HAPPY DRAGON RESTAURANT LTD v. THE DIRECTOR OF LANDS

LDLR 17/2006

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

Lands Resumption Application No. 17 of 2006

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REASONS FOR DECISION

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Background

1.  Following the handing down of the Judgment on 28 April 2009 (“the Judgment”) awarding no compensation to the Applicant under sections 8(2) and 10(2) of the Lands Resumption Ordinance, Cap. 124 (“the Ordinance”), the Applicant took out a summons on 13 May 2009 to apply for review of the Judgment.  Thereafter, the Respondent took out another summons on 18 May 2009 to seek for the orders that: (1) the Applicant’s application for review be dismissed; (2) the Applicant do pay the Respondent’s costs arising out of and in connection with the Applicant’s claims; (3) the Applicant do pay the Respondent’s professional remuneration incurred in connection with the Applicant’s claims; and (4) costs of the Respondent’s summons be to the Respondent.  Both the Applicant’s summons and the Respondent’s summons were fixed for hearing on 27 May 2009.

2.  At the beginning of the hearing on 27 May 2009, the Respondent agreed that the summons of 18 May 2009 was unnecessary because the Respondent was in any event entitled to object to the Applicant’s application for review in the Applicant’s summons of 13 May 2009 and in the Judgment, there was already an order that “All consequential and ancillary matters, including professional fees, interest and costs, be adjourned to a date to be fixed by the listing officer at the request of the parties”.  Hence, the Respondent withdrew the summons of 18 May 2009 and was ordered to pay the agreed costs of $3,000 to the Applicant.

3.  As to the Applicant’s application for review, after hearing submissions of both parties, we found that there was no ground to review the Judgment.  We decided not to review the Judgment and to deliver our written reasons for decision later.  We also ordered that the Applicant do pay the Respondent costs of the review application, to be taxed on High Court Scale if not agreed, with Certificate for Counsel.  We now give our written reasons for our decision as below.

Review Procedure

4.  The Lands Tribunal (“the Tribunal”) has the power to review its decision pursuant to section 11A of the Lands Tribunal Ordinance, Cap. 17 (“the LTO”).  Section 11A(1) to (4) of the LTO stipulates that: -

“(1)  The Tribunal may, within 1 month from the date of any decision by it, decide to review that decision and, on such grounds as it may think sufficient, may set aside, reverse, vary or confirm it.

(2)  The Tribunal may act under subsection (1)-

(a)  on the application of any party; or

(b)  on its own motion,

and on notice to all other parties to the proceedings.

(3)  If the Tribunal shall have decided, within 1 month from the date of any decision, to exercise its power of review in respect thereof, such power may be exercised at any time thereafter whether within such period of 1 month or otherwise.

(4)  The Tribunal may, in any review, hear and receive any evidence it thinks fit for the purpose of determining the issue between the parties.”

5.  As decided by Lam J in CLP Power Hong Kong Limited v. Commissioner of Rating and Valuation, LDRA 536/1999 & 48 others (unreported), the review process under section 11A of the LTO is a two-stage process.  First, the Tribunal has to consider whether an application for review should be entertained.  If the Tribunal decided that there should be a review, then the review will proceed.  That will be the second stage.  At the second stage, as provided under section 11A(4), the Tribunal may hear and receive evidence it thinks fit for the purpose of determining the issues between the parties.

6.  As far as the first stage is concerned, it is clear from the wordings of section 11A(1) and (3) of the LTO that the Tribunal has to decide whether there should be a review and that decision has to be made within one month from the date of the decision under review.

7.  Thus, we had to make the first stage decision at the hearing on 27 May 2009 so that our decision would not be made out of time.

Grounds of the review

8.  The Applicant did not set out in its summons dated 13 May 2009 any ground for the review.  Instead, counsel for the Applicant summed up in his written Skeleton Argument that there were 2 grounds for the review: firstly, the Tribunal erred in not accepting that the total extinguishment of the Applicant’s business was reasonable and secondly, the Tribunal erred in not awarding any of the Applicant’s disturbance claims for losses actually incurred by the Applicant in any event irrespective of whether the Applicant’s business should be extinguished or relocated.

Ground 1: whether total extinguishment by the Applicant was reasonable

9.  The Applicant submits in paragraphs 5 to 18 of the written Skeleton Argument that in deciding whether the Applicant’s total extinguishment was reasonable, the Tribunal should consider and re-examine the following:-

(1)nbsp; “Wah Do as a target location within the proper context of the Applicant’s extensive effort in searching for alternative premises, instead of a stand-alone target”;

(2)nbsp; “direct evidence on the Applicant’s lack of financial resources for relocation to Wah Do”; and

(3)nbsp; “evidence on the timing and circumstances in which Wah Do first became, and subsequently ceased to be, available as an option for relocation for the Restaurant”.

10.  However, as submitted by the Respondent, this ground of whether total extinguishment by the Applicant was reasonable is a mere repetition of the Applicant’s closing submission at the trial, which had been summarized in paragraph 19 of the Judgment.  We consider that whether the Applicant had acted reasonably or unreasonably should be a question of fact and degree that had to be determined by the Tribunal based on the evidence at the trial, and we had already done that.  In applying for review of the Judgment, the Applicant did not seek leave to adduce any new evidence not previously adduced at the trial.  Thus, as we had already considered all the factual evidence of the case as adduced by both parties before coming to the conclusion in the Judgment, we do not find it necessary to repeat here what we have stated in the Judgment. 

11.  Nevertheless, regarding the first issue in paragraph 9 above, we consider that it is clear from the Judgment as a whole, and in particular, paragraphs 27 and 48 of the Judgment that we did not dismiss the Applicant’s claim because we found that its attempt to search for alternative premises had been inadequate or unreasonable, or restricted to a stand-alone target (i.e. Wah Do) location.  Instead, as stated clearly in the Judgment, we dismissed the Applicant’s claim because we found that the Applicant had acted unreasonably in extinguishing instead of relocating the restaurant business to another location such as Wah Do, for which the Tribunal found that it was a suitable premises for relocation of the Applicant’s restaurant business.  As can be seen in paragraphs 24 to 31 of the Judgment, we had in fact taken into account the Applicant’s effort in searching for alternative premises and did not just consider Wah Do as a stand-alone target.  It is for the Applicant to establish that there was no suitable alternative premises to relocate, but apart from Wah Do, there was too little information on the other alternative premises for the Tribunal to consider their suitability.  Even so, we did not hold this as fatal to the Applicant.  However, as the Applicant itself focused on Wah Do, we had to deal with its suitability in depth.  When we found that Wah Do was a suitable alternative premises for relocation, the Applicant’s claim that the business should be totally extinguished must fail.

12.  On the second issue in paragraph 9 above, we stated in paragraph 45 of the Judgment that after having taking into account all the evidence and “having considered all the circumstances surrounding this case, it was more probable than not that the Applicant could have been granted the necessary bridging loans from the banks to enable its relocation should the Applicant have applied for such loans”.  We did take into account the financial resources of the Applicant, and also Mr. Ho’s claim that it was his experience that a Chinese restaurant could not be lent any loan.  We attached no weight to such a claim of Mr. Ho as that was only his unsupported opinion, and we considered it to be unreasonable.  There was no evidence that Mr. Ho had tried to obtain a loan but was rejected.  As submitted by the Respondent, we do not find it correct that “the Tribunal should only have taken into account Mr. Ho’s evidence and opinion but ignored everything else to the contrary”.  In paragraph 44 of the Judgment, we had already pointed out all the positive factors for getting a loan, and these factors should certainly carry more weight than Mr. Ho’s bare allegation.  The Applicant submits that it is inappropriate to calculate any “shortfall” needed for relocation by deducting HK$5.58m from HK$7.25m, but the point is that even if the “shortfall” should be larger, it just means that the bridging loan should be larger too.  As the amount to be incurred would be expenses that could be recovered from the government, there should be no problem to obtain such a loan for relocation and we simply fail to see any merit in this argument.

13.  As to the third issue in paragraph 9 above, this was not raised at the trial.  It is not disputed that the Wah Do as a relocation option was available from 3 March 2005, well before it was eventually leased to a furniture company in May 2005.  We consider that the time available for consideration by the Applicant could not be said to be unreasonably short for a business decision to be made by any prospective tenant including the Applicant.  In fact, the Applicant failed to lease the Wah Do premises because they decided not to relocate, not because there was insufficient time to reach a business decision to lease the premises.  The Applicant’s plan was not to lease the Wah Do premises but to purchase it by some investors (some of whom were also the shareholders of the Applicant) and then to lease it to the Applicant under Mr. Ho’s management.  As such, the Applicant had only itself to blame in missing the opportunity to lease the Wah Do premises when the majority of the shareholders of the Applicant did not agree with Mr. Ho’s proposal.

14.  For reasons stated above, we do not find that the Applicant had adduced sufficient reasons to support its first ground for review.

Ground 2: whether the Applicant should be awarded any of the disturbance claims

15.  The Applicant summarized in paragraphs 21 to 29 of its written Skeleton Argument the applicable legal principles and case laws in support of the ground that the Tribunal should re-consider its decision in not awarding any of the Applicant’s disturbance claims, even though they were losses actually incurred and losses that would be incurred regardless of whether the restaurant was extinguished or relocated.  The Respondent in opposing this submission submitted that the Applicant was merely repeating what it had already said before.  

16.  The Applicant submits that in assessing the compensation for disturbance claims, the Tribunal should have regard to both section 10(2)(d) and section 10(2)(e)(i) of the Ordinance: see the judgment of 梁續有v. Director of Lands (unreported case, reference LDLR 4/2006, para. 10). 

17.  The Applicant explains that under section 10 of the Ordinance, claims for losses actually incurred by the claimant as a result of his occupied land being resumed ought to be allowed, if they would be incurred in any event regardless of whether the claimant extinguishes or re-locates its business.  Such an outcome would be consistent with the underlying purpose of section 10 to provide full and fair compensation to the claimant. 

18.  Further, the Applicant submits that in Director of Buildings & Lands v. Shun Fung Ironworks Ltd. [1995] 1 HKC 417, the Privy Council expressly recognized that the purpose of section 10 is to provide “fair compensation for a claimant whose land has been compulsorily taken from him”, and that a claimant is entitled to be “compensated fully and fairly for his loss… fairly attributable to the taking of his land.”

19.  Therefore, the Applicant submits that the only pre-requisites as prescribed by the statue and the case laws are two-fold: “(a) a casual connection between resumption and loss; and (b) the loss claimed has actually been suffered.”  In addition, the Applicant submits that none of the cases cited and relied on by the Respondent and set out in paragraph 52 of the Judgment supported the Respondent’s proposition (which the Tribunal accepted) that no disturbance payment should be payable if the Applicant unreasonably chose to extinguish the restaurant instead of relocating it to another location.

20.  For the above reasons, the Applicant submits that even if the Tribunal decided against the Applicant and found that it was unreasonable for the Applicant to totally extinguish the restaurant business and not to relocate to another suitable location, the Applicant should still be entitled to compensation for “actual losses” and “disturbance claims that would be incurred in any event”.  The Applicant refers us to its written closing submission submitted at the trial, which gave the details and the reasons for the Applicant’s claims for these items.

21.  As summed up in paragraph 54 of the said written closing submission and the expert report of the Applicant’s witness, Mr. Cheung Yuk Ming (page 1018 of Exhibit “AR5”), there were altogether 7 items, including the items for which the parties had no dispute on the quantum.  They are as follows:-

(1)  Contractual obligation to pay Hong Kong Electric Co. Ltd. in lieu of the required 3-year usage – as demanded: $301,200

(2)  Compensation paid to employees in respect of leave holidays – as incurred: $134,988

(3)  Severance payments – as paid: $176,009

(4)  License, as prepaid, for General Restaurant: $4,620 and for Liquor: $1,658, giving a total sum of $6,278

(5)  Loss in respect of fixtures: $5,331,418

(6)  Loss on sales of inventories on closure – as calculated: $62,949 and

(7)  Loss in respect of plant and machinery – per accounts: $1,235,431.

22.  The total amount of claims for disturbance payments sought by the Applicant was $7,248,273.  The Applicant reiterated that all these items of claims fell within the types of the losses suffered by the Applicant that were either “actual losses”, or “disturbance claims that would be incurred in any event”, or both.

23.  The Applicant further submits that for items (2), (3) and (4), they were certainly actual payments that had been made by the Applicant; for item (1), the payment to Hong Kong Electric, being an actual payment, was a contractual obligation that would be incurred in any event; for item (5), the Applicant had acted reasonably in disposing the inventories and equipment; for item (6), the explanation given by its witness, Mr. Ho, over the discounted sale of foodstuff should be accepted by the Tribunal; and finally for item (7), it was the evidence of Mr. Ho that the said plant & machinery were tied to the conditions of the restaurant business.  Also, for items (5), (6) and (7), the Applicant submits that they were losses and hence disturbance claims that would be incurred in any event, whether or not there was a total extinguishment or relocation of the Applicant’s business.

24.  On the other hand, the Respondent relies on the following interpretation of the Ordinance:-

(i)  Sections 10(1) and 10(2) of the Ordinance must be read together.  The Tribunal cannot determine the compensation on the basis of section 10(1) of the Ordinance alone even if the loss and damage suffered by the claimant were due to the resumption.

(ii)  In Sham Chi Keung v Director of Lands [2007] 1 HKLRD 374, Le Pichon JA stated in paragraph 12 of the judgment that section 10(1) of the Ordinance ‘delimits the loss recoverable: it has to be casually connected to the resumption of the applicant’s land.  Subsection (2) sets out the different situations that could form the basis of compensation.  For present purposes, it is paragraph (d) that is relevant.  That paragraph emphasises that the loss recoverable must be “due to the removal of the business from that land or building as a result of the resumption”.’

(iii)  In the present case, the situations “that form the basis of the compensation” are laid down in section 10(2)(d) and section 10(2)(e)(i) of the Ordinance.

(iv)  Since the Applicant’s case is that the resumption caused it to totally extinguish the restaurant’s business, the compensation payable to the Respondent should be assessed on the basis of a total extinguishment of the business under 2 general headings: - (a) permanent loss of business; and (b) disturbance payments arising from the permanent loss of business only.

25.  The Applicant in fact does not dispute the first 3 points (as set out in the last paragraph) raised by the Respondent.  Thus, the only issue between the parties is the principle set out in sub-paragraph (iv) of the last paragraph.

26.  We find that of all the cases cited by the parties, the case of Yip Kui trading as Tai Wo Trading Company v The Secretary for Transport (unreported, CACV 379/2002) is the most relevant case for the determination of the issue between the parties.  We have extracted and set out below the relevant passages from that case.  Rogers VP said the following in paragraphs 11 & 21 of the judgment:-

“11.  From that it is abundantly clear that the claim which can be made is a claim in respect of loss or damage which has been suffered or expenses incurred.  It may be that quantification of that loss would depend upon an assessment of future loss or expenses which would be incurred but any claim for compensation must be founded upon actual loss and not upon some hypothetical basis of expenses that might be incurred if the applicant were to do something which he has not done and has no intention of doing….

…

21. … It is not possible for compensation to be awarded, whether under the Lands Resumption Ordinance or under the Railways Ordinance, on the basis of a hypothetical loss or expense which might be incurred if the applicant had taken a course which he or she would have been entitled to take but had not taken, and never intends to take.  On this basis any claim for the cost of renovation and adaptation of fixtures and fittings for use in new premises, installation charges for installing equipment in new premises, solicitors’ fees in respect of acquiring a lease for new premises, rent in respect of new premises, whether it be double rent or the first month’s rent, and publicity costs in connection with a move to new premises simply have no basis.  There never were any new premises, there are not any new premises and there never will be any new premises.  These claims are wholly spurious….”

27.  The Applicant submits that the Court of Appeal’s Judgment in Yip Kui has no application here because the disturbance claims are all related to actual losses incurred in relation to the Applicant’s business at the subject premises, but not in relation to any hypothetical new premises, as was in Yip Kui.  Therefore, the Applicant submits that on a proper understanding of the present case and Yip Kui, subject to the Applicant showing that the disturbance claims would be incurred in any event, Yip Kui is no bar for the Applicant’s disturbance claims to be awarded.

28.  Thus, the Applicant contends that even if the Applicant had acted unreasonably in extinguishing the whole of its business instead of relocating it, there is no sound reason why it should be effectively penalized for not relocating by having his loss deprived when such loss will arise whichever route it takes, whether reasonably or otherwise, and that such a result, if accepted, would indeed go against the purpose and spirit of section 10, which is to provide fair and full compensation to a claimant as a result of having his land compulsorily acquired.

29.  On the other hand, the Respondent submits that all the disturbance claims, the details of which are set out in paragraph 21 above, were not actual losses in the sense that the Applicant incurred such losses when they had actually relocated the restaurant business.  The Respondent submits that the Tribunal should not consider the hypothetical situation that the Applicant now asks the Tribunal to adopt, i.e. to allow the expenses that might have been incurred if the Respondent were to do something which it had not done and had no intention of doing.  This hypothetical situation is analogous to the circumstances described by Rogers VP in the Judgment of Yip Kui.

30.  We have considered the submissions put up by both parties and come to the following conclusion:-

(i)  For items (1) to (4) as claimed by the Applicant (see paragraph 21 above), we agree that these are not “actual” losses incurred by the Applicant if the Applicant had not totally extinguished the restaurant business but had relocated to another suitable location.

(ii)  Some or most of the compensation to the employees, if not all of them, might be avoided if the business was relocated to a new location.  For example, with relocation to a new location, the employees could be given the leave holidays without the need for the Applicant to pay them compensation in lieu of such leave holidays.

(iii)  We do not agree that with relocation, the Applicant would have to lay off all its existing employees who, according to the Applicant, included many experienced restaurant managers and other staffs whose expertise and experience were instrumental for the successful running of the business.

(iv)  Similarly, we do not agree that the licence expenses would be “actual” losses incurred by the Applicant because in the case of relocation, the Applicant could still make use of the remaining duration of the licence by simply seeking to change the address of the Applicant’s business.

(v)  Finally, for the loss of the “contractual obligation to HK Electric”, we do not agree that it would necessarily be actually incurred.  Although we have decided against the Applicant in that the Applicant should not have extinguished the business as the Applicant had at least one suitable premises for relocation, for which they had unreasonably turned down, it does not follow that there might not be some other premises on Hong Kong Island which were equally suitable for relocation.  In the Judgment, we only said that the information for other potential relocation premises as given by the Respondent at the trial was insufficient for us to make a finding. 

(vi)  For items (5) to (7), we do not agree with the Applicant that those losses would be losses that would be incurred in any event.  On the contrary, we find that in the event of relocation by the Applicant instead of the total extinguishment, most, if not all, of the losses of these 3 items could be avoided.  We do not understand why the Applicant would have to throw away and lose all the assets in the fixtures and plant and machinery in the event of relocation.  This appears to defy common sense, as most of these assets could be reused, with or without adaptation, in such an eventuality.

(vii)  Similarly, we also do not understand why the Applicant would have to incur all the losses on sales of inventories as some of the inventories could be moved and used in the new location. 

31.  In this application for review, the Applicant repeatedly stresses that some if not all of the disturbance payments were actual payments or payments that would have been incurred whether or not the Applicant did relocate its restaurant business.  The Applicant reminds us that its expert witness has opined that the claimed loss on sales of inventories and loss in respect of plant and machinery were reasonable.  Therefore, the Applicant submits that the Tribunal had erred in the Judgment to dismiss all of the Applicant’s claims for disturbance payments.  The Applicant further submits that alternatively, since some of the claimed items would have been incurred whether or not the Applicant relocated and even the Respondent’s expert agreed in her expert report that if the Applicant chose to relocate, the Applicant should be compensated for the loss suffered in respect of licence fees and the loss in respect of fixtures.

32.  However, for reasons stated in paragraph 30 above, we do not agree that all the items as listed out in paragraph 21 above would be lost in their entirety and hence, the estimated values of these items should be paid out as compensation to the Applicant even if there were a relocation of the restaurant business.  In our view, in the event of relocation, certain substantial portions, if not all, of these items could be relocated and reused.  There was however no evidence at all for us to assess the proportion of how much of these items that could or could not be relocated and reused.

33.  If we were to assume that a certain percentage of such items would be lost in the “hypothetical” situation of relocation, we would be falling into a similar situation for which the Tribunal in Yip Kui was criticized by Rogers JA in the Judgment of the Court of Appeal (where the Tribunal found that the applicant should have relocated instead of totally extinguishing the business, and with the consent of both parties, the Tribunal awarded removal costs).  On the other hand, without assuming what percentage of the claimed items would have to be lost in the “hypothetical” situation of relocation, there is no basis for us to determine the amount of the losses in these items that could be regarded as the “actual” losses to the Applicant.  Thus, there is no basis for the Tribunal to determine the Applicant’s claims for the so-called “actual” losses. 

34.  Thus, the Applicant must also fail on Ground 2.

Conclusion

35.  As the Applicant fails on both Ground 1 and Ground 2, there is no ground to review the Judgment.