145 the principles in this regard are distilled by Eder J from the authorities). To apply the same principle to the present case, even if the applicants’ claim on the face of it was outside the bracket, it could not be readily said that it was unreasonable.

29.  A fortiori, it has been stated in Good Faith that a minority who was forced to sell its interest in land rejecting an offer falling within s.4(2)(b) of LCSRO could not be regarded as a legal wrong. Then in Oriental Generation Limited and Others v Ngo Kui Sing and Others, LDCS 4000/2013 (unreported, dated 31 October 2016) at §40, the Tribunal explained and held that there appeared to be no distinction between a successful and unsuccessful applicant in resumption cases (successful in the sense that an applicant beats the respondent’s sealed offer and unsuccessful when the applicant fails to beat the offer). While there are no hard and fast rules with respect to the Sealed Offer, the Tribunal still retains its discretion on costs in the circumstances and have to adopt an exercise similar to identifying the special reasons in Good Faith.

30.  That said, this issue on costs must also be considered in light of the Civil Justice Reform. Even in Director of Buildings and Lands v Shun Fung Ironworks Ltd [1995] 2 WLR 404, [1995] 2 AC 111, [1995] 1 HKC 417, the Privy Council stated as follows:

“… it is difficult to see why the Calderbank letters should not have consequences as to costs in this case. Parties are to be encouraged to settle their disputes and assisted in their attempts to do so. By accepting the first offer Shun Fung would have received a significantly larger sum than it was awarded by the tribunal at the end of an enormously protracted and expensive hearing…”

31.  In the present case, the compensation awarded at $18,000,000 failed to beat the Sealed Offer of $19,625,000 by $1,625,000 or 8.3%. If there be no discount for the partial interest owned by the applicants, the compensation would have been around $20,083,787 which is higher than the Sealed Offer.

32.  Mr Cheng submitted that Ms Ng Hung Mui (“Ms Ng), expert on behalf of the respondent, had not included her argument on discount for partial interest in her expert reports. With respect, in Ms Ng’s Valuation Report dated 20 March 2019 at §15.2, she stated that she “considered a (10%) discount on incomplete share is required to reflect its lack of both control and marketability”. This discount of 10% was accepted by the Tribunal.

33.  Indeed, the issue of valuing partial interest at a discount is not something new in the profession or in common life. In Collector of Land Revenue v. A K A C T V Alagappa Chettiar & Another [1970] UKPC 35 (15 December 1970), the Privy Council affirmed the decision of the High Court of Malaysia which had considered a discount in price for a half share interest in land. Similarly, in Newman ((H M Inspector of Taxes) v Hatt [2001] EWLands TMA_207_2000 (13 November 2001) and St Clair-Ford v HM Revenue and Customs [2006] EWLands TMA_215_2005 (22 June 2006), the English Lands Tribunal deducted 10% to reflect the half share interest in the property under consideration under the Taxes Management Act 1970 and Inheritance Tax Act 1984 respectively.

34.  In Emslie & Simpson Limited v Aberdeen District Council [1995] RVR 159, Lord Morison of the Court of Session of Scotland, with whose judgment Lord President Hope and Lord Weir agreed, stated at p163 that: “In the absence of an offer equalling or exceeding the amount of the award, the tribunal were fully entitled to hold, as they did, that “in normal course (the claimants) would be found entitled to their expenses on the general principle that expenses followed the event…””

35.  And in Purfleet Farms, supra, Lord Justice Chadwick also stated at §42 as follows:

“As Lord Nichols pointed out, in the passage in Director of Buildings v Shun Fung Limited [1995] 2 AC 111, 125 to which Lord Justice Potter has referred, a claimant whose land has been taken from him under compulsory powers is entitled to “compensation for losses fairly attributable to the taking of his land”. In a case where the acquiring authority have made an unconditional offer of an amount of compensation which exceeds the amount subsequently awarded on a reference to the Lands Tribunal, it can be seen that (at least prima facie) the costs incurred by the claimant in pursuing the reference after the offer has been made are not fairly attributable to the taking of his land; those costs are attributable to the claimant’s attempt to obtain more than the amount of the loss in respect of which he is entitled to compensation. That is the premise which underlies the provision in section 4(1)(a) of the Land Compensation Act 1961 which requires that, in such a case, the Tribunal shall (in the absence of special reason) leave the claimant to bear his own costs of pursuing the reference after the offer has been made.” (underline added)

36.  In fact, when comparing the two tables in §§13 and 29 of the Judgment, it is noted that I accepted the adjustments of Ms Ng over the applicants’ expert (except only in respect of the factor of frontage). I find no special reason not to leave the applicants to bear their own costs of pursuing the claim for compensation.

ORDERS

37.  Accordingly, I order that: -

(1) The respondent do pay the applicants interest on the amount of $18,000,000 at the lowest interest rate paid on deposit at 24 hours’ call by note-issuing banks for the period from 16 January 2016 to 26 May 2017 when the applicants received the Provisional Payment of $19,415,334 (that is, the interest paid by the respondent to each of the applicants on the Provisional Payment being $131.66 shall become final);

(2) The applicants do refund the overpayment of $1,415,334 to the respondent at the lowest interest rate paid on deposit at 24 hours’ call by note-issuing banks for the period from 27 May 2017 until payment;

(3) The respondent do pay the applicants’ costs and professional remuneration reasonably incurred from the date of application up to the date of expiry of the Sealed Offer on 28 July 2020 and the applicants do pay the respondent’s costs and professional remuneration reasonably incurred thereafter, with certificate for Counsel, to be taxed on High Court scale, if not agreed; and

(4) The applicants do pay the respondent’s costs relating to all submissions on the outstanding issues, with certificate for Counsel, to be taxed on High Court scale, if not agreed.