GAIN TALENT DEVELOPMENT LTD v. THE SECRETARY FOR ENVIRONMENT, TRANSPORT AND WORKS

LDMR 7 of 2003

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

Miscellaneous Reference Application No. 7 of 2003

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Coram: H.H. Judge CHOW, Presiding Officer of the Lands Tribunal sitting with Mr. C.Y. LAM, Member of the Lands Tribunal

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J U D G M E N T

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1. On 25/6/2004 the Tribunal gave judgment in favour of the applicant for compensation for resumption under s.13 of the Roads (Works, Use and Compensation) Ordinance (Cap. 370) (“the Ordinance”) in the sum of HK$4,741,000 and ordered that matters relating to interest on compensation, and costs on remuneration of professionals to be heard and determined at a date to be fixed by the Lands Tribunal.

2. The parties have since been able to reach agreement on costs and the periods in which interest is to accrue.  Under item 1 of Part II of the Schedule to the said Ordinance, by s.33(1)(a), the Tribunal may direct interest to be paid as if the claim were made under the Lands Resumption Ordinance (Cap. 124) for land resumed under that Ordinance. S.17(3) of the Lands Resumption Ordinance provides:

“(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).”

The parties have agreed that interest shall run from 15/1/1999 to 15/1/2000, and from 27/5/2002 to 28/6/2004.  The interim period of 16/1/2000 to 26/5/2002 relates to an agreed extension of time for the Applicant to make its claim on condition that no interest is claimed for that period.  The only outstanding issue which this Tribunal has to determine relates to the rates at which interest shall accrue.

6. S.17 of the Lands Resumption Ordinance (Cap. 124) was amended on 12/4/2001.  The old s. 17(3A) of the Lands Resumption Ordinance (Cap. 124) provided that :

“(3A)

The rate of interest for the purposes of subsection (3) shall be such rate as the Lands Tribunal may fix having regard to the lowest rate payable from time to time by members of The Hong Kong Association of Banks on time deposits.”

As from 12/4/2001, the new s.17(3A) & (3B) provide as follows :-

“	(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 that day.”

By virtue of the transition provisions set out in s.13(2)(a) of the Interest Rates (Miscellaneous Amendments) Ordinance (Ord. No. 6 of 2001), the old law applies to the first period (15/1/1999 to 15/1/2000) and the new law applies to the second period (27/5/2002 to 28/6/2004).

First Period

8. Under the old s.17(3A), the Tribunal shall fix the interest rate “having regard to the lowest rate payable from time to time by members of The Hong Kong Association of Banks on time deposits”.  This provision was construed by the Privy Council in Director of Lands v Shun Fung Ironworks Ltd [1995] 2 AC 111 where Lord Nicholls said (at 139E-G):

“In their Lordships’ views, in requiring the tribunal to have regard to the lowest time deposit rate, the legislative purpose must be that this should be the rate fixed by the tribunal unless in the particular case there is good reason for departing from it.  The rate specified is a low one, but the legislature must be taken to have intended that ordinarily this should be adequate recompense to a claimant for being kept out of his money.  This would not cover a case where one of the parties has behaved unreasonably, and by his conduct protracted the time taken in determining the claim.  In a suitable case that could furnish good reason for the tribunal fixing a higher or lower rate, depending on who was at fault”. 
(Underlines provided)

10. The Applicant submitted that, under the old s. 17, the Tribunal should award interest at a higher rate than the 7-day call deposit rate in respect of the first period, for the following grounds :-

‘	(1)	The Respondent had all along contested the Applicant’s entitlement to compensation on the basis that the Respondent was not a “former owner” within the meaning of the Lands Resumption Ordinance, or that its entitlement was limited to a fraction only of the value of the resumed land because, the Respondent maintained, the Applicant had not paid the full price.  These objections were dropped at the eleventh hour and not relied upon at all at the hearing before the Tribunal on 29/4/2004.
	(2)	Instead, at the hearing on 29/4/2004, the Respondent raised a new ground of objection to the Applicant’s claim which had not been mentioned before, namely, that there was a Memorandum of Agreement between the Applicant and Everett, which ground was rejected by the Tribunal: see paras 3.5 to 3.9 of the Judgment of the Tribunal.
	(3)	The Tribunal found that there was “absolutely no evidence” that any formal agreement of sale and purchase had been entered into between the Applicant and Everett.  Yet the Respondent had persisted in opposing the Applicant’s claim.
	(4)	The Government had previously appeared to accept the Applicant’s claim (see Deacons’ letter of 29/12/99) and yet various grounds of objection were subsequently raised, none of which was pursued at the hearing of the claim on 29/4/2004.
	(5)	The resumption took place on 15/1/1999 and a long time had elapsed before any compensation was paid to the Applicant.  There was no acceptable offer from the Respondent and no provisional payment was made under s.16A of the Lands Resumption Ordinance.
	(6)	The Applicant is a company in insolvent liquidation and there is no reason why the creditors should be deprived of proper compensation by way of interest for the delay in receipt of the resumption compensation caused by the stance taken by the Respondent.’

Second Period

11. In respect of the second period, the Applicant submitted that in Weco Textiles Manufactures Ltd v Secretary for Transport [1991] HKLTLR 77 at 103C, H.H. Judge Cruden stated that under the wording of s.33 of the Ordinance, “the Tribunal has an unfettered discretion as to interest, subject to not fixing a rate below the Association’s lowest rate”, and for the various grounds stated above, the Tribunal should apply a rate substantially higher than the minimum rates in s.17(3B).  A commercial rate should be applied for the deprivation of use of the money in question.

13. In Li Po Chun Estate Ltd. V Director of Lands (No. 1) [1997] CPR 330, the Tribunal canvassed what constitutes the lowest time deposit interest rate.  The Tribunal accepted the Government’s submission that a 24-hour call deposit rate should be adopted as the lowest time deposit rate within the meaning of the old section 17(3A).  In that case, the interest rate was increased by 1% on top of the 24-hour call rate due to the Government’s delay in payment of the compensation.

14. The Applicant advanced 6 grounds to urge the Tribunal to award interest at a rate higher than the 7-day call deposit rate.  For ground (1), this Tribunal has no knowledge why the Respondent dropped the original objections.  The change of stance adopted by a party may constitute an unreasonable behaviour, but sometimes it may not.  It all depends on the circumstances of the case.  The burden is on the Applicant to satisfy me that this is an unreasonable behaviour, but the Applicant has failed to do so.  The same reasoning applies to ground (4).

15. For ground (2), the Respondent explained that it was only when the Applicant filed their witness statement in January 2004 that it came to know that there was a memorandum of agreement. But the witness concerned did not exhibit any memorandum of agreement to that statement.  It is only later, upon its request, that it was provided a copy of it.  But that was a time very near to the hearing of the case in April, 2004.  The Respondent was duty bound to challenge this memorandum of agreement.  It is in these circumstances that it raised the new ground.  That cannot be an unreasonable behaviour.

16. As for ground (3), it is only after the trial that the Tribunal found that there was “absolutely no evidence” that any formal agreement had been entered into between the parties concerned. It is illogical for the Applicant to say that the Respondent had persisted in opposing the Applicant’s claim, because the Respondent could not have foretold what judgment the Tribunal would pass in this case.

18. For ground (5), the Applicant failed to file in a claim within time, thereby causing a delay in the claim.  It only has itself to blame.  I cannot see how this can attribute to any unreasonable behaviour on the part of the Respondent.

19. For ground (6), again I fail to see in what way the Respondent behaved unreasonably.  The Applicant has not shown how the Respondent caused any delay in this case.

20. The hearing took place on 29.4.2004, and whether or not the Respondent’s has merit in its opposition, the hearing was completed on that day.  The Applicant has absolutely failed to show how the Respondent’s conduct protracted the time taken in determining the claim.

21. This Tribunal finds that the grounds advanced by the Applicant cannot stand.  There is no reason for the Tribunal to fix a higher or lower interest rate as stipulated by statute.  Following the decision in Li Po Chun (supra), this Tribunal adjudges that a 24-hours’ call deposit rate is to be adopted as the lowest time deposit rate within the meaning of the old section 17(3A) for the first period.  For the accord period, it is beyond doubt that the same interest rate applies.  Accordingly, this Tribunal orders that the applicable interest rate on the compensation sum for the periods from 15.1.1999 to 15.1.2000, and from 27.5.2002 to 28.6.2004 is the 24-hours’ call deposit rate.

Costs

22. The Applicant is entitled to have interest on the compensation sum.  The only issue is at what rate.  It is not a case in which if the Applicant loses its arguments it will lose its entitlement to interest.  Had the whole case been heard at one go, this Tribunal would have awarded costs to the Applicant for the proceedings, save and except for the part relating to the issue on the interest rate.  There should be no difference in this regard when this issue is heard separately.  Therefore this Tribunal makes an order nisi, to be made absolute in 14 days’ time, that there be no order as to costs in respect of the present hearing.

The Applicant : represented by Messrs Deacons, Solicitors

The Respondent : represented by the Department of Justice

LDMR 7 of 2003

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS REFERENCE APPLICATION NO. 7 OF 2003

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J U D G M E N T

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1. This is an application by the Applicant under section 29(7) of the Roads (Works, Use and Compensation) Ordinance Cap. 370 ("the Ordinance") to the Lands Tribunal for determination of its claim for compensation in respect of the resumption of 13 lots of land in D. D. 224, namely, 899, 893, 901, S. A. 911, R. P. 902, 912, 915, 983, 927, 980, 913, R. P. 984 and 975 ("the Land resumed").

The facts

2. Golden Root Development Limited ("Golden Root") was the registered owners of 30 lots of land in D. D. 244, namely 738, S. A. 1939, S. B. 1939, 1941, 1942, 1943, R. P. 721, 931, 949, 955, 956, 932, 929, 554, 835, S. A. 1945, R. P. 1945 and the Land resumed.

2.1 On 21st March, 1993, there was a Sale and Purchase Agreement ("SPA") between the Applicant and Golden Root in respect of the said 30 lots of Land in D. D. 224 at the consideration of HK$420 millions, which is to be paid in 3 stages: -

(a) The initial deposit in the sum of HK$105,000,000 upon signing of the SPA;

(b) further deposits in the sum of HK$189,000,000 within 30 days of the SPA; and

(c) the balance in the sum of HK$126,000,000 upon completion of the sale and purchase.

The completion was to take place within 12 months of the SPA. Upon signing of the SPA, the Applicant paid to Golden Root $105 millions. The SPA was registered in the Land Registry.

2.2 After the SPA was entered into, it was apparently varied by a supplemental agreement date 8th April 1993, which limited the sum to be paid by the Applicant to not more than US$30 millions (HK$234 millions).

2.3 A total sum of $255.3 millions was paid by the Applicant to Golden Root pursuant to the SPA.

2.4 On 15th October, 1998, the government gave notice of an order under Section 13 of the Ordinance in respect of the resumption of, amongst others, 13 of the 30 lots of land, which was to take place upon the expiry of 3 months. The resumption took place on 15th January, 1999.

2.5 On 1st December, 1999, the Applicant instituted in the High Court an action against Golden Root, for specific performance of the SPA, or alternatively, recission of the SPA and damages, together with the return of the money paid in the sum of HK255.3 millions, and HK$122,544 millions, being interest charged on the sum of HK$255.3 millions at the rate of 8% per annum.

2.6 On 8th March, 2000, the Applicant obtained judgment against Golden Root in default of defence in the sum of HK$122.544 millions plus other damages to be assessed in respect of loss caused by delay in completion. The Applicant made no election between the remedy of specific performance or recission.

2.7 On 5th May, 2000, the Applicant obtained a Charging Order absolute and on 15th November, 2000 an order for sale in respect of the remaining 17 lots of land in D. D. 244 of Golden Root. The 17 lots of land in D. D. 244 was sold at a consideration of HK$15.9 millions on 17th November, 2003.

3. Statutory provisions

3.1 The right to claim compensation is specifically governed by section 27(2) of the Ordinance, which provides:

"(2) Every person who is described in the third column of Part II of the Schedule shall have the right to recover compensation for the matters set out opposite thereto in the first column to the extent suffered or incurred by him as assessed under the Ordinance......"

Item 1 of Part II of the Schedule to the Ordinance is applicable to the present case. It reads as follows: -

"(1) ......

(2) ......

(3) 3rd column, viz, persons who may claim compensation for their respective losses; Any person who would be entitled to claim compensation for land resumed under the Land Resumption Ordinance; and

(4) ......"

3.3 Section 6(1)(a) of the Lands Resumption Ordinance provides for the person who may claim for compensation, namely, "the former owner" or "any person having an estate or interest in the Land immediately before reversion under an instrument registered in the Land Registry." In order to be entitled to receive any compensation under the Ordinance, the Applicant must establish that section 6(1)(a) of the Lands Resumption Ordinance applies in its case.

3.4 Section 2 of the Lands Resumption Ordinance defines "former owner" to mean "in relation to land resumed by the government, the person who was the owner of the land immediately before the land reverted to the government under section5", and "owner" to mean "the person registered or entitled to be registered in the Land Registry in respect of any land sought to be resumed or, if such person is absent from Hong Kong or cannot be found, or is bankrupt or dead, his agent or representative in Hong Kong".

3.5 It was decided in the case of Wing Tung Yick Investment Co. V A. G. (1997) 4HKC that a purchaser of land qualified as a "former owner". In that case at P. 435 Keith J stated:

"It is common ground that anyone who has a beneficial interest in land is entitled to have that interest registered in the Land Registry. It is also common ground that the Sale and Purchase agreements had the effect of passing a beneficial interest in the land to the company provided that the vendor had a good and valid title to pass."

The Respondent has no dispute on this decision. Its objection is that there was a Memorandum of Agreement reached between the Applicant as the vendor and Everett Group Limited ("Everett") as the purchaser on 31st March, 1993 in respect of the same 30 lots of land in D. D. 244 as referred to in the SPA. The Memorandum of Agreement provides as follows: -

"The Vendor agrees to enter into a Sale and Purchase Agreement agreeing to sell and the Purchaser agrees to enter into a Sale and Purchase Agreement agreeing to purchase the said Properties together with the messuages erections and buildings to be erected thereon on the following terms and conditions ......."

3.7 A deposit in the sum of HK$21 millions was paid by Everett to the Applicant pursuant to the Memorandum of Agreement.

3.8 The Respondent argued that "it is the title law that an agreement for the sale of land operates as an alienation by the vendor of his beneficial interest in the property. As from the date of the contract, the beneficial interest of the vendor is transferred from the land to the purchase money. As regards the land, he becomes, as between himself and the purchaser a constructive trustee for the purchaser. Thus the purchaser becomes a beneficial owner, with the right to dispose of the property by sale ......" The Respondent further argued that "Following the SPA, Gain Talent became a beneficial owner of the Land resumed and had the right to dispose it by sale. The Memorandum of Agreement operated as a sub-sale of the Land resumed by Gain Talent to Everett, as a result of which Everett, as opposed to Gain Talent became the beneficial owner."

3.9 It is wrong for the Respondent to equate the Memorandum of Agreement as a sale and purchase agreement. Very clearly the Memorandum of Agreement is an agreement to enter into a sale and purchase agreement. Pursuant to the Memorandum of Agreement, was there any sale and purchase agreement entered into? There is absolutely no evidence in this respect. After the Memorandum of Agreement was entered into, the matter stopped there. There was no sale and purchase agreement entered into between the Applicant and Everett. The Memorandum of Agreement never operated as a sub-sale of the Land resumed, and Everett never became the beneficial owner thereof. As a result, the Applicant is still "the former owner" within the meaning of section 2 of the Lands Resumption Ordinance, and therefore it has the right to claim for compensation in respect of the Land resumed.

The Open market value of the Land resumed at the date of resumption has been agreed between the parties at HK$4,741,000.

Orders:
1.	The Respondent is to pay the aforesaid sum of $4,741,000 to the Applicant;
2.	The Tribunal makes an order nisi, to be made absolute in 21 days' time, that the Respondent is to pay costs of these proceedings to the Applicant, to be taxed, if not agreed, on High Court Scale, with certificate for counsel;
3.	Matters relating to interest on compensation, and costs on remuneration reasonably incurred or paid by the Applicant in employing persons to act in a professional capacity in connection with the claim under S. 6 (2A) of the Lands Resumption Ordinance be heard and determined at a date to be fixed by the Registrar of the Lands Tribunal.

Representation:

The Applicant : represented by M/S Deacons, Solicitors.

The Respondent : represented by the Secretary for Justice.