CLP POWER HONG KONG LTD v. COMMISSIONER OF RATING AND VALUATION

LDGA 241/2004
& LDRA 365-369/2004

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

GOVERNMENT RENT APPEAL NO 241 OF 2004

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IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

RATING APPEAL NO 365-369 OF 2004

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DECISION
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Chan J:

1. This is an application by the appellant CLP for leave to appeal against an order of the tribunal made on 9 April 2015 (“the Costs Order”). The Costs Order varied a costs order nisi made by the tribunal on 24 April 2013 (“Order Nisi”).  The Order Nisi provided that the costs of the appeals be to CLP to be taxed if not agreed with certificate for two counsel.  The Costs Order made three variations to the Order Nisi to the extent that (1) all costs of and relating to Adam Davis’ valuation by approach 2 be disallowed; (2) the CB costs save those adopted for use in approach 1 be disallowed; and (3) the costs of approach 3 be disallowed. 

2. CLP seeks leave to appeal to set aside the Costs Order and to make the Order Nisi final.

The legal principles

3. The granting of leave to appeal is governed by sections 11(2) and 11AA(1) and (6) of the Lands Tribunal Ordinance, Cap 17 as follows:

“11. (2) Subject to section 11AA and the provisions of any Ordinance relating to appeals from the Tribunal, any party to proceedings before the Tribunal may appeal to the Court of Appeal against a judgment, order or decision of the Tribunal on the ground that such judgment, order or decision is erroneous in point of law.

11AA. (1) Subject to subsection (2), no appeal may be made under section 11(2) unless leave to appeal has been granted by the Tribunal or the Court of Appeal.

…

(6) Leave to appeal shall not be granted unless the Tribunal, the Court of Appeal or the registrar hearing the application for leave is satisfied that—

(a) the appeal has a reasonable prospect of success; or

(b) there is some other reason in the interests of justice why the appeal should be heard.”

4. Section 12(1) of the Lands Tribunal Ordinance gives the tribunal discretion in awarding costs as follows:

“12. (1) The costs of and incidental to all proceedings in the Tribunal are in the discretion of the Tribunal, and the Tribunal has full power to determine by whom and to what extent the costs are to be paid.

5. The following provisions in Order 62 of the Rules of the High Court that govern the exercise of the discretion are relevant to this application:

“(O 62, r 3)

(2) If the Court in the exercise of its discretion sees fit to make any order as to the costs of or incidental to any proceedings (other than interlocutory proceedings), the Court shall, subject to this Order, order the costs to follow the event, except when it appears to the Court that in the circumstances of the case some other order should be made as to the whole or any part of the costs.

(O 62 r 5)

(1) The Court in exercising its discretion as to costs shall, to such extent, if any, as may be appropriate in the circumstances, take into account-

(aa) the underlying objectives set out in Order 1A, rule 1;

…

(e) the conduct of all the parties;

(f) whether a party has succeeded on part of his case, even if he has not been wholly successful; and

…

(2) For the purpose of paragraph (1)(e), the conduct of the parties includes-

(a) whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;

(O 62 r 7)

(1) Where in any cause or matter any thing is done or omission is made improperly or unnecessarily by or on behalf of a party, the Court may direct that any costs to that party in respect of it shall not be allowed to him and that any costs occasioned by it to other parties shall be paid by him to them.

(2) Without prejudice to the generality of paragraph (1), the Court shall for the purpose of that paragraph have regard in particular to the following matters, that is to say-

(aa) the underlying objectives set out in Order 1A, rule 1;

(a) the omission to do any thing the doing of which would have been calculated to save costs;

(b) the doing of any thing calculated to occasion, or in a manner or at a time calculated to occasion, unnecessary costs;”

6. CLP accepts that the general rule in O 62 r 3(2) that costs should follow the event plays a significant role, but is a starting point from which the court can readily depart (Wong Kam Tong v Tin Shing Court, Yuen Long (I0)(No 2) [2012] 2 HKLRD 1128 per Cheung JA at §§11 to 13, Hung Fung Enterprises Holdings Ltd v The Agricultural Bank of China [2012] 3 HKLRD 679 at §100 and Pfeiffer GmbH v Cheung Hay Kit [2014] HKEC 1781 at §20.  CLP also accepts that it is no longer necessary for a party to have acted unreasonably or improperly to be deprived of its costs of a particular issue on which it has failed (Zhuhai International Container Terminal (Jiuzhou) Ltd v Lo Tong Hoi & Anor, CACV 181/2011 at §33 and Pfeirffer at §20).

7. CLP also submitted that a party should not be considered to have acted unnecessarily by having done something which, with the wisdom of hindsight, was not strictly necessary.  CLP referred to a statement by Lord Neuberger NPJ in §6 of the judgment in Thanakharn Kasikorn Thai Chamkat v Akai Holdings Ltd [2011] HKEC 96 for support of its submission.  In that case, Akai Holdings had run two alternative grounds to oppose an appeal.  It succeeded on both grounds.  The outcome would have been the same if it had run just one ground.  It was thus argued that Akai Holdings did not have to run both grounds and, hence, the 2nd ground was unnecessary and had inflated the costs of the appeal.  Accordingly, it was submitted that Akai Holdings should not have the costs they were attributable to the unnecessary argument.

8. Lord Neuberger NPJ said in §§5 and 6 of the judgment:

“5. In this case, at least in the absence of Akai’s cross-appeal, the position is as follows. Akai relied both on want of authority and on knowing receipt to make out its case for defeating the Bank’s appeal, and it succeeded on both arguments, although the outcome would have been the same if it had run, and succeeded, on only one of those arguments. Where a party advances its case on two different grounds and it succeeds on both grounds, then, unless the court considers that it was unreasonable for that party to have relied on both grounds, or there is some other special reason, it would be wrong to deprive that party of its costs in connection with maintaining both grounds.

6. That seems to be right as a matter of principle, and it is consistent with Order 62 rule 7(1) of RHC, which refers to things done “improperly or unnecessarily”: in this context, the word “unnecessarily” should not be construed as applying to anything done which was not, with wisdom of hindsight, strictly necessary. Where a party has two alternative ways of putting his case, it is normally not unreasonable to run them both, especially in a case, such as this, where a reasonably substantial amount of money is at stake, and it is therefore hard to argue that it was disproportionate to raise two arguments.”

9. The respondent CRV on the other hand referred to the high thresholds governing costs appeals which are as set forth in §62/2/11 of The Hong Kong Civil Procedure 2016 and by Yuen JA at §8 of Hi-Tech Precision Products Ltd v Soundwell Far East Ltd, CACV 294/2003:

“8. It is well-established that appellate courts are reluctant to interfere with costs orders made at the discretion of the judge.  It matters not whether the appellate court would have made a different order had it been dealing with the matter at first instance.  The appellate court would not interfere with the judge’s costs order unless it was shown that the judge had failed to exercise the court’s discretion, or exercised it upon a false principle, or did not exercise it judicially (Choy Yee Chun v Bond Star Development Ltd [1997] HKLRD 1327) or the exercise of discretion was demonstrably flawed (China Venturetechno International Co Ltd v New Century Chain Development Co Ltd [1996] 2 HKLR 18).  Having carefully considered the submissions made on behalf of the Company, I do not think that those high thresholds have been crossed.”

10. CLP emphasised in reply submissions that the threshold for granting leave is “a reasonable prospect of success” which prospect should be more than “fanciful” but without having to be “probable”. 

11. My task is therefore to consider whether CLP has a reasonable prospect of success in crossing the high hurdles as mentioned in Hi-Tech Precision Products Ltd.

The grounds of appeal

12. CLP stated three grounds of appeal in its notice of appeal.  Each is addressed to one of the three variations.  They are as follows:

“Ground 1 – Approach 2

(1) The Lands Tribunal erred in law in concluding that approach 2 was inappropriate and unnecessary for the appeals in that it failed to take account of:-

(a) the fact that CLP’s preferred valuation model was approach 2 (albeit that the Lands Tribunal (Au J and Member Lo) held approach 1 to be the most appropriate valuation approach);

(b) the rejection by the Lands Tribunal (Au J and Member Lo) of the Respondent’s WACC approach and conclusion that the Respondent’s only valuation approach was unrealistic and unreasonable; and

(c) the agreed position of the parties that were the Lands Tribunal to reject both the Respondent’s valuation approach and all three of CLP’s valuation approaches there would be a vacuum which would be contrary to the public interest.

(2) The Lands Tribunal erred in law in:-

(a) accepting the Respondent’s submission that CLP itself did not consider approach 2 to be a reasonable and useful valuation approach and/or concluding that CLP’s own experts considered approach 2 to be unworkable;

(b) concluding that the fact that the Respondent had insisted on an inappropriate valuation approach was irrelevant in determining whether CLP’s alternative valuation approaches were unnecessary and unreasonable; and

(c) concluding that approach 2 was an independent approach to approach 1 and had no impact on approach 1 having accepted that approach 1 used inputs derived from the CB method used in approach 2.

Ground 2 – CB costs

The Lands Tribunal erred in law in disallowing the CB costs (save for those used in approach 1) in that:-

(a) its conclusion that the task of the taxing master would not be difficult was inconsistent with the Lands Tribunal’s acceptance that approach 1 used inputs arrived at by the CB method and was unsupported by any evidence; and/or

(b) it erroneously considered the difficulties the taxing master would face to be irrelevant.

Ground 3 – Approach 3

In arriving at its conclusion that CLP had left no stone unturned in presenting approach 3 and had thereby acted unreasonably or unnecessarily (if it so found) the Lands Tribunal failed to take account the circumstances in which it was put forward by CLP, including that the use of NBV had been endorsed by the Lands Tribunal in HEC v Commissioner of Rating and Valuation [2011] 4 HKC 509.  Alternatively its conclusion was manifestly unreasonable.”

No evidence of approaches 2 and 3 having caused significant increase in length or costs of the appeals

13. Before going into the submissions on the grounds of appeal, I would deal with three points raised by CLP in this application but not in the application for variation of the Order Nisi. 

14. The first point is that CRV has not demonstrated with evidence that the taking by CLP, in the assessment of rates, of (i) approach 2; (ii) approach 3 and (iii) the CB (Contractor’s Basis) in connection with approach 2 had caused any or any significant increase in the length or costs of any pre-hearing or the main hearing.

15. CRV submitted in answer that CLP had not previously disputed that these approaches did involve significant increase in costs.  For approach 2, CRV further submitted that it was self-evident that its costs were a significant addition to the overall costs.  CRV in particular pointed out under §26 of the submissions:

“26.1 Approach 2 used the CB method up to Stage 4, whereas Approach 1 used the CB method up to Stage 3. All the costs of Stage 4 – including the entire evidence of CLP’s expert Mr Robert Pendleton (2 expert reports with voluminous appendices, 1 summary of evidence, 1 speaking note, and over 1½ days of oral testimony), evidence from CLP’s expert Mr Eric Rose (over 20 pages of evidence in 2 expert reports, numerous appendices in addition, and a significant part of the oral testimony over more than 2 days), evidence from CLP’s expert Prof Cooper (1 expert report and oral testimony) and corresponding responsive evidence from CRV’s expert Mr Eric Poon and Mr Laurence Hatchwell – were directed towards Approach 2.

26.2 Since, on CLP’s own case, Approach 2 was Mr Davis’ preferred approach, much of his evidence (3 expert reports with voluminous appendices, 1 summary of evidence, 1 speaking note, and 4 days of oral testimony) were directed towards supporting Approach 2. All that CLP can say at best is that some of this was also useful for supporting Approach 1.

26.3  Given that CLP claims to have spent over $200m even before trial, the amount which must have been spent on Approach 2 is vast, on any measure.”

16. CLP in reply asserted that CRV was guilty of exaggeration and had failed to quantify the time and costs spent.  But it did not provide any particulars of the alleged exaggeration.  It further asserted that the main reason why the hearing had overrun was because CRV had directed her cross-examination to support her case rather than challenging its case.

17. Regarding approach 3, CRV again submitted that it is self-evident that the introduction of a new valuation method had increased the length and costs of the hearing.  It was a fresh valuation of the tenement introduced in Mr Davis’ 3rd expert report, covered in his written summary of evidence and written speaking note.  It also featured in his volume of “valuation review” evidence and was the subject of cross-examination.

18. CLP in reply merely repeated that CRV had not advanced any evidence that approach 3 had led to a significant increase in the length and costs of the hearing.

19. Having considered the submissions by both sides, I agree with CRV that this issue should have been raised at the variation of the Order Nisi.  But I consider that CRV is not seriously prejudiced or disadvantaged by CLP taking this point now as CRV is in more or less the same position now as she was in at the variation of the Order Nisi. 

20. However, I am satisfied that the particulars given by CRV as referred to above are sufficient to show that approaches 2 and 3 and the use of CB (in connection with approach 2 but not approach 1) did increase the length and costs of these appeals significantly.  I also do not think that this argument involves any question of law, nor do I consider that CLP has a reasonable chance of success on appeal as based on this ground.

Discreet issues

21. CLP said in the reply submission that it had advanced three approaches in its valuation model, but the CB method was not put forward as an alternative standalone method.  It was used to provide certain inputs for incorporation in approaches 1 and 2.  However, CRV has identified approaches 1 and 2 and the use of CB as discreet issues.  The tribunal in the 2015 Judgment then concluded that CLP had failed on discreet issues.  CLP submitted that the tribunal was wrong in holding that CLP had advanced discreet issues, but should have held that there was only one substantive issue of whether the rateable value entered by CRV was correct and that CLP had succeeded in that issue.

22. CLP further referred to Seepersad v Persad [2004] UKPC 19 which held that “an issue for these purposes must be so distinct and separate in itself that the decision of it constitutes an ‘event’”.  That decision has been approved by Lam J (as he then was) in Hong Kong Kam Lan Koon Ltd v Realray Investments Ltd (No. 4) [2005] 4 HKC 162.  Thus CLP submitted that there were no discreet issues for which costs could be ordered differently but just one issue where CLP had won.

23. I think this ground is raised too late.  CLP should have raised it in the opposition to CRV’s application for variation of the Order Nisi.  But CLP did not raise it then.  Nor did CLP raise it in the opening submissions in this application.  CLP only raised it in the reply submissions.

24. Furthermore, I do not agree that there was only one issue in the appeals namely whether CRV’s rateable value for the tenement was correct. I agree with CRV that each distinct approach was a discreet issue that constituted an event.  The use of the CB method in approach 2 less its use in approach 1 was likewise a distinct issue.  I also do not think that this argument involves any question of law, nor do I consider that CLP has a reasonable chance of success on appeal as based on this ground.

Percentage orders

25. CLP also submitted that the tribunal had failed to take into account the difficulties of the taxing master and that the tribunal should have made percentage orders and disaggregated common costs to facilitate taxation.

26. This point is again taken for the first time in the reply submissions in this application.  I again do not think that this point has raised any error of law.  I also see no basis for it to be taken on appeal.

27. Furthermore, if the parties are desirous of simplifying the task of the taxing master, they are at liberty to agree on percentages of costs for the different approaches and disaggregate common costs.

The tribunal should stand back

28. CLP further repeated in its reply submissions (§§20 and 21) that CLP should not be ordered to pay costs for issues it failed unless those issues were unreasonably taken.  The tribunal should also stand back and ask itself the questions of who the winner was and what costs order did the interests of justice require.  These matters are covered in the consideration of the grounds of appeal below.

Discussion on Ground 1(1) – approach 2

29. CLP says under this ground that its preferred valuation method was approach 2 albeit that the tribunal preferred approach 1.  CRV’s only WACC valuation method and her conclusion were rejected by the tribunal.  If the valuation methods used by both sides were rejected, the appeals would be allowed and CRV’s valuation would be deleted, but there would be a vacuum.  Such outcome was contrary to public interest.

30. CLP also submitted that the tribunal only rejected approach 2 after hearing and considering all the evidence the course of which took over 40 days.  The tribunal thus applied hindsight to say that approach 2 was unreasonable or unnecessary.  Such conclusion was erroneous and contrary to the warning by Lord Neuberger in Akai Holdings.

31. CLP further submitted that the tribunal, when finding that CLP was wrong in presenting other inappropriate, unnecessary and unreasonable approaches, had wrongly disregarded the fact that CRV was wrong in persisting with her WACC method.  Given CRV’s attitude, it was reasonable and necessary for CLP to consider alternative recognised approaches to ensure that there would be an appropriate approach for the tribunal to assess the correct rateable value.  If CLP should have presented say approach 2 only, the appeals would be allowed but with a vacuum result.  Hence, CLP’s alternative approaches had avoided a vacuum.  It was reasonable and necessary for CLP to have presented alternative approaches.

32. CLP also submitted that the reasonableness of its presentation of alternative approaches was supported by the reduction of the large rateable value of HK$9 billion to HK$5 billion.

33. CRV submitted in opposition that CLP had misinterpreted the meaning of the statement by Lord Neuberger in Akai Holdings.  Lord Neuberger was referring to two alternative successful lines of arguments and things done “improperly or unnecessarily” should not be construed as applying to “anything done which was not, with wisdom of hindsight, strictly necessary”.  Akai Holdings was different from the present appeals where the tribunal had found approaches 2 and 3 and the CB method (as used solely in approach 2) unreliable and inappropriate.  CLP should only have presented approach 1 in which it succeeded.  Hence, CRV says that CLP cannot rely on the statement of Neuberger in Akai Holdings.

34. Regarding CLP’s argument that but for the multiple approaches it presented, there would have been a vacuum after the appeals were allowed, CRV submitted that this is a fallacious argument.  CRV’s simple argument is that even if her valuation method was inappropriate, that would not have justified CLP in presenting unreliable and inappropriate approaches.  The tribunal, in varying the Order Nisi, had said in §173 of the decision that the inappropriate approach of CRV did not justify the inappropriate approaches of CLP.  CRV’s error had resulted in her liability to pay the costs of the appeals.  But that should not mean that CRV had to pay whatever costs of CLP including those incurred improperly or unnecessarily.

35. CRV also submitted that CLP’s argument of a possible vacuum result could have justified CLP to put forward approach 1, but not any unreliable and inappropriate approaches.

36. On CLP’s submissions that approach 2 was a recognized alternative approach and it was reasonable and necessary for CLP to have presented it, CRV said in opposition that approach 2 was factually unsound and it had never been used before in any other case.  It thus had no recognition whatsoever.

37. CRV also disagreed that there was a real risk of a valuation vacuum.  She referred to CLP’s case that even if all approaches were rejected by the tribunal, there would still not be a vacuum as the tribunal could decide the principles for the parties to agree on a value or for the parties to put forward further evidence for a value to be determined.  CRV’s leading counsel had pointed out that in the 1994 CLP appeal, the Lands Tribunal did not fully accept either party’s methodology and instead made some adjustments of its own.  CLP’s leading counsel also said that he had not come across any case where the tribunal had rejected all approaches and offered no alternative.  The vacuum result was not a realistic likelihood.

38. CRV also submitted that the substantial reduction of the rateable value was not a justification for any party to have acted unreasonably or to have put forward unreliable and inappropriate methods.

39. Finally, CRV also pointed out that there was no error of law in the variation of the Order Nisi to the Costs Order and there is no reasonable prospect of success of CLP in overturning it on appeal.

40. CLP in reply maintained its attack on CRV’s attitude in persisting with the WACC approach and in opposition of all CLP approaches.  It also submitted that approach 2 was in conformity with the principles of the JRF Guidance.  It also said that the tribunal did say that if the methods of the parties were rejected, there would be a vacuum.  It also referred to the objection by CRV’s leading counsel for the tribunal to substitute its own model as such would not have been the subject of evidence or submission.

Decision on ground 1(1) – approach 2

41. Though CLP argued at great length of CRV’s persistence with the inappropriate WACC approach, I think that only justified CLP in presenting approach 1 which was accepted by the tribunal.  That would not have justified CLP’s presentation of any inappropriate and unnecessary approach like approach 2.  The unreasonableness of one party does not justify the unreasonableness of the opposite party.  I also agree with CRV that the risk of a vacuum result was not great because CLP’s leading counsel had not witnessed any in his experience.  Such risk also did not justify CLP’s presentation of inappropriate approaches like approach 2.  It was not approach 2 or any other inappropriate approaches of CLP that had prevented the result of a vacuum.

42. I further say that even if there was a real risk of a vacuum, that would not have justified the presentation of inappropriate and unreliable approaches to the tribunal.

43. The caveat of Lord Neuberger in Akai Holdings was also not addressed to the use of inappropriate approaches but alternative viable approaches.  Hence, CLP cannot rely on it.

44. The fact that the tribunal had to hear and consider the evidence of approach 2 before rejecting it is neither here nor there.  The tribunal could not have rejected it without hearing it unless CLP did not rely on it.  But CLP should have known beforehand that approach 2 was inappropriate (§§121 and 122 of the 2015 Judgment).

45. Regarding CRV’s submission that approach 2 had never been used before in any other case and had received no recognition whatsoever, CLP did not demur but only responded by saying that all three approaches were considered by the tribunal to be in compliance with the JRF Guidance (§282 of Original Judgment). There is thus no dispute that approach 2 is not a recognized approach.

46. I also hold that the substantial reduction of the rateable value is not a justification for CLP to have presented inappropriate and unreliable approaches like approach 2.  Such approaches did not assist the tribunal in coming to a correct assessment of the rateable value of the tenement.

47. CLP in the reply submissions also argued that the tribunal in the Original Judgment did not find that approach 2 was unnecessary or unreasonable.  I note that Member Lo did say that approach 2 was unreliable and inappropriate.  To present an unreliable and inappropriate approach is of course an unreasonable and unnecessary conduct (§§345 and 346 of the Original Judgment and §122 of the 2015 Judgment).

48. I also agree with CRV that there is no error of law raised in ground 1(1) and there is no reasonable prospect of success of appeal on this ground.

49. I would therefore dismiss the application for leave to appeal in so far as it is based on this ground.

Discussion on ground 1(2) – approach 2

50. CLP contends under §(a) of this sub-ground that the tribunal had erred in fact in accepting CRV’s submission that CLP did not consider approach 2 to be a reasonable and useful approach and/or concluding that CLP’s own experts considered approach 2 to be unworkable.

51. CLP submitted that as a matter of fact, its expert valuer Mr Davis did consider that both approaches 1 and 2 had produced reliable estimates of rental value compared with approach 3 and he gave greater weight to approach 2.  There was no concession by Mr Davis or other experts that approach 2 was unworkable.

52. CRV submitted in opposition that the experts of CLP, Professor Cooper, Mr Rose and Mr Child have acknowledged problems with the CB valuations and hence with the corresponding parts of approach 2 (§121 of the 2015 Judgment). Hence, the tribunal had not erred in accepting CRV’s submission.

53. CLP in reply did not address CRV’s submission in opposition but just repeated that Mr Davis favoured approach 2.

54. CLP contends under §(b) of this sub-ground that the tribunal had erred in concluding that CRV’s insistence on the inappropriate WACC approach was irrelevant to the determination of whether CLP’s alternative valuation approaches were unnecessary and unreasonable.  CLP repeated its submissions in ground 1(1) above that CRV’s insistence on the WACC approach was relevant.  Hence, the tribunal’s conclusion was unreasonable.

55. CRV in opposition repeated her submissions for ground 1(1).

56. CLP in reply merely repeated that CRV’s WACC approach was unworkable and that the onus was on CLP to find a workable approach for the appeals.

57. Under §(c) of this sub-ground, CLP contends that the tribunal’s conclusion that approach 2 was independent of and had no impact on approach 1 was erroneous as both approaches used inputs derived from the CB method.

58. CLP submitted that there were similarities in approaches 1 and 2 as both approaches used DRC (depreciated replacement costs) as a proxy for market value utilizing the CB method up to stage 3 and that approach 2 further utilized the CB method up to stage 4.

59. CLP further submitted that both approaches were provided by Professor Cooper and adopted by Mr Davis.  Professor Cooper had also said that both approaches used judgment and approach 1 used the direct split method whilst approach 2 used a build up method.

60. CRV however referred to Professor Cooper’s evidence that approach 1 was merely the valuer’s judgment whilst approach 2 was based on Professor Cooper’s theory of “margin”.  The main driver of approach 1 was the relative asset value of the parties but approach 2 focused on the HT’s costs of capital. Despite the use of some common empirical figures of DRC as a proxy for market values, the two approaches were quite different and independent from one another.  CRV also said that CLP did not point to any evidence showing that Mr Davis had used approach 2 to assist his approach 1.

61. CRV also reiterated that approach 2 was unreliable and inappropriate.  Hence, the tribunal could exercise its discretion to disallow the costs of this approach.

62. CLP in reply submitted that there is no evidence that approaches 1 and 2 were developed independently of each other.  It further said that both approaches appeared in the 1st round reports of Professor Cooper and Mr Davis.  That indicated that they were developed together.

Decision on ground 1(2) – approach 2

63. Under §(a), it is indisputable that CLP’s experts Professor Cooper, Mr Rose and Mr Child have all acknowledged the problems of the CB valuations.  The acknowledgments have been identified by Member Lo (§269 of the Original Judgment and §121 of the 2015 Judgment).  Despite Mr Davis’ preference for approach 2, the views of the other experts of CLP justified the tribunal’s acceptance of CRV’s submission that CLP itself did not consider approach 2 as reasonable or useful and/or CLP’s own experts considered approach 2 to be unworkable.

64. Regarding §(b), this has been dealt with under ground 1(1) above.  I have already decided that CRV’s insistence on the WACC approach did not justify CLP’s presentation of any inappropriate or unreliable approach.

65. Regarding §(c), I do not think the mere fact that both approaches 1 and 2 had appeared in the 1st round reports of Professor Cooper and Mr Davis is an indication that they were developed together.  The reports mentioned both approaches because both had been considered by the two experts.  But CLP did not refer to anything to show that they were developed together and that one had impacted on the other.

66. CLP submitted that there is no evidence showing that approaches 1 and 2 were developed independently of each other.  I think this submission is illogical.  What is needed is evidence showing that they were developed together. If there is no such evidence, then there is nothing to show that they were developed together.  Given the conceptual differences between the two approaches, the mere fact that they had used some similar empirical figures of DRC as the proxy for market value does not mean that the consideration of one had impacted on the other.  CLP has also failed to provide any particulars showing how its use of approach 2 had impacted on the application of approach 1.  This argument is untenable.

67. In the premises, I cannot see any real prospect of success of this ground of appeal and I would dismiss the application for leave as based on this ground.

Discussion on ground 2 – the CB costs

68. CLP repeats its submissions under ground 1 for this ground.  It made further submissions by reference to the taxation of costs by the taxing master.  It submitted that taxation pursuant to the Costs Order would be difficult and the difficulties of the taxing master is relevant to and operates against the variation of the Order Nisi.

69. CLP also made submissions that are built on the alleged absence of evidence showing that the alternative approaches had caused significant increase in the length or costs of the hearing.  CLP submitted that the CJR requires a sense of proportionality.  In the absence of evidence showing that the other approaches had increased significantly the length or costs of the hearing, it would be wholly disproportionate to incur time and expense to “fillet” the disallowed costs from the allowed costs.

70. Furthermore, CLP referred to the fact that the tribunal only handed down the decision in the HEC appeal on 30 November 2009 when all expert evidence had already been filed in these appeals.

71. CRV disagreed that there is any problem of apportionment.  She pointed out the absence of identification of such problem in CLP’s submissions.  CRV also said that the valuation took place in discreet stages with different experts addressing different stages.  Approach 1 only used stages 1 to 3 of the CB method.  There should therefore be no difficulty in identifying the disallowed costs from the allowed costs.

72. CRV also said that to give effect to the underlying objective of the CJR was for the primary aim of securing the just resolution of the parties’ disputes according to their substantive rights (O 1A r (2) of the Rules of the High Court).  Even if there should be problems of apportionment in taxation, such cannot dictate that a party should receive more costs than it is entitled.

73. CRV also submitted that the taxing master could manage the taxation to avoid overly detailed “filleting”.

74. Regarding the handing down of the HEC decision after expert evidence had been filed in these appeals, CRV responded by saying that that was irrelevant to the tribunal’s finding that the CB method was unreliable and inappropriate.

75. CLP replied by saying that the taxation was a complex one as the hearing involved 16 experts that took many days.

Decision on ground 2 – CB costs

76. CLP only referred to the lengthy hearing involving 16 experts, but it did not dispute CRV’s submission that the valuation took place in discreet stages with different experts addressing different stages.  Hence, I disagree that the taxation pursuant to the Costs Order would be a complex one. I also agree with CRV that the taxing master could manage the taxation to avoid overly detailed “filleting”.  I also reiterate that no party should be given more costs than it is entitled just for the sake of facilitating the task of the taxing master.

77. I have already dealt with CLP’s allegation of lack of evidence of significant increase in length and costs of the hearing as caused by the alternative approaches.  I have also dealt with the application for approach 2 under ground 1.  I also refer to my conclusion above for this ground.  I do not think CLP has a reasonable chance of success on appeal under this ground.  I would dismiss the application for leave to appeal in so far as it is based on this ground.

Discussion on ground 3 – approach 3

78. CLP contends under ground 3 that in the circumstances of this case including the endorsement by the tribunal of the use of NBV (net book value) in the HEC case, it was not unreasonable or unnecessary for it to have presented approach 3.  Alternatively, the tribunal’s conclusion that it was unreasonable or unnecessary for CLP to have presented approach 3 was manifestly unreasonable.

79. CLP submitted that it only introduced approach 3 in the last round of expert reports on 28 November 2009 before the tribunal handed down the HEC judgment but in anticipation of it.  In the HEC judgment, there was a discussion of whether the NRA (non-rateable assets) should be valued by NBV or DRC.  In that case, the tribunal agreed with CRV to use the straight line depreciation profile of the NBV as a proxy of the market value of the NRA.  Approach three differed from approach 1 only in that NBV was used in place of DRC to measure the market value of the assets.  In fact, CRV also objected to using DRC for such purpose in these appeals. 

80. Since the tribunal had accepted the use of NBV and its depreciation profile in the HEC judgment, it was reasonable for CLP’s experts in the performance of their duty to the tribunal to express views as to why DRC was preferable to NBV.  They did so by using approach 3 to illustrate the deficiencies of NBV.  Hence, CLP was right to put forward approach 3 to cater for the possibility that the tribunal might prefer the use of NBV in place of DRC for asset split in approach 1.  The fact that Mr Davis and Professor Cooper preferred the use of DRC over NBV was not a legitimate reason to disallow the costs of approach 3. 

81. CRV in response referred to and relied on §§186 and 187 of the 2015 Judgment which stated:

“Decision on the costs of approach 3

186. CLP’s expert Mr Davis did not rely on approach 3 at all on the ground that it did not produce a reliable estimate of rental value. For this reason,, the tribunal also did not consider this approach. The costs incurred in presenting this approach were thus wasted.

187. CLP argued that approach 3, which used NBV instead of DRC, was presented because this was blessed in the HEC case and HEC was a parallel to CLP.  However, this argument cannot prevail over the fact that CLP’s expert did not consider approach 3 reliable.  I think CLP, in exploring an approach that its own expert did not find reliable, was really leaving no stone unturned.”

82. CRV also referred to §98 of the speaking note of Mr Davis where he took the view that the use of NBV and SOC (Scheme of Control) depreciation in approach 3 did not produce a reliable estimate of rental value. The valuation produced by Mr Davis in his first report of HK$3 billion was not affected by approach 3 at all as this approach was not taken into consideration.  Hence, it was not a case of Mr Davis preferring DRC over NBV but Mr Davis did not make use of approach 3 in his ultimate valuation at all.  Furthermore, much of Professor Cooper’s critique of CRV’s approach was also based on the use of NBV in that approach.

83. CRV further submitted that it was unrealistic to suppose that the tribunal would adopt a method that CLP itself considered unreliable and was also opposed to by CRV.

84. In contrast to these appeals, the evidence in the HEC case regarded the use of NBV as appropriate. 

85. Furthermore, approach 3 was not a straightforward adoption of the approach in the HEC case.  It was an adaptation of approach 1 by using NBV in place of DRC.

86. For these reasons, CRV submitted that there was no reason that the tribunal would adopt approach 3.  Hence, CLP has no reasonable prospect of success in an appeal in reliance on this ground.

87. CLP in reply again made use of CRV’s insistence on the WACC approach as a justification for introducing approach 3.  It went further to suggest that even if CRV had conceded that the WACC approach was not workable, it was still necessary for it to have presented approach 3 with the use of NBV in place of DRC to determine the asset split.  This was to anticipate the tribunal’s findings in the HEC judgment.  One of the reasons for putting in this alternative using NBV was because of CRV’s opposition to the use of DRC as a proxy for the market value of the SOC assets.  If CLP did not put in approach 3, there would be the risk of a vacuum if the tribunal should decide that NBV and its depreciation profile should be used in place of DRC.  The reason being that the SOC assets were valued by NBV.  It was a matter of hindsight to say that the tribunal would accept approach 1 using DRC.  It was thus manifestly unreasonable to hold that CLP in presenting approach 3 had left no stone unturned.

88. CLP repeated that although Mr Davis preferred approach 1, it was reasonable to have introduced approach 3 to prevent a vacuum.  It submitted that the tribunal, after having accepted approach 1, did not need to consider approach 3 and the use of NBV.  But that was unforeseeable.

Decision on ground 3 – approach 3

89. CLP does not dispute that it only replaced DRC with NBV in approach 1 to produce approach 3.  That was not a straightforward adoption of the approach in the HEC case.

90. It is wrong for CLP to say that Mr Davis preferred approach 1 than approach 3.  It was not a matter of preference.  Mr Davis did not consider that approach 3 would produce a reliable result.  He did not use it in his ultimate valuation.

91. It is also wrong for CLP to say that the tribunal did not find it necessary to consider approach 3 after accepting approach 1.  The tribunal did not consider approach 3 because Mr Davis did not find it reliable.

92. Despite CRV’s insistence on the WACC approach and objection to the use of DRC, the introduction of approach 3 did not and could not have avoided the possibility of a vacuum.  Hence, CLP cannot use CRV’s stance to justify the introduction of approach 3.

93. For the above reasons and in particular Mr Davis’ view that approach 3 was unreliable, it was really unreasonable and inappropriate for CLP to have presented approach 3.  In doing so, CLP was indeed leaving no stone unturned.  I do not see that CLP has any reasonable chance of success on appeal by relying on this ground and I would dismiss it.

Conclusion on the application for leave to appeal

94. I have formed a negative view on all the grounds of appeal.  I would further say that none of the grounds of appeal has raised any error of law.  In the premises, I would dismiss the application for leave to appeal as a whole with costs against CLP.

Member Lo:

95. I have read the draft by Chan, J.  I agree with the reasoning in the draft and all the proposed orders.  I have no further comment.

Chan J:

96. For the above reasons, we dismiss CLP’s application for leave to appeal against the costs order of the tribunal made on 9 April 2015 with costs against CLP.