HAPPY DRAGON RESTAURANT LTD v. 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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DECISION

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Background

1.  In 2003, the applicant leased from a related company a property in Shaukeiwan for the operation of a restaurant.  The lease was for 10 years and the restaurant business was profitable.  However, the applicant closed down the restaurant and did not relocate it after the government issued a notice of resumption in respect of the property in February 2005.  The propertywas resumed on 25 May 2005.

2.  The applicant then brought a claim for compensation under the Lands Resumption Ordinance, Cap 124 (“LRO”) for (i) disturbance (“the Disturbance Claim”) and (ii) extinguishment of business (“the Extinguishment Claim”).  By a judgment dated 28 April 2009, wefound that the applicant should be able to relocate the restaurant and rejected both the Disturbance Claim and the Extinguishment Claim.  Thus, no compensation was awarded to the applicant.

3.  On appeal, the court of appeal ruled in favour of the applicant and found that the applicant was unable to relocate.  By its judgment dated 30 March 2010 in CACV 201/2009(“the 1^st CA Judgment”), the applicant’s appeal was allowed and our judgment dated 28 April 2009 was set aside.  The court of appeal further ordered that the applicant be awarded compensation for the Disturbance Claim in the sum of $5,337,969.00 with interest and that the issue of quantum under the Extinguishment Claim be remitted to us for determination.

4.  The interest forthe Disturbance Claim awarded by the court of appeal in the 1^st CA Judgment was at the rate of 1% over Hong Kong prime rate from time to time prevailing (“Prime + 1%”) for the period commencing on the date of resumption until the date of the judgment and thereafter upon the resultant sum at the judgment rate from time to time prevailing until payment.

5.  The respondent sought leave to appeal against the 1^st CA Judgment on various issues, including the award of interest at Prime + 1%.  This was rejected by both the court of appeal and the appeal committee of the court of final appeal.

6.  By a judgment dated 4 October 2011, we awarded the applicant compensation of $7,027,710.00 under the Extinguishment Claim.  The question of interest, inter alia, was adjourned to a date to be fixed. On 17 February 2012, following the decision in Director of Buildings and Lands v Shun Fung Ironworks Ltd [1995] 2 AC 111, weordered thatthe interest rate for the compensation of $7,027,710.00 under the Extinguishment Claim shall be the lowest of the interest rates paid on deposits at 24-hours’ call by note-issuing banks, being the minimum interest rate prescribed in section 17(3B) of the LRO (“the Minimum Rate”).

7.  The applicant appealed against our decision in relation to the interest rate. By its judgment dated 31 January 2013 in CACV 115/2012 (“the 2^nd CA Judgment”), the court of appeal allowed the applicant’s appeal and remitted the matter to us to reconsider the issue of interest without being constrained by the approach in the Shun Fungcase.

8.  The issue of interest was heard by us on 25 November 2013 and this is our decision on the issue.

The issue

9.  There is only one single issue for us to decide, ie at what rate interest on the compensation under the Extinguishment Claim should be awarded.  The parties have no dispute that after the 2^nd CA Judgment, we have discretion to order any rate that is appropriate to compensate the applicant without being bound by the Shun Fungcase.  There is also no dispute that the principle of equivalence applies.  However, the parties approach the issue differently and come up with interest rates that will cause significant difference to the applicant’s interest entitlement in monetary terms.

10.  It is the applicant’s case that the appropriate interest rate is Prime + 1%, same as the interest rate forthe Disturbance Claim awarded by the court of appeal in the 1^st CA Judgment.  On the other hand, the respondent’s case is that it would be fair and reasonable to adopt the 1-month fixed deposit rate from the date of resumption (on 25 May 2005) to the date of judgment and thereafter at the prevailing fixed deposit rate of 1-month until payment.  However, the respondent is not contending that the Minimum Rate should be applied.

Statutory provisions

11.  The relevant statutory provisions are contained in section 17 of the LRO which are set out 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.

(3A) Subject to subsection (3B), the rate of interest for the purposes of subsection (3) shall be such rate as the Lands Tribunal may fix.

(3B) The rate of interest fixed under subsection (3A)-

(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 the day.”

Interpretation of section 17 of the LRO

12.  In the 1^st CA Judgment, the court of appeal did not make any reference to section 17 of the LRO and in fact did not give any reason for fixing the interest rate at Prime + 1% for compensation under the Disturbance Claim.

13.  In the 2^nd CA Judgment, however, it was held that after the provisions in section 17(3A) and (3B) of the LRO were amended by the Interest Rates (Miscellaneous Amendment) Ordinance 2001, the Lands Tribunal (“the Tribunal”) is no longer enjoined to “have regard to” the stated rate, and the stated rate is now a minimum rate.  The intention of the amendments was to give a wider discretion to the Tribunal and a minimum rate to claimants.  Thus, the Shun Fung principle that the interest rate for compensation shall be fixed at the stated statutory rate unless the claimant establishes good reason to the contrary has no application to the present version of section 17(3A) and (3B) of the LRO.

14.  The respondent’s argument that the intention of the amendments was just to re-define the interest rate stated in section 17 of the LRO because of the deregulation of bank interest rates was not accepted by the court of appeal.  As said by Yuen JA in the 2^nd CA Judgment:-    

‘40. If that had been the intention, it would have been simple enough (indeed, it would have been simpler) for the draftsman to keep the original reference in the LRO that the Tribunal should award interest “having regard to” the stated rate, only replacing the stated rate in the “pre-amendment provision” with the stated rate in the “post-amendment provision”. The draftsman must be presumed to know the significance of those words as interpreted in Shun Fung. However it is notable that those words were deleted in the amendment. Instead, a different form of words was used – clear words which Mr Ismail accepts in their ordinary and natural meaning gave the Tribunal a wider discretion and claimants a minimum rate.

…

42. Accordingly I do not accept the Director’s submissions that the ordinary and natural meaning of the words in the “post-amendment provision” is overridden by the statements in the documents referred to by Mr Ismail.’

The Minimum Rate not the starting point

15.  In view of the 2^nd CA Judgment, we agree with the applicant that the Minimum Rate as expressed in section 17(3B) of the LRO should not be regarded as the starting point in the exercise of our discretion.  In the Shun Fungcase, the Privy Council took the statutory rate as the starting point merely because of the use of the words “having regard to”, but such words are no longer there.

16.  Thus, we accept that section 17(3A) confers a wide and general discretion on the Tribunal to award interest at such rate as it thinks fit.  Section 17(3B) simply sets a floor or minimum rate of interest on compensation that the Tribunal can fix, but it should not be used as a starting point.

17.  Of course, it does not mean that the Tribunal should never award the Minimum Rate.  By retaining the Minimum Rate in section 17(3B), the legislature must be taken to have intended that in some circumstances, it could still provide adequate compensation to a claimant for being kept out of the money.  It is entirely a matter for the Tribunal to decide in what circumstances the Minimum Rate should be awarded.  However, as the respondent is not contending that the Minimum Rate should be adopted in the present case, it is not necessary for us to consider the circumstances in which an award of the Minimum Rate is appropriate.  The proper question for us to consider is what interest rateis appropriate to compensate the applicant for being kept out of the compensation.

Overriding principle

18.  As held in The London, Chatham and Dover Railway Company v The South Eastern Railway Company [1893] AC 429 and Union Base Ltd v Tsang Shek Tong [1998] 2 HKC 349, the overriding principle is that interest should be awarded to the applicant, not as compensation for the damage done, but for being kept out of the money which ought to have been paid to the applicant.

19.  In other words, the principle of equivalence as laid down in the Shun Fungcase applies to interest.  As said by Lord Nicholls in that case:-

“The purpose of these provisions, in Hong Kong and England, is to provide fair compensation for a claimant whose land has been compulsorily taken from him. This is sometimes described as the principle of equivalence. No allowance is to be made because the resumption or acquisition was compulsory; and land is to be valued at the price it might be expected to realise if sold by a willing seller, not an unwilling seller. But subject to these qualifications, a claimant is entitled to be compensated fairly and fully for his loss. Conversely, and built into the concept of fair compensation, is the corollary that a claimant is not entitled to receive more than fair compensation: a person is entitled to compensation for losses fairly attributable to the taking of his land, but not to any greater amount. It is ultimately by this touchstone, with its two facets, that all claims for compensation succeed or fail.”

20.  Thus, interest should be awarded at such a rate that will compensate fairly and fully for the applicant’s loss, but not to any greater amount.

21.  We note that in the 2^nd CA Judgment, Yuen JA commented on the Minimum Rate (which was described by the applicant’s counsel as “derisory”)and said:-

“At this stage I should say no more than that to a land owner (or other claimant running a profitable business) who has through no fault of his own been deprived of property, and been kept out of his money for a substantial period of time, it would be difficult to see how that would accord with the principle of equivalence.”

22.  However, we do not take what Yuen JA said (as quoted above) to be binding on us.  The words “I should say no more” clearly indicate that her comment was just obiter and not meant to constrain the Tribunal’s unfettered discretion.

23.  On the other hand, the 2^nd CA Judgment did not decide that only Prime + 1% would accord with the principle of equivalence, even though it was the rate awarded in the 1^st CA Judgment for compensation under the Disturbance Claim.

24.  Thus, it is still open to us to fix any rate that will be appropriate in the circumstances of the present case and in accordance with the aforesaid overriding principle.

Consistency with the interest rate awarded in the 1^st CA Judgment

25.  However, the applicant submits that by the 1^st CA Judgment, the court of appeal has already awarded interest on the compensation under the Disturbance Claim at the rate of Prime + 1%. That is, the court of appeal has decided in a final judgment between the parties that to compensate the applicant for being kept out of the money to which it was entitled, interest should be at the rate of Prime + 1%. Since an award of interest is to compensate a claimant for being kept out of money, the nature of the underlying “principal” is in a sense irrelevant: whatever its nature, what is being compensated is that the claimant is being kept out of it, and in the case of the applicant, the court of appeal has decided that the appropriate compensation for that is interest at the rate of Prime + 1%.  Thus, there is no reason to distinguish between the Disturbance Claim and the Extinguishment Claim (which is not distinguishable in any event since both the Disturbance Claim and the Extinguishment Claim arose from the same series of fact and the same cause of action, and there is no reason why the pre-judgment interest should be awarded differently).

26.  As the 1^st CA Judgment has already decided that Prime + 1% is the appropriate interest rate, the applicant submits that there is res judicata (in the sense of there being an issue estoppel) between the parties as to what the appropriate rate of interest to compensate the applicant for being kept out of money should be.  The fact that the question of interest rate was not argued before the court of appeal does not render the doctrine of res judicata inapplicable, as it remains a point directly, expressly and clearly decided by a court of law in a final judgment binding on both parties.  Further and in any event, issue estoppel applies to a point which might have been but was not raised in the earlier proceedings (see Arnold v National Westminster Bank plc [1991] 2 AC 93), and the fact is that the respondent could, and ought to, have argued the point on interest before the court of appeal.

27.  The applicant further submits that should the Extinguishment Claim be decided together with the Disturbance Claim in one go, it is highly likely that the court of appeal would adopt the same rate of interest on the compensation under the Extinguishment Claim.  In the circumstances, there is no justification for departure from the rate of Prime + 1% as endorsed by the court of appeal.

28.  On the other hand, the respondent submits that it is an abuse of process for the applicant to raise the res judicata argument because the applicant could and should have applied to the court of appeal for leave to raise it (see Yuen Oi Yee Lisa v Heath Co Ltd, HCA 96/ 2005) when the res judicata argument was rejected by us on 17 February 2012.

29.  The applicant acknowledges that it did raise a plea of res judicata which was rejected by us, but submits that the issue decided at that decision was whether the court of appeal’s decision on the rate constituted a good reason to depart from the Minimum Rate on the basis that Shun Fung still applied, whereas the issue now is what appropriate interest rate the Tribunal should award free of any restraint or fetter imposed by Shun Fung.

30.  We disagree with the applicant in this respect.  In our decision made on 17 February 2012, we made it clear that the doctrine of res judicata is not applicable to the present case at all.  There is no authority supporting that interest rates on two different heads of even a single claim could not be awarded differently.  As the court of appeal simply did not make any ruling on the interest rate for the Extinguishment Claim, no res judicata could arise.  Despite what the applicant submits about issue estoppel, we still maintain the same view.  What had been decided by the court of appeal was just related to the interest rate under the Disturbance Claim.  As the court of appeal did not give any reason for awarding the interest rate at Prime + 1%, it is impossible to know what issue or issues had been decided by the court of appeal when it came to the conclusion that the interest rate should be Prime + 1%.

31.  In fact, as Yuen JA pointed out in the 2^nd CA Judgment, we did not award any compensation, and hence understandably we did not consider the issue of interest.  So there was no decision on interest to appeal against in the first place.  Yuen JA also commented in the 2^nd CA Judgment that in the Notice of Appeal, the applicant asked for compensation to be determined but did not ask for interest at a specific rate, nor was interest mentioned in the skeleton submissions of either counsel.  It cannot be disputed that the question of interest was not argued on appeal.  So, how could there be any issue or issues decided by the court of appeal that could form any issue estoppel in relation to the interest rate for the Extinguishment Claim?  If the mere fact that there was an award of interest at a particular rate could amount to res judicata or issue estoppel, there would be no reason for the court of appeal in the 2^nd CA Judgment to remit the matter on interest rate back to us to decide.  The court of appeal could simply adopt the interest rate awarded in the 1^st CA Judgment if it thought that the issue was res judicata.

32.  In fact, when the court of appeal awarded interest in the 1^st CA Judgment, the respondent did raise the question of interest to the court of appeal and the court of final appeal when seeking leave to appeal, but leave was refused by both courts.  The reason for refusal given by the court of final appeal was that it was not a question of great, general or public importance, but reflects merely dissatisfaction on the part of the respondent with the result reached by the court of appeal. Thus, through no fault of the respondent, the issue of interest was never properly argued before the court of appeal or the court of final appeal at that stage.

33.  There is also no basis for submitting that it is highly likely that the court of appeal would adopt the same rate of interest on the compensation under the Extinguishment Claim.  The court of appeal in the 1^st CA Judgment did not say anything about the rate of interest under the Extinguishment Claim, let alone that it should be at the rate of Prime + 1%.  If the court of appeal in the 2^nd CA Judgment thought that Prime + 1% was highly likely to be awarded because it should be the same rate for the Disturbance Claim as suggested by the applicant, there is no need for the matter to be remitted back to us.  The court of appeal could simply order that the same rate be applied for the Extinguishment Claim.

34.  We are therefore of the view that we should consider the interest rate afresh without any constraint from the award made in the 1^st CA Judgment.

The long established practice

35.  The applicant submits that it has long been the practice of the courts both in Hong Kong and the UK to award interest at the rate of Prime + 1% in a commercial setting and beyond.  In The World Food Fair Ltd and another v Hong Kong Island Development Ltd, FACV 6/2006, Ribeiro PJ said this:-

‘11. As I stated in the Determination on interest and costs in Polyset Ltd v Panhandat Ltd (FACV No 28 of 2000, 25 April 2002):

“To compensate a successful plaintiff for being kept out of his money, the general practice in Hong Kong, has, at least since 1984, been to award interest reflecting the theoretical cost to the plaintiff of borrowing the sums withheld. This is a rate taken to be prime plus 1% unless the evidence in a particular case makes adoption of another rate appropriate: see Komala Deccof & Co SA v Perusahaan Pertambangan Minyak Dan Gas Bumi Negara (Pertamina) [1984] HKLR 219.”

12. There is no reason in this case to depart from the usual practice and accordingly the applicable rate of interest should be 1% above the HSBC best lending rate from the date of each relevant payment until judgment.’

36.  The fact that the rate represents the “theoretical cost” of borrowing means that it is not necessary for the claimant to have actually borrowed money (see also Baker v Black Sea & Baltic General Insurance Co Ltd [1996] 5 Re LR 202 at per Otton LJ).  The personal circumstances or situation of the claimant (rather than the class of litigants to which he belongs) is in fact irrelevant (Tate & Lyle Food and Distribution Co Ltd v Greater London Council and another [1982] 1 WLR 149, followed in Hong Kong by Komala Deccof & Co SA and Others v Perusahaan Pertambangan Minyak Dan Gas Bumi Negara (Pertamina) [1984] HKLR 219 at 223), and no evidence is required from the claimant to support the rate of Prime + 1% (International Bank of Asia Ltd v Albert Hwang, David Chung & Co, A Firm, HCA 22423/1998).

37.  The Prime + 1% practice (in the absence of evidence to show that this rate is too high or too low) represents a “broad brush” approach to determine what rate of interest is just and appropriate: it would be neither practical nor proportionate (even in a case involving large sums) to attempt a minute assessment of what will precisely compensate the recipient.  In particular, the courts do not need to have regard to the rate at which a particular recipient of compensation might have borrowed funds (see Fiona Trust & Holding Corporation v Yuri Privalov [2011] EWHC 664 (Comm)).

38.  Evidence of actual borrowing may be adduced to show that a higher or lower rate should be adopted, but it is not necessary to show that actual borrowing is necessitated (see Constantgreen Limited v Her Majesty’s Revenue and Customs, LON/2004/1868, London Tribunal Centre, 14 August 2007).  In The Hong Kong Electric Co Ltd v Commissioner of Rating and Valuation, LDGA 224/2004 & LDRA 358/2004, the Tribunal would have applied the Prime + 1% rate for overpaid rates to be returned by the government but for the fact that there was evidence before the Tribunal that the actual rate of borrowing was much lower.

39.  Apart from commercial cases, the above practice was applied in other types of cases, such as tort claim(Metal Box Co Ltd v Currys Ltd [1988] 1WLR 175),employment dispute (Attrill & Others v Dresdner Kleinwort Ltd & Another [2012] EWHC 1468 (QB)), and borrowing by charity(Hackney Empire Ltd v Aviva Insurance UK Ltd (No 2) (2013) 149 Con LR 213).

40.  Thus, the applicant submits that we should also adopt the same approach.  The applicant even suggests that it was because of this practice, so long and well-established, that the court of appeal felt able to award interest at Prime + 1% without hearing any argument in the 1^st CA Judgment.

41.  The respondent has no dispute that there is such a long established practice of awarding interest at the rate of Prime + 1% in a commercial setting, but argues that such a practice is irrelevant because the Tribunal’s discretion is governed by section 17(3), (3A) and (3B) of the LRO, and such discretion is not and must not be constrained by such a long established practice.  Thus, the cases cited above do not assist the applicant as they were not concerned with section 17(3), (3A) and (3B) of the LRO.  There is also no basis for the applicant to submit that the court of appeal awarded interest at the rate of Prime + 1% because of this long established practice.  If the Tribunal should just follow this long established practice, there was no need for the court of appeal to remit the matter to us and it could have adopted this long established practice in the 2^nd CA Judgment.

42.  We accept that our discretion is governed by section 17(3), (3A) and (3B) of the LRO and we are not bound by the long established practice, which remains being a practice, not law that we must follow.  It is purely guesswork that the court of appeal had followed the long established practice as it did not give any reason for its decision on the interest rate.  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.

Exercising the discretion

43.  The applicant submits that our discretion in fixing the interest rate must be exercised in the light of the principle of equivalence so as to compensate the applicant fairly and fully in the relevant circumstances, and the circumstances of the present case are that the applicant, through no fault of its own, has been kept out of the compensation money for a lengthy period of 6.5 years.  After a prolonged series of proceedings, the amount of the compensation under the Extinguishment Claim was not awarded and paid until late 2011.  Adopting the Minimum Rate, which is extremely low (0.001% as from 2007), would be wholly unfair to the applicant where there was such a huge time lapse between deprivation of property and payment of compensation.  Calculation of interest for the Extinguishment Claim with reference to the Minimum Rate would defeat the whole purpose of awarding interest.

44.  From 25 May 2005 to 4 November 2011, the Consumer Price Index, which indicatesthe general price level in Hong Kong, increased annually at an average rate of about 2.5% over the 6.5 years.  For the same period, the Centa-City Index, which indicatesthe property price level in Hong Kong, increased approximately from 50 to 90, resulting in an increment of approximately 80%.  Again, for the same period, the Hang Seng Index, which indicatesthe securities market trend, increased from 13,562.06 to 19,842.79, resulting in an increment of approximately 46%.  Given the continuous increase in general price level over the period of 6.5 years as evidenced by the said indices, it would be extremely unreasonable and unfair for the interest on the compensation under the Extinguishment Claim to be calculated according to the Minimum Rate.  Rather, those indices show that an award of Prime + 1% is nothing more than only fair to the applicant in all the circumstances.

45.  The Minimum Rate presupposes that the applicant, if given the money, would have simply put it into a bank as deposit, which is unreal given the very low deposit rates in recent years.  If the investment approach is taken, then the loss of money deprives the applicant of investment opportunities (which would give an average return of 7% or 12% over 6.5 years depending on whether the applicant would have invested in shares or land) and to derive profits from there.  Either the applicant would need to borrow money to make the investments, or the applicant would have lost the return from the money, and in either case the loss would have been at least (and certainly more than) Prime + 1% per year over the period (see Challinor v Juliet Bellis & Co [2013] EWHC 620 (Ch)).

46.  The applicant further submits that from 2005 to 2011, the Prime + 1% interest rate as fixed by the court of appeal in the 1^st CA Judgment was between 6% and 9%, and it is in line with the judgment rate of 8% in the same period.  As the appropriate rate to compensate the applicant for being kept out of money for the period post-judgment is considered by the Chief Justice to be 8%, it supports the applicant’s case that the rate of Prime + 1% is an appropriate compensation for the period pre-judgment.  The nature of the loss to the applicant in both periods is the same, and hence there is no reason to have two totally disparate levels of compensation.

47.  However, as the respondent is not asking us to award the Minimum Rate, its adoption should no longer be a live issue.  The respondent is now saying that the appropriate interest rate is the 1-month fixed deposit rate, and in this regard, the respondent refers us to the following passages in the Shun Fung case:-

“The words “having regard to” in sub-s. (3A) of s. 17 of CLRO obviously introduce an element of discretion on the rate the Tribunal may fix … courts have interpreted statutes embodying variants of “having regard to” or “taking into account”: Perry v. Wright [1908] 1 KB 441; Palser v. Grinling [1948] AC 291; Flowers v. George Wimpey & Co. Ltd. [1956] 1 QB 73; Nilamdeen v. Ibrahim [1968] 1 WLR 1718; and R. v. CD [1976] 1 NZLR 436. ... we will follow ... a purposive construction ... the purpose of the CLRO is to enable the Crown compulsorily to acquire privately-owned land for public purposes, in exchange for fair compensation. ... fair compensation is full compensation : neither too little, nor too much. ...

The lowest rate payable ... i.e. the seven-day call rate, can, in our view, be treated as in the nature of a benchmark at the very bottom of the scale.  That seven-day call rate is suitable for run-of-the-mill resumption cases involving the sort of unsophisticated, small, non-business owner for whom it is natural to keep his money on deposit with banks…. when one comes to the situation of a medium to large-sized manufacturing business, such as SFI’s, which finances itself with bank credit, fairness and reason dictate that an interest rate considerably in excess of that on offer for seven-day call money will be appropriate.

 To compensate it for being kept out of its money, …. while at the same time it has to pay the bank (or some other source of funds) interest on its debts at the rate of at least Prime plus 1%, SFI submits the Tribunal should award it interest at that rate. That request from SFI impresses us as moderate and reasonable. ... we also take judicial notice of the fact that in practice in Hong Kong, it costs at least Prime plus 1% to borrow from a bank; see Miliangos v. George Frank (Textiles) Ltd. (No.2) [1977] 1 Q.B. 489.” [Underlines added]

48.  The respondent submits that although the court of appeal in the Shun Fung case held that the Tribunal paid lip service to the words ‘having regard to’ and substituted the Prime + 1% rate ordered by the Tribunal with a seven-day call rate plus 2%, there was no criticism of the factors which the Tribunal took into account.  The privy council also agreed with the court of appeal that the Tribunal had misdirected itself in fixing the rate of interest at Prime + 1%.

49.  The respondent further submits that the applicant does not fall into the category or class of an “unsophisticated, small, non-business owner for whom it is natural to keep his money on deposit with banks”, and for this reason the Minimum Rate is not adopted.  However, the applicant falls into the category or class of an experienced, medium sized business owner who is able to successfully run a restaurant business at a profit without outside credit (e.g. from banks and other financial institutions) to finance its business.  It is natural and reasonable to expect such an owner to keep any money that it does not have to use for running the business in a fixed deposit with the bank renewable each month (because he may need to withdraw any savings).  Such savings would earn it interest at a 1-month fixed deposit rate but not at the rate of Prime + 1% or the judgment rate.

50.  The respondent refers to the fact that the applicant ran a successful medium sized restaurant business without the need to finance itself with bank credit, even though it had been in existence for only 15 months.  The applicant’s profit and loss account for the period from 20 August 2003 to 28 February 2005 shows that interest on bank borrowings, wholly repayable within five years, was only $51.00, cash savings in the bank in the sum of $683,767.00, enough money to pay the profits tax of $531,676.00, and a net profit of $2,297,088.00 for the 15 month period. The applicant’s shareholders provided an interest free loan of $5,843,728.00 and they were remunerated by the distribution of profits instead of charging interest on the loan at marker rate.  Apart from income from the restaurant business, the applicant also received income of $380,774.00 from Bright Dragon Properties Limited as well as other sundry income.

51.  Also, the court of appeal in the 1^st CA Judgment found that the applicant could not obtain a bridging loan because there was no security to offer and no personal guarantee was available.  Thus, theapplicant was not a favoured customer of any bank and would not have to pay interest if it was not able to obtain any loan.  The respondent submits that a prime rate is the rate of interest at which a bank would lend to its favoured customers, ie those with good credit.  As the applicant did not borrow any money from a bank with interest, to award the applicant interest at the rate of Prime + 1% would give it a profit or windfall.

52.  Moreover, as the respondent has not behaved unreasonably or by his conduct protracted the time taken in determining the claim, the respondent’s conduct cannot be a reason to award Prime + 1%.  The respondent is also not responsible for the low interest rate of 24-hours call deposit from 2007.

53.  In the above circumstances, the respondent submits that awarding interest rate at Prime + 1% would be unfair and would not accord with the principle of equivalence. On the other hand, the 1-month fixed deposit rate would be fair and reasonable and adequate recompense to the applicant for being kept out of its money.

54.  After careful consideration of the submissions from both sides, we are of the view that awarding interest at 1-month fixed deposit rate is not realistic in the circumstances of this case, as it would not reflect adequately the applicant’s loss of use of the compensation money.  The respondent’s contention is based on the assumption that the applicant would keep the money in a bank and just earn interest at the deposit rate.  However, the applicant is a commercial entity.  It ran a restaurant business.  Even though the court of appeal found that it could not relocate after its closing down, it does not mean that the applicant could not use the money to invest in some other business or commercial activities.  We appreciate that there is no direct evidence on what the applicant would do with the compensation money when received, but it is clear from the evidence that the applicant’s shareholders wished to be remunerated by the distribution of profits instead of charging interest for their loans to the applicant.  Thus, it is more likely than not that the shareholders of the applicant would like to have the compensation money utilized for earning profits instead of having it sitting in a bank.

55.  In order to compensate the applicant fully and fairly, we agree with the applicant that the investment approach is more appropriate in the circumstances of the applicant’s case.  Without the use of the compensation money, the applicant would either need to borrow the money from a bank or suffer the loss of the return from the use of the money in making investments.  Using the “broad brush” approach in the long established practice as discussed above, the interest rate of Prime + 1% does represent the theoretical cost to the applicant of borrowing the compensation money withheld by the respondent.

56.  In the course of discussion with counsel at the hearing, we raise the point about whether the Tribunal could take judicial notice of the fact that interest rates in recent years have dropped significantly and hence the cost of borrowing would be lower than Prime + 1%.  In fact, in the Shun Fung case, the Tribunal took judicial notice of the fact that in practice in Hong Kong, it costs at least Prime + 1% to borrow from a bank.  However, we agree with the applicant that although the interest rates for mortgage loans are generally lower in recent years, it may not be the same for commercial loans.  As the applicant did not have any property to mortgage or any security for the bank to hold on, it is not right for us to assume that the applicant could obtain a loan at an interest rate that is comparable to the low interest rate for a mortgage.  We also agree that we cannot take judicial notice of the commercial interest rates in Hong Kong.  Thus, in the absence of any other evidence, we find that Prime + 1% is still a good estimate of the cost of borrowing for the applicant, and it would not be a windfall or profit for the applicant to receive interest at this rate.

57.  As held in The Hong Kong Electric Co Ltd v Commissioner of Rating and Valuation, supra, the practice of awarding interest at Prime + 1% amounts to no more than a presumption which can be displaced if its application would be “substantially unfair either to one party or the other”.  The burden of displacing this presumption lies on the party seeking to displace it, but we find no evidence from the respondent to displace such a presumption.  We do not think that any of the matters mentioned in the Affidavit of Yuen Lok Yan Phyllis could help the respondent to displace the presumption.  It is in fact irrelevant for the respondent to rely on matters such as the facts that the applicant has already received money under the other heads of compensation, the financial burden on the Housing Society would be “enormous and devastating”, and the advice given by the government to the then Legislative Council when the LRO was amended.

58.  In the circumstances, we agree with the applicant that interest on the compensation under the Extinguishment Claim should be at the rate of Prime + 1% until judgment.  We also agree that the post-judgment interest rate should be at the judgment rate, as the award is a judgment sum.

59.  However, as the banks in Hong Kong can now have different prime rates, we need to decide which bank’s prime rate is appropriate.  Since HSBC is the largest and most commonly used bank in Hong Kong, we agree with the applicant that HSBC’s prime rate should be adopted.

Conclusion

60.  The applicant, therefore, succeeds on the issue of interest and is entitled to costs.  Subject to any further submissions, we accept that the issue before us is not an easy one and justifies the attendance of two counsel.

61.  Accordingly, we order that:-

(1)The respondent do pay the applicant interest on the sum of $7,027,710.00, being the compensation for the Extinguishment Claim, at the rate of 1% above HSBC’s prevailing prime rate, from the date of resumption until judgment and thereafter on the resultant sum at the prevailing judgment rate until payment.

(2)Costs order nisi: The respondent do pay the applicant costs of the hearing on the issue of interest with certificate for two counsel to be taxed on High Court Scale if not agreed.  If there is no application to vary the costs order nisi within the next 14 days, it shall become absolute.