Case Detail

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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BETWEEN

	HAPPY DRAGON RESTAURANT LIMITED	Applicant
	and
	DIRECTOR OF LANDS	Respondent

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Coram: HH Judge M WONG, Presiding Officer of the Lands Tribunal and Mr W K LO, Member of the Lands Tribunal

Date of Hearing: 25 November 2013

Date of Handing Down of Decision: 20 January 2014

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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 17of 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 LtdvTsang 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 theinterestrateawarded 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 Ltdand anotherv 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 Counciland another [1982] 1 WLR 149, followed in Hong Kong by Komala Deccof & Co SAand Othersv 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 vYuriPrivalov [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 TheHong 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& Othersv 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 TheHong 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.

(Michael Wong)
Presiding Officer
Lands Tribunal

(WK Lo)
Member
Lands Tribunal

Mr Steward Wong SC and Mr Richard Leung instructed by Messrs Lo & Lo for the applicant

Mr Anthony Ismail instructed by the Department of Justice for the respondent

LDLR 17/2006

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

Lands Resumption Application No. 17 of 2006

________________

BETWEEN

	HAPPY DRAGON RESTAURANT LIMITED	Applicant
	and
	DIRECTOR OF LANDS	Respondent

________________

Before:

HH Judge M Wong, Presiding Officer of the Lands Tribunal and Mr W K Lo, Member of the Lands Tribunal

Date of Hearing:
Date of Decision:

10 January 2012
17 February 2012

_______________

DECISION

_______________

Background

1. On 28 April 2009, we gave judgment in this case and awarded no compensation to the applicant. We also ordered that all consequential and ancillary matters, including professional fees, interest and costs, be adjourned to a date to be fixed by the listing officer at the request of the parties. On 27 May 2009, upon the applicant’s application for review, we decided not to review our judgment.

2. The applicant then appealed to the Court of Appeal. On 30 March 2010, the Court of Appeal set aside our judgment and ordered that:-

“(1) compensation for disturbance in the sum of $5,337,969 be paid to the applicant within 14 days of the date of this judgment, together with interest to be paid on such sum at the rate of 1% over Hong Kong prime rate from time to time prevailing for the period commencing on the date of resumption until the date of judgment herein, and thereafter upon the resultant sum at the judgment rate from time to time prevailing until payment; and
(2) the issue of quantum under the extinguishment claim be remitted to the tribunal for determination.”

3. On 4 October 2011, pursuant to the order of the Court of Appeal and after hearing submissions from the parties, we ordered that:-

“compensation for extinguishment of the Applicant’s business in the sum of $7,027,710 be paid to the Applicant. The matters of professional fees, interest and costs shall be adjourned to a date to be fixed, with liberty to apply for any other ancillary and consequential matters.”

4. On 12 December 2011, the applicant took out a summons asking for an order that:-

“1. the Respondent do pay to the Applicant interest on the compensation for extinguishment of the Applicant’s business in the sum of HK$7,027,710 at the rate of 1% over Hong Kong prime rate from time to time prevailing for the period commencing on the date of resumption until 4th October 2011, and thereafter at the judgment rate from time to time prevailing until payment in accordance with the order made by the Court of Appeal in CACV 201 of 2009; and
2. Costs of this application be to the Applicant in any event.”

5. On 19 December 2011, the applicant took out another summons asking for an order that:-

“1. the Respondent do pay to the Applicant costs of and occasioned by the Applicant for determination of the compensation for extinguishment pursuant to the Order of Court of Appeal in CACV 201 of 2009 dated 30th March 2010 with certificate for 2 counsel and the professional fees incurred by the Applicant for the whole proceedings, the amount of which shall be taxed and/or assessed by the Tribunal; and
2. Costs of this application be to the Applicant.”

6. Both summonses were heard together by us on 10 January 2012. Only two issues are contested by the respondent, namely the interest should be at the lowest time deposit rate and one certificate for counsel should be allowed instead of two.

Interest rate

7. The applicant submits that interest rate is at the discretion of the tribunal and/or the court hearing the matter. Sections 17(3), (3A) and (3B) of the Lands Resumption Ordinance, Cap 124 (“the LRO”) merely provide the tribunal and/or the court hearing the matter some reference or guidance but do not fetter the discretionary power at all. As the Court of Appeal has already ordered the interest rate for compensation for disturbance to be at 1% over HK prime rate and both compensation for disturbance and compensation for extinguishment arose from the same series of fact and/or same cause of action, there is no reason that interest rate on the two heads of claims should be awarded differently.

8. The applicant further submits that the issue of interest has become res judicata between the parties and the respondent is not open to argue this again, more so in the present case when the respondent had unsuccessfully sought leave to appeal on various matters including interest rate awarded on the compensation for disturbance. Thus, for the compensation for extinguishment, the applicant asks the tribunal to adopt the same interest rate as adjudicated by the Court of Appeal regarding the compensation for disturbance.

9. We, however, agree with the respondent that the applicant’s submissions are incorrect. Sections 17(3), (3A) and (3B) of the LRO stipulates that:-

“(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 that day.”

10. It is clear from the above provisions that although the tribunal has discretion to fix the interest rate under section 17(3A), the discretion is expressly made subject to the provision in section 17(3B), ie it must not be lower than the lowest of the interest rates paid on deposits at 24 hours’ call by note-issuing banks. In other words, the tribunal’s discretion is not “unfettered” as suggested by the applicant, but is restricted by these statutory provisions.

11. In Director of Buildings and Lands v Shun Fung Ironworks Ltd [1995] 2 AC 111, the Privy Council held that although section 17(3A) of the Ordinance gave the Lands Tribunal a discretion as to the rate of interest on the compensation awarded, the rate should be the lowest time deposit rate as specified in that subsection unless there were good reasons for fixing a different rate. Lord Nicholls, in that case, delivered the following judgment:-

“In their Lordships’ view, 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.”

12. Lord Nicholls’ judgment was adopted and applied in many cases, such as Gain Talent Development Limited v The Secretary for Environment, Transport and Works, LDMR 7 of 2003, Mingo Properties Limited v The Director of Lands, LDLR 6 of 2005, and So Kee Transportation Co Ltd v The Secretary for the Environment, Transport and Works, LDRW 36 of 2003.

13. We also follow Lord Nicholls’ judgment. Thus, the applicant has to establish a good reason for departing from the general rule that the interest should be the lowest time deposit rate as specified in section 17(3B) of the LRO. However, we do not find that the applicant has established any good reason for the departure from the general rule.

14. First of all, we do not find that the respondent had behaved unreasonably or that the time in determining the claim was protracted by the respondent’s conduct. As held in So Kee Transportation Co Ltd, supra, the respondent was entitled to raise legal objections to the applicant’s right to claim compensation. We had in fact ruled in favour of the respondent. It shows that the respondent’s objections are not totally without merit. The mere fact that the Court of Appeal ruled against the respondent on appeal does not render the respondent’s conduct of the proceedings unreasonable.

15. The fact that the Court of Appeal awarded interest for compensation on the disturbance claim at the rate of 1% over Hong Kong prime rate does not establish a good reason to depart from the general rule either. The Court of Appeal gave no reason for the interest award and did not refer to sections 17(3), (3A) and (3B) of the LRO or the case of Shun Fung Ironworks Ltd, supra, in its judgment. In fact, we had not decided on the question of interest and there was no judgment on interest by the tribunal for the applicant to appeal to the Court of Appeal. It is not disputed that the applicant advanced no grounds of appeal relating to interest and did not address this issue at the hearing of the appeal. Thus, the Court of Appeal had not had the opportunity to hear arguments on this issue before it made the decision to award the rate of 1% over Hong Kong prime rate.

16. The respondent tried to raise the question of interest with the Court of Appeal at the application for leave to appeal to the Court of Final Appeal. The Court of Appeal refused leave to appeal to the Court of Final Appeal on the ground that no “exceptional circumstances” were shown. The Court of Appeal also noted that “the respondent never addressed the court at the appeal hearing on the appropriateness or otherwise of awarding interest at 1% above prime”. Clearly, the question of interest was never argued at the appeal.

17. As the Court of Appeal did not indicate why the case of Shun Fung Ironworks Ltd, supra, was not followed, nor give any reason for awarding interest at 1% above prime, we see no reason to ignore Shun Fung and blindly adopt the rate awarded by the Court of Appeal. We do not think that it is a good reason to depart from the general rule merely because the Court of Appeal has adopted a different rate in such circumstances.

18. The applicant’s submission that the interest rates on the two heads of claims should not be awarded differently is not supported with any authority. We find no law that the interest rates for different heads of claim cannot be different. Thus, this is also not a good reason for departure from the general rule.

19. The doctrine of res judicata is not applicable to the present case at all. The Court of Appeal only awarded interest on the quantum under the disturbance claim. The Court of Appeal expressly remitted the issue of quantum under the extinguishment claim to the tribunal for determination. Clearly, the Court of Appeal did not decide on the interest that should be awarded under the extinguishment claim, and did not in any way rule that the interest on the quantum under the extinguishment claim should be the same as the rate for the award under the disturbance claim. It simply left the matter to the tribunal. Thus, there was no judgment or decision on the rate of interest for the award under the extinguishment claim to enable the applicant to rely on the doctrine of res judicata.

20. We therefore reject the applicant’s submissions and adopt the practice of awarding interest at the lowest time deposit rate as laid down in Shun Fung’s case.

Certificate for two counsel

21. Sections 12(1) and (5) of the Lands Tribunal Ordinance, Cap 17 stipulate that:-

“(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) Where the Tribunal has made an award of costs under subsection (1) … it may order that those costs be taxed in accordance with –
(a) the First Schedule … to Order 62 of the Rules of the High Court …”

22. Paragraph 2(3) of Part II of the First Schedule to Order 62 of the Rules of the High Court states that:-

“No costs shall be allowed in respect of counsel appearing before a master in chambers, or of more counsel than one appearing before a master in open court or a judge or the Court of Appeal, unless the master or judge or the Court of Appeal, as the case may be, has certified the attendance as being proper in the circumstances of the case.”

23. Thus, the general rule is that no costs are to be allowed in respect of the appearance of two (or more) counsel before a High Court judge unless the judge has certified that such attendance is proper in the circumstances of the case. This applies equally to cases in the Lands Tribunal.

24. The test on whether the instruction of a leader, in addition to a junior, is justified is set out in the judgment of Master Poon (as he then was) in Xin Juan Trading Co Ltd v NPH Petrochemical Ltd, HCA No. 18159 of 1998 and CACV No. 276 of 1998 as follows:-

“After the abrogation of the two counsel rule, the client and his solicitor, when instructing counsel, have to decide whether to instruct a leader and if so, whether to instruct a junior also? Depending on the choice made, the client will be represented either by a junior counsel alone, or by leading counsel alone, or by both. On taxation, the taxing master has to determine whether or not the costs were necessary or proper and he must necessarily do so after the event, when leading counsel was in fact instructed. Because leading counsel can now accept instructions without a junior, the first step is to ask whether it was necessary or proper to instruct a leader, even if one counsel was required or actually briefed. In this connection, the following factors are relevant:
(1) the nature of the case;
(2) difficult questions of fact or law;
(3) the complexity, difficulty or novelty of the issues involved;
(4) the skill, specialized knowledge or expertise required for the case;
(5) where money or property is involved, its amount or value;
(6) the importance of the matter to client;
(7) the general importance of the case, for example as affecting other cases;
(8) if a junior counsel had already been instructed, the experience, competency and seniority of that junior;
(9) whether the other side has instructed a leader: see British Metals Corporation Ltd v. Ludlow Brothers (1913) Ltd [1938] Ch. 774.
The above list is not exhaustive. Depending on the circumstances, other reasons why a leader is required may exist.
The next question is if a leader is instructed, should a junior be instructed also. Again, the taxing master will have to decide if the employment of the junior was necessary or proper in the circumstances. Particular reasons why a junior may be necessary or proper include:
(1) assisting with the proper preparation of the case, for example, when the case was complex or heavy documentation is involved;
(2) assisting with the court proceedings by, for example, examining or cross-examining some witnesses, or dealing with a certain part of the case, for example, expert evidence or damages, etc;
(3) carrying out legal research on difficult or novel questions of law.
Again, these reasons are not exhaustive. Other may exist. But I do not think that senior counsel’s own wish to have a junior to assist him is relevant. Instructing a junior is justified only if the interests of lay client require so: cf. para.3, Annex 6 of the Hong Kong Bar Code.
Where a junior counsel has been instructed first and a leader is subsequently instructed, the same questions arise, namely, was it necessary or proper to instruct the leader and if so, was it necessary or proper to instruct or to retain the junior. The relevant factors are the same.”

25. The applicant asks for certificate for two counsel on the ground that the junior counsel has been involved in these proceedings from the very beginning whilst the leading counsel has been involved since the lodging of the notice of appeal before the Court of Appeal, and the determination made by the tribunal was much assisted by the submissions of the leading counsel as well as the junior counsel who was more familiar with the evidence already adduced.

26. However, applying the test laid down in Xin Juan Trading Co Ltd, supra, we agree with the respondent that it is not necessary or proper to have the attendance of two counsel at the hearing for the determination of the quantum under the extinguishment claim.

27. The nature of the hearing is only for determination of the amount of compensation. The legal issues concerning the applicant’s entitlement has already been determined by the Court of Appeal. What remained to be dealt with by us was just the quantum of one of the heads of claim. All the evidence has already been adduced at the trial. No further examination or cross-examination of factual or expert witnesses was involved. No difficult questions of fact or law and no novel questions of law were involved for assessing the quantum. The issues involved were just matters concerning valuation, and they were not complex, difficult or new.

28. Although a lot of evidence had been adduced at the trial, the junior counsel, Mr Leung, should be familiar with all the evidence as he was involved throughout the proceedings. He alone could handle the case. Alternatively, the leading counsel, Mr Mok SC, should also be familiar with the evidence as he was involved in the appeal. There should be no reason to suggest that Mr Mok was not familiar with the evidence, as transcripts of the proceedings were made available for the appeal. Even if Mr Mok might need some assistance on some of the evidence, we see no reason why the solicitors instructing him could not provide the assistance. We are of the view that Mr Leung’s assistance is not necessarily required.

29. No doubt, Mr Mok’s submissions were very helpful, and in fact a lot of time and work were saved as a result of Mr Mok’s concessions. However, we do not find that any special skill, specialized knowledge or expertise was required for the case so as to justify the presence of two counsel. If any specialized knowledge or expertise is required, it should just be concerned with valuation and the assistance should be rendered by the applicant’s valuation expert, rather than an additional counsel. Mr Leung could handle all the issues on his own with the assistance of the valuation expert. In fact, he had already argued all the issues concerning the quantum of the extinguishment claim at the trial on his own. We see no justification for engaging two counsel to deal with the same issues again.

30. Although the amount of money involved was large and the case was important to the applicant, the applicant has already recovered $5,337,969 and the Court of Appeal has already ruled that the applicant is entitled to compensation under the extinguishment claim. It was just a matter of how much more the applicant could claim. The hearing for the determination of the amount of compensation has no general importance and will not affect other cases. Mr Leung himself is experienced, competent and senior enough to conduct the case on his own. On the other hand, the respondent did not instruct a leader at the hearing for the determination of the quantum.

31. Thus, we are of the view that it is not necessary or proper to have two counsel appearing for the applicant. Either Mr Leung or Mr Mok could have appeared for the applicant alone. In the circumstances, certificate for one counsel instead of two will be granted.

Conclusion

32. We therefore order as follows:-

(1) The respondent do pay to the applicant interest on the compensation for extinguishment of the applicant’s business in the sum of $7,027,710 at the rate specified in paragraphs (2) and (3) below for the period commencing on the date of resumption until 4 October 2011, and thereafter at the judgment rate from time to time prevailing until payment.
(2)In respect of a working day, the interest rate shall be 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.
(3) In respect of a non-working day, the interest rate shall be 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.
(4) The respondent do pay to the applicant costs of and occasioned by the applicant for determination of the compensation for extinguishment pursuant to the order of the Court of Appeal in CACV 201 of 2009 dated 30 March 2010 with certificate for one counsel to be taxed on High Court Scale if not agreed and the professional fees incurred by the applicant for the whole proceedings, the amount of which shall be taxed and/or assessed by the tribunal if not agreed.
(5) There be a costs order nisi that the applicant do pay the respondent costs of both the summons dated 12 December 2011 and the summons dated 19 December 2011 with certificate for 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.

(Michael Wong)	(W K Lo)
Presiding Officer Lands Tribunal	Member Lands Tribunal

Mr Richard Leung, instructed by Messrs Lo & Lo, for the applicant

Mr Anthony Ismail, instructed by the Department of Justice, for the respondent

Please refer to CACV115/2012 for the relevant appeal(s) to the Court of Appeal.

LDLR 17/2006

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

Lands Resumption Application No. 17 of 2006

________________________

BETWEEN

	HAPPY DRAGON RESTAURANT LIMITED	Applicant
	and
	DIRECTOR OF LANDS	Respondent

Coram:

H.H. Judge M. WONG, Presiding Officer of the Lands Tribunal and Mr. W. K. LO, Member of the Lands Tribunal

Date of Hearing:

7 June 2011

Date of Handing Down of Judgment:

4 October 2011

_______________

JUDGMENT

_______________

Background

1. On 30 March 2010, the Court of Appeal in the Judgment of CACV 201 of 2009 allowed the Applicant’s appeal and set aside this Tribunal’s order dated 28 April 2009. The Court of Appeal further ordered that the Applicant be awarded compensation for disturbance in the sum of $5,337,969 with interest and that the issue of quantum under the extinguishment claim be remitted to this Tribunal for determination. The present hearing before us is for the determination of the said issue.

2. The Court of Appeal has already decided that the resumption did cause total extinguishment to the Applicant’s restaurant business operated under the name of Sun Rise Court Restaurant at the affected premises. It is common ground that the restaurant commenced business from December 2003 and ceased business at the end of February 2005. Our task is therefore only to determine the quantum of compensation payable to the Applicant.

Differences between the parties

3. The Applicant in its final submission conceded to adopt the approach of the Respondent’s expert witness, Ms. Mary Tam, albeit with a few variations, and claimed for a total loss of goodwill of $13,907,302. On the other hand, the Respondent submitted that the Tribunal should adopt the assessment of Ms. Tam and award a sum of $2,235,000 to the Applicant as the fair compensation on the extinguishment of business basis.

Evidence from the experts called by the parties

4. We have previously heard evidence from several experts called by the parties at the original trial. During this hearing, both parties relied on the previous evidence adduced at the trial and the review of this case. Because of the length of time elapsed between the original trial and this hearing, we have to go through the Bundles of documents, the parties’ submissions and the transcripts, where necessary, to recall our memories of the evidence.

5. Several methods have been used by the parties’ experts in the estimation of the loss of goodwill due to the extinguishment of the Applicant’s restaurant business. The Applicant’s valuation expert Mr. YS Wong used his “Investment Method” arriving at an estimate of $40,455,300 (Bundle F/1528). The Applicant’s accounting expert, Mr. YM Cheung used two different methods of valuation: (i) the P/E (Price/Earnings) Ratio Method commonly used in valuing shares of listed companies and (ii) the DCF (Discounted Cash Flow) Method commonly used in valuing projects where revenues and costs were incurred at different points of time during the project period. Mr. Cheung estimated the compensation sum to be (i) $20,460,000 using the DCF Method, and (ii) in the range of $17.5 Million to $24.5 Million using the P/E Ratio Method.

6. On the other hand, the Respondent had only one expert witness, Ms. Tam, giving evidence on the valuation of the loss of goodwill on the extinguishment of business basis. Ms. Tam used the Multiplier method in estimating the loss of goodwill. She first estimated the sum to be $3,520,360 (Bundle D/306). In her supplemental report (Bundle D/340), she revised the sum to $2,977,606 after adopting the 12 months’ data instead of the accounting figures for the entire period of 14.5 months. This estimate was further reduced to $2,235,000 (Exhibit R14, at Bundle F/1598) after Ms. Tam opined that interest to shareholder for the loan provided to the Applicant in the sum of $300,000 should be deducted before arriving at the profit before tax. She calculated the loss of profit, after the adjustments, to be $745,034. Applying a multiplier of 3 to this profit estimate, it gave a sum of $2,235,104 which she estimated as the total loss of profit that should be compensated to the Applicant on the basis of total extinguishment of business.

The Applicant’s claim

7. The Applicant in its written submission dated 26 May 2011 filed into this Tribunal before the hearing submitted that the Applicant had decided not to use the valuation of Mr. YS Wong, but adopted the valuation of Mr. YM Cheung, in the sum of about $20 Million, and that the valuation of Ms. Tam should be rejected. The Applicant was of the view that Mr. Cheung’s valuation accorded with the P/E Ratio Method in adopting 8 years and 9 months (being the unexpired term of the lease) as the multiplier. The Applicant further submitted that “alternatively and in any event, the base figure for annualized profit after tax should be $1,979,213 (taking into account of loss revenue) or $1,461,030 times the remaining lease term and then applying a discount factor for the early receipt of compensation.”

8. However, the Applicant in the final oral submission submitted that the Applicant was prepared to give a concession by adopting the methodology of Ms. Tam, including her latest version of valuation (see Exhibit R14, at Bundle F/1598) of using the accounting figures for the period from 1 January 2004 to 31 December 2004. Of course, these figures were in turn based on the accounting figures of the Applicant’s business from its set of audited accounts during its history of operation (i.e. from commencement to cessation). However, the Applicant submitted that notwithstanding the concession to use Ms. Tam’s approach, 4 outstanding issues remain. They are: (1) whether the pro-rata amount of “administrative fee”, in the sum of $380,774 x 12/14.5 months, should be included as other revenue of the business; (2) whether the pro-rata amount “sundry income”, in the sum of $347,613 x 12/14.5 months should also be included as other revenue of the business; (3) whether “interest to shareholder”, estimated by Ms. Tam to be $300,000 should be deducted as cost before arriving at the “profit before tax” and (4) whether “loss revenue due to impact of expected resumption”, estimated by the Applicant to be $512,183, should be added back to the accounting figures before arriving at the “normalized annual profit”. In its final submission, the Applicant produced a computation sheet (Exhibit A15) giving the estimate for the loss of goodwill in the sum of $13,907,302.

9. The Applicant’s computation is summarized as follows:-

Gross Profit $13,845,307.74
Add-
(1) Administrative Fee $380,774.00
(2) Sundry Income $347,613.00
Total $728,387.00
Pro-rata total (12/14.5 months) $602,803.00
Gross Profit after adjustment $14,448,110.74
Less-
Total fixed & variable cost after adjustment $12,642,235.31
Profit before tax $1,805,875.43
Taxation (at 17.5%) $316,028.20
Profit after tax $1,489,847.23
Add-
Loss revenue due to impact of expected resumption $512,183
“Normalized annual profit” $2,002,030.23
Multiplier x 6.9466
Applicant’s estimated Loss of Goodwill $13,907,302

The Respondent’scase

10. The Respondent in its final submission sought to submit that it would be unreasonable to award the Applicant compensation on extinguishment of business in the sum of about $14 Million. However, as this Judgment is only concerned with the assessment of the quantum of compensation, it would be inappropriate to simply compare, as submitted by the Respondent, the final estimated sum with the short duration of the business before its cessation or the cost of setting the company in starting the restaurant business. In the final analysis, the Respondent relied on the evidence of Ms. Tam given at the previous hearings, and disagreed with the adjustments made by the Applicant.

The Tribunal’s adopted methodology

11. Having gone through the experts’ evidence and the parties’ submissions, we agree to adopt the methodology used by Ms.Tam. Although the Applicant stated in its written submission that it adopted the methodology of Mr. Cheung, as the Applicant had conceded to adopt the methodology of Ms. Tam in the final oral submission, we shall not deal with this issue of methodology as an outstanding issue between the parties in great details in this Judgment.

12. However, we would like to put on record that we do not share with Mr. Cheung’s view that it is appropriate to use the P/E Ratio Method because (1) there were substantial differences in terms of the values of the subject business and a listed company both in terms of the differences in sizes and numbers of restaurants, (2) the differences in the number of years’ of past track records of the restaurants owned by a listed company and the very limited period of operation of the subject business which had only one set of audited accounts, and (3) a listed company obviously fetch a different set of P/E ratio simply because the liquidity of an investment in such a company is so much different than investing as a shareholder in the Applicant’s business. As for the DCF Method, we also think that this is not appropriate because the Method is generally used when the project period is long and different revenues and expenditures are generated / incurred at specific points of times. Given the large number of assumptions used in Mr. Cheung’s DCF Method, we do not find that it is appropriate to use that Method in preference to the usual Multiplier (or Years’ Purchase) Approach after a “normalized annual profit” for the extinguished business is assessed. As often the case, and in this case, the “normalized annual profit” is based on the actual set of audited accounts which, apart from certain outstanding issues, are generally agreed by the parties. Hence, the uncertainties of using the Multiplier Approach can be reduced to a minimum.

13. Below, we will first determine the issues between Ms. Tam and the Applicant in estimating the “normalized annual profit” of the Applicant’s restaurant business, before we turn to the thorny issue of estimating the “Multiplier”.

Administrative fee

14. The Applicant submitted that the Administrative Fee of $380,774 for the whole period of some 14.5 months shown in the audited accounts of the Applicant should form part of the income of the Applicant, in calculating the “normalized profit”. This sum refers to, according to the Notes to the Financial Statement (Bundle D/286), “income being providing man-power, management support, accounting support, etc. to a related company, Bright Dragon Properties Limited.” On the other hand, the Respondent, relying on Ms. Tam’s opinion submitted that this sum should be deducted from the total income of the Applicant in the relevant period. We agree with the Applicant that this item should form part of the income of the Applicant’s business. There is no dispute that the Applicant will be deprived of receiving this income annually following cessation of the business which stand on the resumed premises.

15. In following the approach of Ms. Tam of using the actual calendar year’s accounting figures, we calculate the administrative fee on a pro-rata basis ($380,774 x 12 / 14.5 months) and add it back to Ms. Tam’s adopted gross profit of $13,845,307.74. This is the same as shown in the Applicant’s computation at paragraph 9 above.

Sundry income

16. Similarly, the Applicant submitted that the Sundry Income of $347,613 for the whole period of some 14.5 months should form part of the income of the Applicant. This sum refers to, according to the Notes to the Financial Statement (Bundle D/286), “tips received from customers and contributions from suppliers during restaurant openings and mid-autumn festivals.” The Respondent also relied on the opinion of Ms. Tam and submitted that this item should be deducted. We do not have the break-downs of the tips and contributions from suppliers. However, we agree with the Applicant that upon extinguishment of business, it would cease receiving the tips and contributions from suppliers for the mid-autumn festival and presumably for other festivals as well. We therefore agree that this item should be added back to the income of the Applicant’s business.

17. In following the approach of Ms. Tam of using the actual calendar year’s accounting figures, we calculate the administrative fee on a pro-rata basis ($337,613 x 12 / 14.5 months) and add it back to Ms. Tam’s adopted gross profit of $13,845,307.74. Again, this is the same as shown in the Applicant’s computation at paragraph 9 above.

Interest to shareholder

18. In the Applicant’s audited accounts, an interest-free loan of $5,843,728 was provided to the Applicant by its shareholders. The Applicant submitted that its witness had confirmed that the shareholders wished to be remunerated by the distribution of profits in the Applicant’s business, instead of charging the loan at market rate. Therefore, the Applicant said that it would be wrong for Ms. Tam to allow a deduction of $300,000 as an “interest to shareholder” item. We agree with the rationale and the method adopted by Ms. Tam in attempting to find the “normalized annual profit” of the business. The test of the rationale of this item will be easily understood if for example, the shareholder of the Applicant had provided a much bigger interest-free loan of say $20 million to the Applicant so that in addition to the use of a portion of this loan (about $6 million) for running the business, the Applicant had put the remaining sum of about $14 million in fixed deposit in the bank thereby earning interest. Are we saying that under similar circumstances, no deduction for interest payable to the lender of the $20 million loan (even though the lender was the shareholder) should be allowed in attempting to arrive at the “normalized annual profit” of the Applicant? The obvious answer is no. Otherwise, the Applicant’s accounts will give an inflated amount of profit because the applicant’s income includes the interest from this loan. Hence, we are of the view that similar reasoning applies in the present case. That is, in having the advantage of not being required to pay any interest on a loan of $5,843,728 from a related party, the Applicant would inflate the profit of its business. In order to find the “normalized profit” of the Applicant’s business, we agree with Ms. Tam that the interest of that loan at market rate should be deducted. Ms. Tam estimated this in the annual sum of $300,000. The Applicant only disputed this sum in principle and did not suggest that this estimate was wrong, nor did it provide any other estimate. As we have decided above that the deduction was necessary, we shall therefore adopt Ms. Tam’s figure in the computation of net profit later.

Loss revenue due to impact of expected resumption

19. In the final written submission, the Applicant submitted that the base figure for the “normalized annual profit” after tax should be $1,979,213 (after taking into account of loss revenue) or $1,461,030 (without taking into account the loss revenue). By loss revenue, the Applicant claimed that the “normalized annual profit” was lower than normal because the Applicant’s business was affected by the threat of resumption. The Applicant claimed that “there was additional loss of revenue due to the resumption rumour as customers were not placing orders for birthday banquets and wedding celebrations, festival and other events.” The Applicant’s conclusion was based on Mr. YM Cheung’s Report at Bundle D/1011-1012 and his evidence at Bundle E2/1313L-1315A.

20. On the other hand, the Respondent argued that the Applicant failed to show that the loss in terms of reduced turnover was due to the resumption rumour. The Respondent adopted to use Ms. Tam’s adjusted figures, which was based on the actual 12 months’ accounting figures plus adjustments.

21. Having compared the figures in details, we do not agree to use the Applicant’s adopted figure of $1,979,213 reflecting its estimated loss revenue. Also, we prefer to use the actual 12 months’ figures, without the adjustments by Ms. Tam. Frankly, the Applicant had only a short history and record of business turnover. We could not simply compare two respective months and come up to a conclusion that the lower figure for the latter year was due exclusively to a certain factor (i.e. the resumption rumour). The relationship is too weak. There may well be other reasons we could think of. For example, it could likely be the case that when a restaurant opens its business, particularly in a traditional neighbourhood, it could draw interests in terms of wedding and other banquets because some patrons would like to enjoy the brand new or near brand new facilities. This may then artificially raise the turnover and the profits of the first few months of operation of the new business. Therefore, we find that it would be more reasonable to simply adopt the actual 12 months’ accounting figures without adjustment one way or the other. This we shall apply in the estimation of the “normalized annual profit” of the Applicant below.

Estimate of Multiplier

22. Although the Applicant conceded to adopt Ms. Tam’s methodology, the Applicant did not agree to use her adopted Multiplier of 3. Instead, the Applicant submitted to use a discounting factor after having regard to the remaining 8.75 years’ lease term (based on that of the restaurant’s lease) and the then prevailing best lending rate of 5%. The Applicant calculated the Multiplier to be 6.9466. On the other hand, the Respondent continued to stick to the Multiplier of 3 as opined by Ms. Tam.

23. The choice of an appropriate multiplier for estimating the amount of loss of profits (or generally referred to as the loss of goodwill) as compensation sum payable to the aggrieved owner or tenant on extinguishment of business, as a result of compulsory acquisition of property in Hong Kong, has been a difficult issue. Unlike other parameters used in valuation of landed interests or even valuation of plant and machinery, there is a dearth of direct market evidence of business goodwill. Profitable businesses are seldom changing hands as going concerns and even if there are transactions, they are seldom reported as publicly available market information. Unlike property transactions, there is also no statutory requirement for the business to disclose the transaction and no central registry (like the Land Registry) for the registration of these transactions. Although there is a statutory requirement for every listed company, under certain conditions, to disclose its business transaction, very often the transactions are very complicated so that it is difficult even for the veteran analyst to conduct its analysis, let alone an average valuer in the market.

24. For the above reason, as far as we know, there is no market evidence similar to Schilt Table (as that used in the landmark Shun Fung case in Hong Kong) ever published by reputable market analyst in Hong Kong. Therefore, in applying directly the figures from the Schilt Table used in the US and using the valuer’s adjustments to reflect the differences between the environment in US and Hong Kong, and also the differences in the nature of business and time, the adjustments between different experts are often very substantial. This we find is a virtually futile exercise.

25. Hence, in this case, we find that it is appropriate to estimate the discounting rate from the first principle. The Applicant submitted that as Ms. Tam had adduced evidence that the then prevailing Best Lending Rate was 5%, it would be appropriate to use 5% in calculating the “Multiplier” (or the Years’ Purchase, the term for the factor of sum of amount of $1 per annum at x % for y years). The Respondent did not elaborate its objection except to re-confirm that the Multiplier of 3 (as a lump sum figure opined by Ms. Tam) was more appropriate. We do not agree with the Applicant that the “normalized annual profit” should be discounted at the Best Lending Rate prevailing at the time of resumption. First, it is very unlikely that the Applicant, or any similar business, could borrow money at the Best Lending Rate at that time. Second, it is also unlikely that the “normalized annual profit” of the Applicant would be discounted by the Best Lending Rate, should there be a buyer for it in the market. The likelihood of receiving the “normalized annual profit” is so much more risky that it would be absurd to suggest that any buyer would pay for it at a price arrived at by discounting the sum at the Best Lending Rate. We find that it would be more appropriate to adjust, at the least, the extra risk by adding a few percentage points. We think that adding 4% is a very conservative estimate. Thus, we shall adopt this assumption below.

26. The Applicant submitted that the “normalized annual profit” should be applied to the remaining lease of the Restaurant, ignoring the shorter ancillary leases for the BBQ shop and the staff quarters. On the other hand, the Respondent said that as the Applicant used to claim that the Applicant’s business was an “integrated” business, it would not be reasonable to use the remaining lease of the Restaurant as to be the period over which the business should be compensated for the loss of “normalized annual profit” following its extinguishment. We find that although the integrated business argument has not been accepted by the Court of Appeal as a pre-requisite of the Applicant’s claim of loss of profit on extinguishment of business, it is trite law that the Applicant could not assume that the expired leases for the BBQ shop and the staff quarters could be renewed. We think that these would have an effect on the “normalized annual profits” for future years as additional rents would likely have to be paid for leasing similar accommodation elsewhere. For this reason, we find that it would be reasonable, in trying to construct a discounting factor, to add an extra 1% risk factor to reflect the shorter duration of the 2 ancillary leases and the consequential effects on the net “normalized annual profit”.

27. Summing up, we start from the Best Lending Rate of 5% and add on top of it additional percentages to reflect (i) the more risky nature of the “normalized annual profit” and (ii) the shorter duration of the 2 ancillary leases. We opined that it would be reasonable, at the least, to add 4% and 1% respectively, for these two elements. Hence, we come up with a discounting rate of 10%. Using the mathematical formula for Years’ Purchase, we arrive at the factor of 5.6568 as being the Years’ Purchase for 8.75 years at 10%. We shall adopt this factor in the computation below.

Tribunal’s estimateof the Loss ofProfit on extinguishment of the Applicant’s business

28. Following the approach of Ms. Tam which has since been accepted by the Applicant as the method to be used in this case, and applying our decisions on the 4 outstanding issues between the parties, we have set out the Tribunal’s computation of the valuation of the loss of profit of the Applicant, on extinguishment of is business, as follows:-

Gross Profit $13,845,307.74
Add-
(1) Administrative Fee $380,774.00
(2) Sundry Income $347,613.00
Total $728,387.00
Pro-rata total (12/14.5 months) $602,803.00
Gross Profit after adjustment $14,448,110.74
Less-
Total fixed & variable cost after adjustment $12,642,235.31
Interest to Shareholder $300,000.00
Total fixed & variable cost after adjustment $12,942,235.31
Profit before tax $1,505,875.43
Taxation (at 17.5%) $263,528.20
Profit after tax (=“Normalized annual profit”) $1,242,347.23
Multiplier (Years’ Purchase at 10% for 8.75 years) x 5.6568
Estimate of the Applicant’s Loss of Profit on extinguishment of the Applicant’s business $7,027,709.81
Rounded to $7,027,710

Order

29. Thus, we order that compensation for extinguishment of the Applicant’s business in the sum of $7,027,710 be paid to the Applicant. The matters of professional fees, interest and costs shall be adjourned to a date to be fixed, with liberty to apply for any other ancillary and consequential matters.

H.H. Judge M. WONG	Mr. W.K. LO
Presiding Officer Lands Tribunal	Member Lands Tribunal

Mr. Johnny MOK, SC, and Mr. Richard LEUNG, instructed by M/S Lo & Lo, for the Applicant.

Mr. Anthony ISMAIL, instructed by the Department of Justice, for the Respondent.

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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	HAPPY DRAGON RESTAURANT LIMITED	Applicant
	and
	THE DIRECTOR OF LANDS	Respondent

----------------------

Coram:

H.H. Judge WONG, Presiding Officer of the Lands Tribunal and Mr. W. K. LO, Member of the Lands Tribunal

Date of Hearing: 27 May 2009
Date of Handing Down of Reasons for Decision:	26 June 2009

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REASONS FOR DECISION

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Background

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

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

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

Review Procedure

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

“(1)  The Tribunal may, within 1 month from the date of any decision by it, decide to review that decision and, on such grounds as it may think sufficient, may set aside, reverse, vary or confirm it.
(2)  The Tribunal may act under subsection (1)-
(a)  on the application of any party; or
(b)  on its own motion,
and on notice to all other parties to the proceedings.
(3)  If the Tribunal shall have decided, within 1 month from the date of any decision, to exercise its power of review in respect thereof, such power may be exercised at any time thereafter whether within such period of 1 month or otherwise.
(4)  The Tribunal may, in any review, hear and receive any evidence it thinks fit for the purpose of determining the issue between the parties.”

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

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

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

Grounds of the review

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

Ground 1: whether total extinguishment by the Applicant was reasonable

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

(1)nbsp; “Wah Do as a target location within the proper context of the Applicant’s extensive effort in searching for alternative premises, instead of a stand-alone target”;
(2)nbsp; “direct evidence on the Applicant’s lack of financial resources for relocation to Wah Do”; and
(3)nbsp; “evidence on the timing and circumstances in which Wah Do first became, and subsequently ceased to be, available as an option for relocation for the Restaurant”.

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

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

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

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

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

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

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

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

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

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

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

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

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

(1)  Contractual obligation to pay Hong Kong Electric Co. Ltd. in lieu of the required 3-year usage – as demanded: $301,200
(2)  Compensation paid to employees in respect of leave holidays – as incurred: $134,988
(3)  Severance payments – as paid: $176,009
(4)  License, as prepaid, for General Restaurant: $4,620 and for Liquor: $1,658, giving a total sum of $6,278
(5)  Loss in respect of fixtures: $5,331,418
(6)  Loss on sales of inventories on closure – as calculated: $62,949 and
(7)  Loss in respect of plant and machinery – per accounts: $1,235,431.

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

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

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

(i)  Sections 10(1) and 10(2) of the Ordinance must be read together. The Tribunal cannot determine the compensation on the basis of section 10(1) of the Ordinance alone even if the loss and damage suffered by the claimant were due to the resumption.
(ii)  In Sham Chi Keung v Director of Lands [2007] 1 HKLRD 374, Le Pichon JA stated in paragraph 12 of the judgment that section 10(1) of the Ordinance ‘delimits the loss recoverable: it has to be casually connected to the resumption of the applicant’s land. Subsection (2) sets out the different situations that could form the basis of compensation. For present purposes, it is paragraph (d) that is relevant. That paragraph emphasises that the loss recoverable must be “due to the removal of the business from that land or building as a result of the resumption”.’
(iii)  In the present case, the situations “that form the basis of the compensation” are laid down in section 10(2)(d) and section 10(2)(e)(i) of the Ordinance.
(iv)  Since the Applicant’s case is that the resumption caused it to totally extinguish the restaurant’s business, the compensation payable to the Respondent should be assessed on the basis of a total extinguishment of the business under 2 general headings: - (a) permanent loss of business; and (b) disturbance payments arising from the permanent loss of business only.

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

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

“11. From that it is abundantly clear that the claim which can be made is a claim in respect of loss or damage which has been suffered or expenses incurred. It may be that quantification of that loss would depend upon an assessment of future loss or expenses which would be incurred but any claim for compensation must be founded upon actual loss and not upon some hypothetical basis of expenses that might be incurred if the applicant were to do something which he has not done and has no intention of doing….
…
21. … It is not possible for compensation to be awarded, whether under the Lands Resumption Ordinance or under the Railways Ordinance, on the basis of a hypothetical loss or expense which might be incurred if the applicant had taken a course which he or she would have been entitled to take but had not taken, and never intends to take. On this basis any claim for the cost of renovation and adaptation of fixtures and fittings for use in new premises, installation charges for installing equipment in new premises, solicitors’ fees in respect of acquiring a lease for new premises, rent in respect of new premises, whether it be double rent or the first month’s rent, and publicity costs in connection with a move to new premises simply have no basis. There never were any new premises, there are not any new premises and there never will be any new premises. These claims are wholly spurious….”

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

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

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

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

(i)  For items (1) to (4) as claimed by the Applicant (see paragraph 21 above), we agree that these are not “actual” losses incurred by the Applicant if the Applicant had not totally extinguished the restaurant business but had relocated to another suitable location.
(ii)  Some or most of the compensation to the employees, if not all of them, might be avoided if the business was relocated to a new location. For example, with relocation to a new location, the employees could be given the leave holidays without the need for the Applicant to pay them compensation in lieu of such leave holidays.
(iii)  We do not agree that with relocation, the Applicant would have to lay off all its existing employees who, according to the Applicant, included many experienced restaurant managers and other staffs whose expertise and experience were instrumental for the successful running of the business.
(iv)  Similarly, we do not agree that the licence expenses would be “actual” losses incurred by the Applicant because in the case of relocation, the Applicant could still make use of the remaining duration of the licence by simply seeking to change the address of the Applicant’s business.
(v)  Finally, for the loss of the “contractual obligation to HK Electric”, we do not agree that it would necessarily be actually incurred. Although we have decided against the Applicant in that the Applicant should not have extinguished the business as the Applicant had at least one suitable premises for relocation, for which they had unreasonably turned down, it does not follow that there might not be some other premises on Hong Kong Island which were equally suitable for relocation. In the Judgment, we only said that the information for other potential relocation premises as given by the Respondent at the trial was insufficient for us to make a finding.
(vi)  For items (5) to (7), we do not agree with the Applicant that those losses would be losses that would be incurred in any event. On the contrary, we find that in the event of relocation by the Applicant instead of the total extinguishment, most, if not all, of the losses of these 3 items could be avoided. We do not understand why the Applicant would have to throw away and lose all the assets in the fixtures and plant and machinery in the event of relocation. This appears to defy common sense, as most of these assets could be reused, with or without adaptation, in such an eventuality.
(vii)  Similarly, we also do not understand why the Applicant would have to incur all the losses on sales of inventories as some of the inventories could be moved and used in the new location.

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

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

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

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

Conclusion

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

H.H. Judge WONG
Presiding Officer
Lands Tribunal

Mr. W.K. LO
Member
Lands Tribunal

Mr. Richard LEUNG, instructed by M/S Lo & Lo, for the Applicant.

Mr. Anthony ISMAIL, instructed by the Department of Justice, for the Respondent.

LDLR 17/2006

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LANDS RESUMPTION APPLICATION NO. 17 OF 2006

----------------------

	HAPPY DRAGON RESTAURANT LIMITED	Applicant
	and
	THE DIRECTOR OF LANDS	Respondent

----------------------

Coram:

H.H. Judge WONG, Presiding Officer of the Lands Tribunal and Mr. W. K. LO, Member of the Lands Tribunal

Dates of Hearing:

28-31 July 2008, 1, 4 & 5 August 2008, 5-9 January 2009 and
24 March 2009

Date of Handing Down of Judgment: 28 April 2009

----------------------

JUDGMENT

--------------------

Background

1. This is an application made by the Applicant on 23 December 2006 for determination of the amount of compensation pursuant to sections 8(2) and 10(2) of the Lands Resumption Ordinance, Cap. 124 (“the Ordinance”). The Applicant formerly wholly owned, financed and operated the restaurant known as Sun Rise Court Restaurant (“the Restaurant”). The Restaurant occupied 3 different properties, being (i) First Floor, 327 Shau Kei Wan Road (“Part I premises”); (ii) Portion A on Ground Floor, 329-331 Shau Kei Wan Road and 1-3 Nam On Lane (“Part II premises”), and (iii) First Floor and Second Floor, 329-331 Shau Kei Wan Road and 1-3 Nam On Lane (“Part III premises”), all in Shau Kei Wan, Hong Kong (collectively known as “the Properties”). The Part I premises was formerly owned by Bright Dragon Properties Limited (“Bright Dragon”).

2.By a notice of resumption dated 16 February 2005 and published in G.N. 851, the government informed the Applicant that the Properties would be resumed for implementation of the Hong Kong Housing Society (“HKHS”) development proposal at Shau Kei Wan Road in Shau Kei Wan (Project H21) after the expiration of 3 months from the date of the affixing of the notice. The notice of resumption was affixed to the Properties on 25 February 2005. Thus, upon expiration of the 3-month notice period, reversion took place on 25 May 2005.

3. The Applicant’s case is that the resumption caused it to totally extinguish the Restaurant’s business. Accordingly, the compensation payable to the Applicant by the Respondent should be $47,821,429.56, assessed on the basis of a total extinguishment of the business under 2 general headings: -

(1) permanent loss of business in the sum of $40,455,300; and
(2) disturbance payments from the permanent loss of business in the sum of $7,366,129.56.

4. In the Notice of Opposition filed on 15 January 2007, the Respondent opposed the application on the grounds that (a) the Applicant is not entitled to compensation; and (b) the Applicant’s claim for compensation is excessive. The Respondent had made an offer of $2,649,600 to the Applicant on 22 June 2005 but it was rejected by the Applicant. However, at the trial, the Respondent accepts that the Applicant is entitled to compensation as it has an interest as tenant of the Properties but put the Applicant to strict proof of the amount claimed.

5. The Respondent submits that the Applicant should not be awarded any compensation, or is only entitled to a nil award because it acted unreasonably in extinguishing the Restaurant business when it should have relocated instead. Alternatively, if and only if the Tribunal should find, contrary to the Respondent’s primary position, that it was reasonable for the Applicant to totally extinguish the Restaurant’s business instead of relocating the business elsewhere, the Respondent submits that the amount of compensation is $8,317,379.

6. During the hearing. the Applicant called for the evidence of a valuation expert, Mr. Wong Yung-shing (“Mr. Wong”) and an accounting expert, Mr. Cheung Yuk Ming (“Mr. Cheung”) whereas the Respondent called for the evidence of another valuation expert, Ms. Mary Tam (“Ms. Tam”) and another accounting expert, Ms. Angela Yeung (“Ms. Yeung”). Apart from the expert witnesses, the Applicant called for the evidence of Mr. Kenny Ho (“Mr. Ho”), the shareholder and director of the Applicant, and the mastermind behind the Applicant’s business as well as that of Bright Dragon.

7. Regarding the total extinguishment of the Restaurant business of the Applicant, Mr. Wong estimated the compensation to be in the sum of $40,455,300 (see Exhibit AR3/40) whilst Mr. Cheung estimated the compensation to be in the sum of $20,460,000 (Exhibit AR5/1014). On the other hand, Ms. Tam, on the assumption that the Respondent’s primary position on liability failed and that the Applicant was entitled to compensation calculated on the basis of total extinguishment of business, estimated the compensation to be $8,317,379 (see Exhibit R15).

8. Regarding the disturbance payment, Mr. Wong estimated the compensation to be in the sum of $7,366,129.56 (see Exhibit AR3/42) whilst Mr. Cheung estimated the compensation to be in the sum of $7,248,273 (see Exhibit AR5/1019). On the other hand, Ms. Tam, again on the assumption that the Respondent’s primary position on liability failed, estimated the compensation to be $4,484,669 (see Exhibit AR6/151).

9. Ms. Yeung has commented on the various valuation reports prepared by the other experts and concluded that she preferred both the approaches and the assessments of Ms. Tam.

10. Although the compensation estimates of the Applicant’s two experts differed significantly, particularly in the assessment of the compensation for total extinguishment of business (in which Mr. Wong and Mr. Cheung’s assessments were $40,455,300 and $20,460,000 respectively), the Applicant in the final submission did not submit how the Tribunal should treat the vastly different figures of its own two experts, and simply asked the Tribunal not to adopt the assessment of Ms. Tam.

The law

11. Section 10 of the Ordinance provides that: -

“(1)  The Tribunal shall determine the amount of compensation (if any) payable in respect of a claim submitted to it under section 6(3) or 8(2) on the basis of the loss or damage suffered by the claimant due to the resumption of the land specified in the claim.
(2)  The Tribunal shall determine the compensation (if any) payable under subsection (1) on the basis of: -
(d)  the amount of loss or damage to a business conducted by a claimant at the date of resumption on the land resumed or in any building erected thereon, due to the removal of the business from that land or building as a result of the resumption;
(e)  in the case of land resumed under an order made under section 3 on or after the commencement of the Crown Lands Resumption (Amendment) Ordinance 1984 (5 of 1984)-
(i)  the amount of any expenses reasonably incurred by him in moving from any premises owned or occupied by him on the land resumed to, or in connection with the acquisition of, alternative land or land and buildings, but excluding any amount to which paragraph (d) applies;”

12. As stipulated in section 10(2)(d) of the Ordinance, compensation is payable for loss or damage which is “due to the removal of the business”. Therefore, losses suffered because of relocation are compensable. However, it has been held in many cases that a loss suffered on the total extinguishment of a business is equally a loss suffered due to the removal of the business (see Cruden: Land Compensation and Valuation Law in Hong Kong, 2^nd edition, p. 126). Thus, any loss or damage which is due to the total extinguishment of a business is also compensable under section 10(2)(d) of the Ordinance. Likewise, any reasonable expenses incurred due to the total extinguishment of the business is compensable under section 10(2)(e)(i) of the Ordinance.

13. Total extinguishment arises where the resumption causes the affected party to extinguish his undertaking on the land permanently because, for example, he may not be able to find a suitable alternative site for his operations to continue (see Fung Tin Sang trading as Dragon Trading Company v. The Secretary for Transport, CACV 2747/2001). The burden is on the Applicant to prove to the Tribunal that the extinguishment of his business was caused by the resumption. In Yip Kui trading as Tai Wo Trading Company v The Secretary for Transport, CACV 379/2002, Rogers VP held that: -

“It must always be remembered that it is for the applicant to demonstrate the validity of the claim to compensation. If the claim is put, as it was in this case, on the basis that a business had been extinguished, the applicant must show that the extinction of the business was due to the resumption of the land.”

14. When an owner decides whether he should relocate and continue his business or whether he should close down the business because of the resumption, the law requires the owner to act reasonably in response to the resumption, and he should take steps to eliminate or reduce the loss. If he does not do so, he would not receive compensation for the loss (see Fung Tin Sang, supra).

15. The parties have no dispute on all the principles of law summarized above, but they hold different views on the reasonableness of the Applicant’s decision in closing downing the business instead of relocating.

16. In addition, we agree with the Respondent’s summing up on the following points: -

(1)  The extinguishment of business is the exception rather than the rule, as put by Lord Nicolls at The Director of Buildings & Land v Shun Fung Ironworks Ltd. [1995] 1 HKC 417 (page 429, lines B – C):
“Most businesses are capable of being relocated, but exceptionally this may not be practicable: for example, another suitable site may not exit. If the business is not capable of being relocated, then perforce compensation will have to be assessed on the extinguishment basis.”
(2)  The Applicant’s Restaurant was a general Cantonese food restaurant, like most restaurant businesses in Hong Kong. It did not offer anything new or unique. There were 4 other Chinese restaurants carrying on a similar business in the area, and some were larger and some were smaller. As it was not tied to its location, it was capable of being relocated. It was most certainly not an exceptional case as far as relocation was concerned. .
(3)  Whether the Respondent had acted reasonably is a question of fact and degree.
(4)  The burden is on the Applicant to satisfy the Tribunal that there were no suitable alternative premises for him to relocate the business, and is not for the Respondent to show that there were such alternative premises.
(5)  “There is no principle in law that a business must be conducted in property that is owned by the affected party even though it was the case before the resumption.”

The main issue of the present case

17. The first and the main issue of the present case is whether the Applicant has acted unreasonably in extinguishing its business but not relocating the Restaurant business to a different location.

The Applicant opted for total extinguishment of the Restaurant business

18. Mr. Ho gave evidence in his witness statement that the Applicant decided to extinguish the business after resumption due to the following reasons: (i) the Applicant had established a customer network within the Shau Kei Wan locality which would be lost with the resumption; (ii) a single interlinked business premises such the Properties could not be found in the market; (iii) an approximate sum of $7 to $7.5 million was required to relocate the business but the Applicant had insufficient fund at the time of notice of resumption; (iv) it was impossible to find a suitable premises which could have a long lease term; and (v) the staff of HKHS conducted stock-taking every 15 days which had a drastic negative impact on the Applicant’s business.

19. The Applicant summarized in the written Closing Submission that it was reasonable for the Applicant to close the Restaurant at the end of February 2005 for the following reasons: -

(1)  Despite of the Applicant’s tremendous efforts to look for alternative premises from August 2004, spanning various districts in both Hong Kong Island and Kowloon, well beyond Shaukeiwan and Kwun Tong where Mr. Ho had personal experience of managing restaurants, the Applicant was still unable to find any suitable alternative location for the Restaurant business save for the “Wah Do” location in Kwun Tong.
(2)  The Applicant in particular submitted that although the Applicant had actually closed the Restaurant after the end of February 2005 in order to mitigate its loss and to “deal with the immediate anxiety of the employees, it could not be equated that the Applicant extinguished its business at that time or broke the chain of causation as alleged by the Respondent because the Applicant actually continued to look for alternative premises until December 2005”. So, the Applicant claimed that the Applicant’s efforts to look for alternative premises spanned from August 2004 to December 2005 for a period of 17 months, or 10 months after the actual cessation of its Restaurant business in February 2005.
(3)  As for the Wah Do location, although the Applicant had taken various serious steps to consider the proposal to relocate the Restaurant there, including the consideration of both the leasing or purchasing options, and the preparation of investment proposals for the consideration of the property investors (i.e. the shareholders of Bright Dragon) and the restaurant investors (i.e. the shareholders of the Applicant), and that Mr. Ho himself had voted in favour of the proposal, he failed to convince the other investors (of both the property ends and the restaurant ends) as a result of which the Applicant decided that it was not a suitable alternative premises for relocation of the Restaurant.
(4)  The main reasons that the other investors of the Applicant, apart from Mr. Ho, voted against the proposal was due to (i) the size of investment involved in the Wah Do proposal, (ii) the Applicant alone was not resourceful financially, coupled with the unfortunate timing of the unexpected resumption causing the tying up of significant investment of the investors on the Properties and the Restaurant business, (iii) the Applicant did not have the financial ability to relocate even if all the shareholders’ loans of the Applicant were not to be repaid prior to relocation and that all available funds of the Applicant were to be used in effecting the relocation, and finally, (iv) no other financial resources to supplement the existing funds of the Applicant could be found since all the investors of the Applicant did not wish to inject further capital, all the directors did not wish to lend new money to the Applicant and the Applicant could not get any loan facilities from any bank even if the Applicant wished to borrow from the banks.

The Respondent’s criticisms of the Applicant’s decision

20. Ms. Tam commented in her expert report that for the proposed relocation, it was unreasonable for the Applicant to look for a single interlinked business premises similar to the Properties. Also, the customer network established by the Applicant in Shau Kei Wan was nothing unusual. After moving to another location, the Applicant could have established a similar customer network in the new location. Mr. Tam further opined that the stock taking by the staff of the HKHS was not unusual and should not have given rise to a drastic negative impact on the Applicant’s business, as alleged by Mr. Ho. Finally, Ms. Tam estimated and concluded that the Applicant should have sufficient fund to relocate to a new location.

21. The Respondent submitted that the Applicant was unreasonable in totally extinguishing the Restaurant business for the following reasons: -

(1)  As early as 29 November 2003, the Applicant knew about the intention by the HKHS to possibly resume the Properties, yet the Applicant’s related party, Bright Dragon continued with the purchase of the Part I premises and the Applicant continued with (i) the leasing of the Part I premises on 3 December 2003, for a term of 10 years with no break clause and no option to renew; (ii) the leasing or negotiating for the leasing of the Part II premises; (iii) the decoration and the purchase of furniture and equipment, tableware, uniforms and table cloth, etc. for the Restaurant; and (iv) the commencement of the Restaurant business on 12 December 2003. Therefore, the Respondent alleged that the Applicant’s acts broke the chain of causation between the resumption and the extinguishment losses because the Applicant decided to commence business even after knowing that the Properties would be resumed. But for its decision to commence business even after knowing that the Properties would be resumed, the Applicant would not have suffered the losses.
(2)  The Applicant did not put adequate efforts in looking for alternative premises. The Applicant had started too late to look for alternative locations. Also, the Applicant should have looked for alternative premises until the resumption date; instead, the Applicant decided to cease the business at the Properties too early, about 2 months before the proposed date of resumption. Also, the information obtained on these alternative premises, with the exception of the Wah Do location, were too little to enable anyone (including this Tribunal) to have a realistic analysis of the suitability of these premises for relocation.
(3)  The Applicant could not find a suitable alternative premises because the Applicant was more interested in finding a relocation premises that was for sale so that the Applicant could again join hands with the shareholders of Bright Dragon with the latter acquiring the relocation premises and the Applicant continuing its role as the tenant of the relocation premises, like what the 2 groups of shareholders had previously worked out for the Properties and the Restaurant business at the Properties. Moreover, the Applicant was not realistic in requiring a lease for any alternative premises to be of at least 10 years.
(4)  Most importantly, of all the locations considered by the Applicant, at least one premises (the Wah Do location) was a suitable alternative premises for relocation of the Restaurant business even though it was available for lease only, for terms of 3 plus 3 years, or a total of 6 years. Although even Mr. Ho himself found this to be suitable for relocation, the Applicant still chose not to relocate.
(5)  The Applicant had sufficient financial resources to relocate the Restaurant business to a suitable alternative premises such as the Wah Do location and, even if the Applicant had insufficient resources, the Applicant could have taken a bank loan / bank loans, or could have taken capital injection from its shareholder or loans from its directors, or could have taken capital injection or loans from the shareholders of Bright Dragon, the owner of the Part I premises or Ever Power International Investment Limited (“Ever Power”), the ultimate shareholder of the Applicant comprising of 24 investors who injected funds of different sizes to operate the Restaurant business.

The causation of resumption

22. The Applicant strenuously objected the submission by the Respondent that the Applicant should not have commenced the Restaurant business at the Properties in December 2003 as the Applicant had known a few weeks earlier that the HKHS intended to resume the Properties as part of a larger resumption project in the area. The Applicant alleged that the notice of possible resumption emerged on 29 November 2003 came as a big surprise. However, by that time, the Applicant “had already reached a point of no return as renovation had been completed, all equipment installed and staff recruited with business intended to commence in early December 2003.” Therefore, the Applicant submitted that it was entirely reasonable for the Applicant to continue with the operation bearing in mind that significant investment had already been incurred and that it was not uncommon that land resumption plan might take several years to complete or might even be aborted.

23. We agree with the submission of the Applicant. We could not hold the Applicant liable for continuing with the commencement of the business in December 2003 even though a few weeks earlier it had received the notice of possible resumption by HKHS of the Properties as part of a larger project in the area. It was simply too late for the Applicant to abruptly stopping all the preparation work for the Restaurant business that had started sometime ago. Therefore, we do not find that the action taken by the Applicant in December 2003 sufficiently broke the chain of causation between the subsequent resumption and the losses to the Applicant in question.

The Search for alternative premises

24. Before we decide on the reasonableness of total extinguishment by the Applicant, we first consider the evidence of the Applicant regarding the search for alterative premises. The Applicant’s factual witness, Mr. Kenny Ho gave evidence that he started to look for alternative premises from August 2004, and had considered altogether 17 options, which came from information provided by various estate agents, other members of the restaurant trade, trade profession associations and property developers. Mr. Ho summarized the information he gathered from various sources for these 17 options in his witness statement (Exhibit AR2, pages 50 – 53).

25. Mr. Ho explained that by August 2004, it became clear to him that the resumption by the HKHS would go ahead. As a result, the Applicant then began taking active steps to consider the possibilities of alternative premises whilst at the same time continued the negotiation with the HKHS on the possibility of buying or leasing certain space back for running the Restaurant business upon completion of redevelopment,

26. Mr. Ho also claimed that although he and the Applicant had decided to cease the Restaurant business in February 2005, when the notice of resumption was formally gazetted, the Applicant in fact continued to look for alternative premises until December 2005 even though it was eventually unsuccessful.

27. We agree with the Respondent that the Applicant had started too late looking for alternative premises and stopped too early to cease the Restaurant at the Properties. Also, we agree that the information collected by the Applicant for the alternative premises (with the exception for the Wah Do location) was very little for this Tribunal to decide whether the said premises that were available were suitable alternative premises or not. However, we find that the Applicant’s mistakes were not fatal as to lead us to conclude that the Applicant had not taken reasonable steps in finding alterative premises for possible relocation.

28. Below, we will concentrate on the alternative premises at the Wah Do location and find out whether, as alleged by the Respondent, that (i) this was a suitable alternative location in all respects; (ii) the Applicant had sufficient financial resources to effect the relocation to this location if it wished to, (iii) the Applicant had unreasonably decided that it would not lease the Wah Do location and relocate the Restaurant business to that location, the claim by the Applicant for total extinguishment of the Restaurant business was unreasonable and should therefore be rejected in its entirety by this Tribunal.

The proposal to relocate to the Wah Do location

29. Mr. Ho gave evidence that “the one that came close to strike a deal was the premises that was previously used as Wah Do Restaurant in Kwun Tong”. He said that concerning this particular premises, the Applicant had paid several visits, got the tentative building plan for decoration and had even looked at the Fung Shui aspects of the premises. Mr. Ho frankly admitted that at one stage, the Applicant wished to secure a long lease (of 10 years) to operate a restaurant business as he considered this to be one of the crucial factors leading to the successful operation of the restaurant business. He further added that the Applicant preferred to acquire the premises through a property investment company (a company similar in nature to Bright Dragon) and then leased the premises to the Applicant under Mr. Ho’s management. For these reasons, Mr. Ho said that “a business proposal was prepared for shareholders’ consideration but because of the size of investment involved coupled with the recent unfortunate resumption causing significant investment injected already tied in pending the outcome of compensation which might take several years to finalize. Other shareholders and/or directors were rather reluctant at that time. Eventually, the premises at Kwun Tong was leased to a furniture company.”

30. At the hearing, Mr. Ho admitted that although the Applicant had initially asked for a long lease of 10 years’ duration, the landlord had counter-offered lease terms of 3 plus 3 years, or a total of 6 years, at market rent. Also, Mr. Ho himself confirmed that he had voted in favour of the proposal to relocate to the Wah Do location but he failed to persuade other shareholders to buy his idea.

31. The Respondent submitted that there was no acceptable reason that the Applicant did not choose to relocate to this Wah Do location. The fact that even Mr. Ho, being the most experienced shareholder in the Applicant in the setting up and running of restaurant business also agreed that the Applicant should relocate to this Wah Do location suggested that the other shareholders of the Applicant, and hence the Applicant were all unreasonable in reaching a decision of not relocating to this location. As suggested by the Respondent, the other shareholders might have other considerations (for example, they might require much higher investment returns), which led to the decision as to not agreeing with the Applicant to relocate the Restaurant business to this Wah Do location. However, the Tribunal should not be concerned with these other consideration but should instead be concerned with, (i) whether suitable alternative premises was found available and (ii) whether the Applicant was capable for relocating the business.

Financial capability of the Applicant in effecting the relocation

32. The Applicant submitted that notwithstanding the availability of the premises at the Wah Do location, the Applicant did not have at the relevant time the financial resources to effect the relocation. The Applicant has called for the evidence of 2 witnesses (the factual witness Mr. Ho and the accounting expert Mr. Cheung) who both said that the Applicant had insufficient fund to effect the relocation, even if a suitable replacement premises for the Restaurant could be identified and made available to the Applicant.

33. Mr. Ho gave evidence in his witness statement that the Applicant needed about $7 to $7.5 million to effect the relocation of the Restaurant to a new location. He did not give detailed breakdown of this sum in his statement. In oral testimony during the hearing, he clarified that there was no chance that the Applicant could obtain a loan from any bank, despite of its being a profitable business since its commencement. Even though he had not actually tried to make enquiries with any bank regarding the possibility of obtaining a loan, he said that he could give this evidence based on his experience in the trade. In addition, he confirmed that he failed to persuade the other shareholders of the Applicant as well as the shareholders of Bright Dragon, which owned the Properties, to inject more funds into the companies concerned. As for himself, although he very much like the continuation of the Applicant’s business by relocating the Restaurant to a new location, such as that of Wah Do which he also considered to be a suitable location for the Restaurant, he had limited financial means himself. At the end, after he failed to persuade the other shareholders of the Applicant in the meeting of shareholders, he reluctantly decided to cease the Restaurant business in February 2005.

34. Mr. Cheung set out in his expert report dated 11 January 2008 (Exhibit AR5, page 1109) his computation to show that the amount of cash available to the Applicant was not sufficient “to cover the removal and start-up of a restaurant of similar scale in another location. Based on the actual sums used by the Applicant in setting up the Restaurant in 2003, Mr. Cheung estimated that the Applicant needed a total sum of about $10,300,000 to start a new restaurant in another location. His estimates are set out as follows: -

Decoration / Leasehold improvements $5,923,798
Furniture and equipment uniform $1,206,475
Uniform and tableware $280,338
Per audited accounts $7,410,611
Working capital – utility deposits, excluding
cash needed for various purchases $1,011,400
Total cash required for the removal to a new location $8,422,011
Add: cash deficit arising from the land resumption $1,802,636
Total cash needed for the closure of the Restaurant
& the removal of the same to a new location $10,302,636

35. Mr. Cheung said that the above computation show that, even if one accepted the amount of $5,680,000 as calculated by Ms. Tam, the Respondent’s valuation expert who carried out the calculations based on the audited accounts of the Applicant, to be available to the Applicant for relocation, it was woefully insufficient.

36. On the other hand, the Respondent submitted that there was sufficient fund by the Applicant to effect the relocation (see Exhibit AR6/337-338). Even if the cash in hand of the Applicant were insufficient, there were several means that the Applicant would be able to raise further funds. First of all, the Applicant could consider applying for and taking up loans from the banks.

37. The Respondent also submitted that there were other sources from which the Applicant could have borrowed. These include borrowing from either (i) Ever Power or the 24 non-management shareholders of the Applicant; (ii) Bright Dragon, the owners of the Properties; or (iii) the Applicant’s directors.

38. In particular, the Respondent reminded us that Mr. Ho had given evidence that he had regarded the Applicant and Ever Power as a single company. In the past, at the commencement of the business, the Applicant had indeed borrowed $5,843,728 from Ever Power without any security and interest free at the time when the Applicant was not making any money. The Respondent therefore submitted that it was unreasonable that since the Applicant started to make profit and the Restaurant business had to be ceased if relocation were not possible due to the shortage of funds, the shareholders of the Ever Power did not then agree to lend to the Applicant in order to assist its relocation. Also, as Ever Power had 24 non-management shareholders, any loan to the Applicant could be spread among all or some of these shareholders without adversely burdening any single shareholder.

39. In addition, the Respondent submitted the following: “The resolution passed at EGM of the Applicant chaired by Ho Jen Bong on 3 December 2003 to add article 15A to enable least to go ahead shows the steps which the Applicant took to start the Sun Rise Court Restaurant business. The lease of the Part I premises committed the Applicant to pay $16,680,000 over 10 years … even before the Applicant started making any profit. If the shareholders and in particular, Ho Jen Bong, was persuaded to do this, clearly, they could have persuaded to borrow money to make up any shortfall.”

40. Similarly, the Respondent said that the Applicant could also have borrowed from Bright Dragon particularly because Bright Dragon as the owner of the Part I Premises had itself received in 2005 provisional payment of $16,889,000 for the resumption of the property.

41. The Respondent further said that the Applicant could alternatively have borrowed from its directors, particularly since this would not be the first time as the directors had previously lent to the Applicant a sum of $444,714 (per audited accounts), again without security and interest free. It was further submitted that Mr. Ho had himself executed a Joint and Several Guarantee for $4,200,000 so he was not by any account a person without any means. He himself would be in a position to provide some funding to the Applicant, if necessary.

42. In reply to the Respondent’s above submission that the Applicant could have borrowed from the shareholders of the Applicant, Ever Power or Bright Dragon, the Applicant submitted that although Mr. Ho had proposed a relocation of the Restaurant business to the Wah Do location, he was unable to persuade the Bright Dragon and Ever Power shareholders to agree to his investment proposal. As to the borrowing from the directors of the Applicant, the Applicant submitted that in law, whether a business had the financial resources to relocate should be considered on its own, but not on the financial resources of its directors.

43. We agree with the Applicant that the Applicant and Bright Dragon or Ever Power were different legal entities. Therefore, even though we agree with the Respondent that it was unreasonable for the Bright Dragon or Ever Power not to inject capital or lend money to the Applicant at the time when the Applicant required a relocation of Restaurant business, we could not then infer that the Applicant was being unreasonable. Likewise, although we also agree with the Respondent that the directors of the Applicant and Bright Dragon or Ever Power might have the financial resources to assist the Applicant in relocation, if necessary, it does not follow that the Applicant had the financial resources.

Tribunal’s findings on sufficiency of financial resources for relocation

44. Although Mr. Ho claimed that it was his experience that a Chinese restaurant could not be lent any loan, we note that there was no evidence that Mr. Ho had tried to obtain a loan and was rejected. We agree with the Respondent that having regard to the following positive factors in favour of borrowing by the Applicant, it was unreasonable for the Applicant not to borrow any extra amount that it needed to enable the relocation:

(i)  The Applicant’s Restaurant had a proven track record of making a profit; it was profitable even in the first year’s of operation (the Applicant’s profit tax return for the year 2004-2005 show a net assessable profit of $3,081,133; and alternatively, the Applicant’s profit and loss account show a profit of $2,297,088); this was quite a feat bearing in mind that the Applicant only commenced its new Restaurant business at the Properties in December 2003;
(ii)  The Applicant’s Restaurant, according to Mr. Ho, experienced growth due to the booming market trend after June 2003, and the restaurant businesses in general improved with the improved economy after the impact of SARS in Hong Kong;
(iii)  The Applicant’s Restaurant had an experienced management team under Mr. Ho, and a trained workforce;
(iv)  Mr. Ho had experience, good reputation and a proven track record of successes in the restaurant business; and
(v)  The Applicant could expect to receive much more provisional compensation and then, if agreed by the Applicant without the need to refer to the Lands Tribunal for determination, final compensation from the Government for the partial extinguishment of business and disturbance based on relocation, after its actual relocation from the Properties to the new premises, such as the Wah Do location.

45. We further agree with the Respondent that having considered all the circumstances surrounding this case, it was more probable than not that the Applicant could have been granted the necessary bridging loans from the banks to enable its relocation should the Applicant have applied for such loans.

46. Moreover, we think that if the Applicant had decided to relocate to another suitable premises such as the Wah Do location, and sought from the Government provisional compensation amount in order to enable the Applicant to effect its relocation, it was more probable than not that the Government would also agree to pay the Applicant a provisional compensation amount based on relocation. This would be different from and likely to be more than the provisional payment of $2,649,600 received by the Applicant from the Government.

47. In summing up, the Tribunal does not agree with the Applicant that the Applicant needs, as suggested by Mr. Cheung, a total sum of $10.30 million to effect a relocation of the Restaurant business. There are obviously some expenses that the Applicant did not need to pay assuming that there was a relocation of the Restaurant business as a going-concern. The Tribunal instead adopts Mr. Ho’s rough estimate of $7 to $7.5 million, or an average of $7.25 million. Adopting Ms. Tam’s estimation that the Applicant had about $5.68 million, we are only talking about a shortfall of $7.25 million less $5.58 million, or about $1.67 million. In this regard, the Tribunal finds and agrees with the Respondent that the Applicant could make up this difference after taking in account (a) the applying for and taking up of bank loans; and (b) the provisional payments from the Government to the Applicant. Hence, the Applicant had the financial resources to effect the relocation to another premises such as the one at the Wah Do location.

Conclusion on the Respondent’s decision of not relocating to the Wah Do location

48. By reasons aforesaid, it is our finding that the Applicant has acted unreasonably in extinguishing instead of relocating his business to the Wah Do location because (i) the premises at the Wah Do location was a suitable premises for relocation of the Restaurant business and (ii) the Applicant had the financial resources to relocate. As such, we find in favour of the Respondent and agree with the Respondent’s primary submission on liability that the Applicant should not be awarded any compensation on the basis of total extinguishment of the business under both headings of (i) permanent loss of business and (ii) disturbance payments from the permanent loss of business.

The Applicant’s alternative disturbance payments claim

49. The Applicant has alternatively claimed that if the Tribunal finds that Applicant has acted unreasonably in extinguishing his business, the Applicant should still be entitled for certain disturbance payments as these losses would be suffered by the Applicant even if the Applicant chose to relocate to another location. These payments include the following (i) contractual obligation to pay Hong Kong Electric Co. Ltd. in lieu of the required 3-year usage, (ii) compensation to employees in respect of leave holidays, (iii) severance payments, (iv) License fees of General Restaurant License and Liquor License, (v) loss in respect of fixtures; (vi) loss on the sales of inventories on closure of business and (vii) loss in respect of plant and machineries.

50. The Applicant submitted that in respect of these disturbance claims, it replies on the evidence of Mr. Wong, which was modified by Mr. Cheung (concerning deprecation and taking into account of the proceeds received after actual disposal of certain items) that was summarized in Mr. Cheung’s report (see Exhibit AR5/1019). Mr. Cheung estimated that the total compensation for the disturbance payments payable to the Applicant should be $7,248,273.

51. The Applicant further submitted that the Respondent’s argument that “since the Applicant had not put forward an alternative claim, therefore no disturbance payment compensation should be granted” is wholly untenable. The Applicant said that the case law cited by the Respondent only confirmed that there could not be partial extinguishment. Therefore, the Applicant maintained that even if the Tribunal finds against the Applicant on the issue of total extinguishment, the disturbance claim could still be awarded separately.

52. On the other hand, the Respondent’s primary submission on the “disturbance payments” claim was that the Applicant was not entitled to recover the same because (i) it should not have totally extinguished the Sun Rise Court’s Restaurant business but should have relocated the business elsewhere and (ii) all these disturbance payments were not incurred in such a relocation. The Respondent further submitted that any claim for compensation including the disturbance payments claim must be founded upon actual loss but not upon some hypothetical basis of expenses that might have been incurred if the aggrieved party were to do something which he had not done and had no intention of doing. Similarly, the Tribunal should not assess the disturbance payments claim based on partial extinguishment basis. In support of these contentions, the Respondent cited the following section of the Ordinance and case laws:

(1)  Section 10(1) of the Ordinance where compensation can only be awarded “on the basis of the loss or damage suffered by the claimant due to resumption of the land specified in the claim”.
(2)  Director of Buildings and Lands v Shun Fung Ironworks Limited, [1995] 1 HKC 417 at page 426, line D.
(3)  Yip Kui trading as Tai Wo Trading Company v The Secretary for Transport (unreported, CACV 379 of 2002), at paragraphs 11 and 21.
(4)  Hongda Containers Ltd. v The Secretary for Transport (unreported, CACV 269 of 2004), at paragraphs 5, 6, 9, 10 and 11.

53. Regarding the Applicant’s disturbance payments claim, the Tribunal accepts the submission of the Respondent, as summarized above. Therefore, there is no need for the Tribunal to consider the Respondent’s alternative disturbance payments claim any further. In particular, for the Applicant’s claim that the Applicant had the contractual obligation to pay Hong Kong Electric Co. Ltd. in lieu of the required 3-year usage whether or not there was a total extinguishment, the Tribunal decides that this claim should not be allowed because according to the case laws cited above, the Applicant should not be entitled this claim as it has never actually lodged such a claim as part of the Applicant’s compensation claim on relocation.

Order

54. We therefore order that: -

(1) No compensation is payable in respect of the Applicant’s claims;
(2) All consequential and ancillary matters, including professional fees, interest and costs, be adjourned to a date to be fixed by the listing officer at the request of the parties.

H.H. Judge WONG
Presiding Officer
Lands Tribunal

Mr. W.K. LO
Member
Lands Tribunal

Mr. Richard LEUNG, instructed by M/S Lo & Lo., for the Applicant.

Ms. Anthony ISMAIL, instructed by the Department of Justice, for the Respondent.

Applicant's appeal to Court of Appeal allowed. Please refer to CACV201/2009 dated 30 March 2010

HAPPY DRAGON RESTAURANT LTD v. DIRECTOR OF LANDS

Related cases with same parties

Files (5)

(1)	Administrative Fee	$380,774.00
(2)	Sundry Income	$347,613.00
Total		$728,387.00
Pro-rata total (12/14.5 months)		$602,803.00

Gross Profit after adjustment		$14,448,110.74
Less-
Total fixed & variable cost after adjustment		$12,642,235.31
Profit before tax		$1,805,875.43
Taxation (at 17.5%)		$316,028.20
Profit after tax		$1,489,847.23
Add-
Loss revenue due to impact of expected resumption		$512,183
“Normalized annual profit”		$2,002,030.23
Multiplier		x 6.9466
Applicant’s estimated Loss of Goodwill		$13,907,302

Total fixed & variable cost after adjustment	$12,942,235.31
Profit before tax	$1,505,875.43
Taxation (at 17.5%)	$263,528.20
Profit after tax (=“Normalized annual profit”)	$1,242,347.23
Multiplier (Years’ Purchase at 10% for 8.75 years)	x 5.6568
Estimate of the Applicant’s Loss of Profit on extinguishment of the Applicant’s business	$7,027,709.81
Rounded to	$7,027,710

Decoration / Leasehold improvements	$5,923,798
Furniture and equipment uniform	$1,206,475
Uniform and tableware	$280,338
Per audited accounts	$7,410,611
Working capital – utility deposits, excluding
cash needed for various purchases	$1,011,400
Total cash required for the removal to a new location	$8,422,011
Add: cash deficit arising from the land resumption	$1,802,636
Total cash needed for the closure of the Restaurant
& the removal of the same to a new location	$10,302,636