ABLE WIDE CORPORATION LTD AND OTHERS v. THE INCORPORATED OWNERS OF GOOD YEAR INDUSTRIAL BUILDING AND ANOTHER
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LDCS 1000/2020
[2023] HKLdT 33
IN THE LANDS TRIBUNAL OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
LAND COMPULSORY SALE APPLICATION NO 1000 OF 2020
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BETWEEN
| ABLE WIDE CORPORATION LIMITED (廣能有限公司) | 1st Applicant | |
| TOP SMART INDUSTRIAL (HK) LIMITED (高俊實業(香港)有限公司) | 2nd Applicant | |
| ABLE LUCK DEVELOPMENT LIMITED (加福發展有限公司) | 3rd Applicant | |
| SKY HUGE DEVELOPMENT LIMITED (廣天發展有限公司) | 4th Applicant | |
| MANWAY CORPORATION LIMITED (文威有限公司) | 5th Applicant | |
| HIGH SMART INDUSTRIAL LIMITED (領俊實業有限公司) | 6th Applicant | |
| JOYSON INTERNATIONAL COMPANY LIMITED (駿誠國際有限公司) | 7th Applicant | |
| CHANDER DEVELOPMENT COMPANY LIMITED (創得發展有限公司) | 8th Applicant | |
| NICE EXPRESS DEVELOPMENT LIMITED (益通發展有限公司) | 9th Applicant | |
| CHINA BEST CORPORATION LIMITED | 10th Applicant | |
| and | ||
| BRIGHT CITY INTERNATIONAL LIMITED (澤城國際有限公司) | 1st Respondent (Discontinued) | |
| THE INCORPORATED OWNERS OF GOOD YEAR INDUSTRIAL BUILDING | 2nd Respondent | |
| TOPRISE INTERNATIONAL INVESTMENT ENTERPRISE LIMTED(卓陞國際投資企業有限公司) | 3rd Respondent (Discontinued) | |
| MAKHARIA ALKA | 4th Respondent |
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| Before: | Deputy District Judge Roy Yu, Presiding Officer of the Lands Tribunal and Mr Lawrence Pang, Member of the Lands Tribunal |
| Date of Applicants’ Submission: | 1 February 2023 |
| Date of 4th Respondent’s Submission: | 15 February 2023 |
| Date of Decision: | 21 April 2023 |
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DECISION ON VARIATION OF COSTS
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1. On 23 December 2022, after an 8-day trial which included 1 day for oral closing, the Tribunal handed down its judgment (“the Judgment”) granting an order for sale of all undivided shares of and in Section A and Remaining Portion of Kun Tong Inland Lot No 1 (“the Lot”) on which stands an industrial building known as Good Year Industrial Building (“the Building”) pursuant to the Land (Compulsory Sale for Redevelopment) Ordinance, Cap 545 (“LCSRO”). A costs order nisi was made in favour of all the live respondents including the 4th respondent (“R4”). By their summons of 6 January 2023, the applicants seek to vary the said order nisi.
2. This summons is dealt with on paper without oral hearing. By this Decision, we give our ruling together with the reasons therefor.
The Applicants’ Summons
3. By the applicants’ submission dated 1 February 2023, the applicants confirmed that the variation applied for is only to affect R4 and is to the following effect:
(a) There be no order as to costs.
(b) Alternatively, the applicants do pay only 30% or alternatively such other percentage of R4’s costs of these proceedings (including any reserve costs), with certificate for 2 counsel on the High Court Scale, to be taxed if not agree.
(c) Alternatively, any other order that the Tribunal shall deem fit.
(d) Costs of the application to vary the costs order nisi be paid by R4 to the applicants at High Court scale, with certificate for counsel, to be taxed if not agreed.
4. The applicants further confirmed that the variation is not intended to affect the 2nd respondent (“R2”) as it had taken no step in these proceedings and in any case not incurred any costs.
Applicants’ Primary Position
5. By reference to Good Faith Properties Limited & Others v Cibean Development Company Limited [2014] 5 HKLRD 534 (“Good Faith”) and as explained by the Tribunal in Oriented Generation Limited & Others v Luk Yung & Others, LDCS 4000/2013 (unreported, dated 31 October 2016) (“Oriented Generation”), the applicants submitted that they are entitled to “no order as to costs”, after having taken into account that R4 should be liable for some part of the costs of the applicants or she should be deprived of some part of her costs. The applicants submitted it was totally unreasonable for R4 to reject the offers by the applicants for acquisition of her interest either in April 2022[1] or June 2022[2] by placing reliance on the revitalization issue and, with other unreasonable conducts in the conduct of these proceedings, it constituted a “special” reason justifying the Tribunal to award costs against R4 and vary the costs order nisi to no order as to costs or to simply awarding R4 30% of the costs as prayed for in the summons.
Compensation Approach on Costs
6. The applicants referred firstly to section 12(1) of the Lands Tribunal Ordinance which states that:
“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.”
7. The applicants further referred to section 12(3) of the Lands Tribunal Ordinance which provides that “the Tribunal may by order disallow, or order the legal representative concerned to meet, the whole or any part of any wasted costs.” Wasted costs is defined in section 12(8) to mean “any costs incurred by a party as a result of (a) any improper or unreasonable act or omission; or (b) … on the part of any legal representative …”
8. The applicant submitted that if under section 12(3) of the Lands Tribunal Ordinance the Tribunal may disallow or order the legal representative concerned to meet the whole or any part of any wasted costs, the Tribunal certainly have the power under section 12(1) to deprive a party of any costs caused by his unreasonable conduct in the litigation. We are not prepared to consider the present application along this line of argument to vary the cost order nisi, as section 12(3) of the Lands Tribunal Ordinance is on the special jurisdiction to penalize legal practitioner for wasted costs. It is sufficient to say that section 12(1) is wide enough to give this Tribunal jurisdiction to deprive a respondent of his costs or part of his costs in appropriate case and we shall come back to consider how this discretion should be exercised under the Compensation Approach with a more detailed analysis of the judgment of Good Faith later.
9. The applicant also submitted that the Court of Appeal in Good Faith decided that in compulsory application cases like the subject under the LCSRO, the normal starting point for the exercise of the discretion on costs of “Costs to follow the event” does not apply and that the correct starting point should be “the Compensation Approach”. I believe we all agree.
10. Lam VP (as he then was) referred to the UK decisions on “the Compensation Approach” and held that such approach was suitable. Under the Compensation Approach as applied in UK, more particularly Purfleet Farms Limited v Secretary of State for Transport, Local Government and The Regions [2003] 1 P & CR 324, [2002] EWCA Civ 1430, [2002] RVR 368 (“Purfleet Farms”), a person whose land was compulsorily taken away from him is entitled to compensation and in relation to the costs of the proceedings for determination of the compensation he is entitled to the reasonable and necessary expenses of determining the amount of compensation. It should be noted that the procedure of claim compensation in UK is different. We only need to refer to the headnotes of the judgment. The claimant was the person whose land had been compulsorily purchased by the respondent, the Local Government. The claimant had to apply to the Land Tribunal of UK to claim compensation which by law is the open market value of the land. While under the LCSRO, the applicant is the party who wishes to engage the statutory provision to compel the respondent to sell his land and, according to the LCSRO, if an order for sale is granted, the whole piece of land including the interest of the majority owner and the minority owner shall be sold by public auction.
11. Good Faith ruled that in a compulsory sale case, the respondent is being compelled to sell his land against his agreement for public interest. Hence, the burden is on the applicant to establish that it is a just case to consider the sale under section 3 of the LCSRO. Short of special reason, the costs incurred in proving the entitlement to an order for sale shall be borne by the applicant.
12. The applicants submitted that the original order made by the Tribunal on 23 December 2022 might be correct as the starting point. However even under the Compensation Approach to be elaborated below, the recipient of the compensation may not invariably be entitled to all his costs.
13. Here the applicants submitted that while the Compensation Approach would allow the respondent to have reasonable costs in participating in the proceedings so that whatever fair compensation he is entitled to receive would not be diminished because of his liability for costs, that is subject to the exception that a respondent would not be able to get costs for unreasonable conducts in the proceedings and could be ordered to pay the costs of the applicants caused by his unreasonable conduct.
14. Pausing here, on the meaning of unreasonable conduct in the Compensation Approach, we believe we should set out paragraphs 44-46 of Good Faith, which we shall come back in greater details hereinafter: -
“44. If a minority owner raises objections and puts forward proper evidence to support his objections, as explained above, he is only exercising his legitimate right to object as conferred by the LCSRO. He should not be penalised even though he is doing so for a motive which the applicant may, perhaps with some justification, characterise as an attempt to extract a ransom. It is only in very plain cases where the rejection of an offer or the pursuit of a line of opposition is obviously unreasonable that the Tribunal should consider imposing costs sanction. In this connection, Chadwick LJ said at para 43 of Purfleet Farms, supra:
“It follows that the fact that the claimant has not been awarded as much as he was seeking by way of compensation --- or that the award is nearer (even much nearer) to the amount that the acquiring authority had offered than to the amount sought – cannot, of itself, be a reason for depriving the claimant of his costs of the reference. But that does not lead to the conclusion that the claimant’s conduct in exaggerating his claim can be of no relevance. The Tribunal may be satisfied, in the particular case before it, that the fact that the claimant has exaggerated his claim has led to costs which were not reasonable for the claimant to incur in pursuit of the compensation to which he was entitled; or that it has been the pursuit of issues which it was not reasonable for the claimant to pursue that has led to the exaggeration of the claim. Where the Tribunal makes an award of compensation which is well below the amount claimed, it is appropriate for it consider, in the context of an award of costs, both whether the fact that the claim was exaggerated has led the claimant to incur costs which (given a more realistic evaluation of his claim) he would not have incurred and whether the explanation for the difference between the award and the amount claimed is that issues were pursued on which the claimant had no real chance of success.”
45. One of those instances was identified by Chadwick LJ at para 44:
“… the exaggeration of the claim was the product of the claimants’ reliance on expert evidence which should have been recognised as unreliable; and that the decision to rely on that evidence had led to the waste of substantial time and expense.”
46. In our view, in that sort of scenario, viz where a minority owner pursued an issue which had no real chance of success in an unreasonable manner, the Tribunal can, in addition to ordering that he be deprived of his costs in such pursuit, in a serious case, order him to bear the costs of the applicant in meeting such hopeless challenge. In deciding whether it is a serious case, the Tribunal must also have regard to the position of the applicant. Sometimes, experts engaged by both sides adopt polarised positions and their lack of realism often leads to protracted disputes on issues which should not have been litigated to the extent they were. The lack of a realistic offer from one side sometimes leads to the lack of a realistic counter-offer from the other side. In that kind of situation, it may be more appropriate to order each party to bear his own costs.” [our emphasis]
15. For the current application, the applicants submitted that the unreasonable conducts would include R4’s rejection of the April and June offers by the applicants as follows:
Date of Offer Amount Offered 29 April 2022 $16,100,000 15 June 2022 $18,000,000
16. As stated by the Tribunal in the Judgment at §119, the June offer was “even higher than R4’s share of the RDV as assessed by her valuation expert, Mr Kenneth Cheung, according to the agreed EUV percentage”:[3]
Date Market Value of the Building on the basis of Revitalization by Mr Kenneth Cheung RDV assessment by Mr Kenneth Cheung R4’s Pro Rata Share agreed at 1.33%[4] 31 March 2021 $1,152,320,000[5] $1,004,000,000[6] $13,353,200 13 June 2022 $1,281,500,000 $1,333,620,000[7] $17,737,146 20 June 2022 $1,238,472,710 $1,535,490,000[8] $20,422,017 2 July 2022
(“the last minute amendment”)$1,188,630,000 $15,808,779
17. Further, the applicants complained of another unreasonable conduct of R4 in running the argument on revitalization which was so unreasonable that the Tribunal should order R4 to pay costs caused by such conduct or deprive her of the costs incidental to such unreasonable conduct.
Oriented Generation
18. The applicants also invited this Tribunal to consider the reason given by this Tribunal with a different panel in Oriented Generation, which was another compulsory sale application under LCSRO. Notwithstanding the Compensation Approach, the applicants in that case successfully applied to have the costs order nisi varied. The following facts of that case has been considered: -,
(a) some respondents’ conduct in splitting the properties they held to create more number of responding parties and more represented legal teams thus increasing the length of the litigation and legal costs;
(b) the unrealistic and unreasonable behavior and evidence on conduct of the case on EUV, a term corned by the valuation profession to mean the market value assessed in accordance with Part 1 of Schedule 1 to LCSRO, and the redevelopment value (“RDV”) of the lot under compulsory sale application; and
(c) similarly, some respondents’ unreasonable rejection to accept the open offer to settle when the offer made to them were much higher than their share of the RDV assessed by the Tribunal.
19. The Tribunal in Oriented Generation then considered the Compensation Approach laid down in Good Faith. Particular considerations were given to situations of non-acceptance of reasonable offers because the costs incurred thereafter may well be considered unnecessarily incurred and not as part of any reasonable and necessary expenses of determination of the issue as discussed at §33.
20. The Tribunal concluded its views at §40:
“… In light of the overall tenor of Good Faith, this tribunal prefers not to accept there being an automatic shift of burden or some sort of hard and fast rules regarding “unsuccessful claimant” as suggested or implied by Mr Mok once the majority’s offer beats the tribunal’s assessment. In the tribunal’s judgment, even the minority is regarded as “unsuccessful” in the English context, all relevant circumstances, including of course the minority’s explanation for not accepting the offer, its conduct subsequent to the offer etc, must be examined before deciding whether costs as from a particular date should be disallowed, or even paid by the minority. The offer may influence, but not automatically dictate the costs outcome. The tribunal still retains its discretion on costs in the circumstances. It is an exercise similar to identifying the “special reasons” discussed in Good Faith: see [33] above.”
21. We shall note that the concept of an “unsuccessful claimant” may have no reference in LCSRO application. In the UK application, an unsuccessful claimant is one who fails to obtain a compensation higher than the offer given by the Local Government. And there is specific provision for costs in the Land Compensation Act 1961 which provides (quoting from §6 of Purfleet Farms): -
“Section 4(1) of the Land Compensation Act 1961 provides, so far as relevant:
Where either
(a) the acquiring authority have made an unconditional offer in writing of any sum as compensation to any claimant and the sum awarded by the Lands Tribunal does not exceed the sum offered;
Or (b) …
The Lands Tribunal shall, unless for special reason it thinks it proper not to do so, order the claimant to bear his own costs and to pay the cost of the acquiring authority so far as they were incurred after the offer was made …”
22. There is no similar provision on costs consequence in LCSRO. The fact that a respondent has rejected the offer of the applicant which is higher than the RDV found by this Tribunal may not turn him into an unsuccessful respondent. As regards the respondents in Oriental Generation not accepting the offer which was more than the shares of the minority owners of the RDV assessed by the Tribunal, the Tribunal remarked at §55 that:
“the rejection of the February offer has an impact on the overall liability of the said 5 Rs’ liability as from the date of trial.”
23. We agree with the approach in Oriental Generation in this aspect. We shall determine the issue of costs based on section 12(1) of the Lands Tribunal Ordinance and the principle as set by Good Faith.
24. The applicants submit that, having examined the facts of Oriental Generation at §§71-88, the Tribunal concluded at §89 & §91 that the respondents exaggerated their claim by enlarging their shares of EUV. It was unreasonable for the minority owners to reject the February offer and the Tribunal should award some part of the costs after the offer to the majority owners from the first day of trial. The Tribunal took the view that had the offer been accepted the trial should be much shorter and gave its view on how the detailed liability of the costs of the 5 respondents whose costs the applicants in that case sought to vary. The Tribunal also took a dim view on the respondents’ evidence on EUV and RDV, the abandoning of the evidence of the Authorized Persons and Town Planning experts and the multiplicity of legal terms. In §94, the Tribunal came to the view that the costs liability of each side would likely cancel out each other and made the costs order of “no order as to costs”.
25. Pausing here, it is clear that Oriental Generation is a decision applying the Compensation Approach and that the respondents have been deprived of their costs because of the special reasons set out in that judgment. But it is just an example on how the principle in Good Faith was applied. With no disrespect to our learned brothers, Oriental Generation did not set new principle on the Compensation Approach. We would therefore read the judgment as an example when respondents may still be deprived of their costs, or part of their costs in appropriate case under the Compensation Approach. (We shall come to the argument of the respondent that Oriental Generation should be distinguished hereinafter.)
R4’s Unreasonable Conducts
26. As stated in §15 above, the offers by the applicants in the present case on 29 April 2022 and 15 June 2022 were $16,100,000 and $18,000,000 respectively. Both were higher than R4’s share of the RDV as assessed by the Tribunal in the sum of $14,736,400 (after removing the possible mistake on demolition cost as stated in the Tribunal’s Corrigendum dated 10 January 2023) by 9.25% or 22.15%.
27. The applicants may be aware that the bare refusal of an offer that is lower that the RDV found by this Tribunal would not be sufficient to justify an adverse costs order. They further submitted that we should have found the following:
(a) R4 did not refuse to accept the offer with the simple objective of insisting on asserting its right to make the applicants proving their case. The evidence showed that when the applicants offered to acquire her interest, R4 made a counter offer for some $36.5 million[9] and at one stage asked for $100 million although for the latter case, it was said by R4 in evidence that the $100 million counter offer was not serious.
(b) R4 rejected each of the 2 offers with the aim of running the revitalization issue to resist the granting of the compulsory sale order and lengthening the proceedings with a view to seeing if there would be a more favourable offer.
(c) To get off the ground, R4’s revitalization proposition should be that the existing building after revitalization would have a higher value than the RDV of the Lot and according to R4, the Tribunal should refuse the granting of the compulsory sale order.
(d) However, as could be seen from the stages of the evidence and as further analyzed below, even on R4’s own evidence, there is no justification for the Tribunal to find that the Building should be revitalized instead of redeveloping on the ground that revitalization would bring a higher value than the RDV. Save for the last minute amendment and adjustments made, more particularly one week before the trial was to commence on 11 July 2022, to massage the revitalization value and the RDV, this proposition by R4 was doomed to fail when Mr Kenneth Cheung, the expert engaged by R4, arrived at a market value of the Building on the basis of revitalization scheme at $1,281,500,000 (or $1,238,472,710) either of which, however, was lower than the RDV of $1,333,620,000 or $1,535,490,000 arrived by himself.[10]
(e) Unfortunately, as pointed out by the Tribunal in §32 onwards till §43 of the Judgment, Mr Kenneth Cheung’s last minute revision was faulted from the start.
(f) Worst still, if Mr Kenneth Cheung’s last minute revision was correct in his alleged need of payment of a second premium, the Tribunal made a comparison between his revitalization value and his revised RDV and found at §31 of the Judgment that they were quite close to each other within the margin of error. The Tribunal then concluded as follows:
“Thus, even if Mr Kenneth Cheung was correct in all circumstances, revitalization by a wholesale conversion does not necessarily represent the highest and best use of the Lot.”
(g) A fortiori, the Tribunal at §44 emphasized that revitalization should not be a factor to be considered in an application for determining if an order for sale should be granted. Then in §§106-110 of the Judgment, the Tribunal explained that pursuant to section 4(2)(a) of the LCSRO and other authorities from previous decisions of the Tribunal as from the Court of Appeal, “so long when the Tribunal is satisfied that due to the age or the state of repair, the prevailing law does not permit the Tribunal to consider something else.” Thus, in law, the issue of revitalization was an irrelevant issue that ought not to be taken.
(h) Even on the facts, revitalization was not a real issue because R4 was never interested on revitalization. She had never invited the applicants to participate or even to discuss on revitalization. The applicants were never interested in revitalization either and had in fact told R4 of the same on 29 April 2022.[11] Without the unanimous agreement of all the co-owners, no revitalization could be done and this is again supported by the Tribunal earlier decisions. As a result, the Tribunal made this finding at §103 of the Judgment:
“If R4 did not prove her interest in revitalization, and ability to fund the revitalization, she could not begin to argue that this Tribunal should consider the option of revitalization.”
28. It is not necessary to rule on each of the above averments. As far as they are finding of fact in the Judgment, we do not repeat. And we would discuss the averments as we go through the argument of parties.
29. It is submitted that the trial only commenced on 11 July 2022 and the bulk of the post-offer costs were incurred for and during the trial, and the whole cost of both sides’ valuation experts on revitalization were completely unnecessary and should be borne by R4. If the Tribunal accepts R4’s non-acceptance of the offers was unreasonable, which we presume in the context of the Compensation Approach, the applicants submitted the costs order should be as follows:
(a) Costs up to 7 days after 29 April 2022 should be paid by the applicants to R4;
(b) Costs after the offer, commencing 7 days after 29 April 2022 should be paid by R4 to the applicants.
30. Whereas R2, ie the Incorporated Owners of the Building (“the IO”) and the applicants were the majority owners controlling the IO, R2 had not taken part in the proceedings and the applicants had refrained from buying its Carparking Space No 3 because with the presence of R4, the applicants did not wish to be seen as having any conflict of interest. If R4 were to accept the applicants’ offers in either April 2022 or June 2022, the applicants would no longer have any such hesitation to buy R2’s Carparking Space No 3 and the whole trial would be excused. Costs after the offer of 29 April 2022 commencing say 7 days thereafter were thus unnecessarily incurred and caused by R4’s insistence on seeking for more which the Tribunal’s determination has shown to be unreasonable. The applicants submitted that R4 should pay the applicants of such costs.
31. Thus, the set off of the two sets of costs would be overwhelming likely to leave a rather substantial amount of costs to be paid by R4 to the applicants. Therefore, the costs order the applicants are asking for, which is no order as to costs, is more favourable to R4 than it is entitled to and the result is something substantially less than what the applicants are entitled to under the Compensation Approach on costs.
32. Lastly, the applicants submitted that even if the Tribunal were to ignore the rejection of the applicants’ offers were unreasonable in the circumstances of the present case, for findings made in the Judgment and set out in the preceding paragraphs, the Tribunal should have little difficulty in finding that substantial costs, time and effort were incurred by different disciplines on the revitalization issue which was obviously unreasonable and had no real chance of success. In short, the applicants submitted that it was totally unreasonable in the circumstances of the present case for R4 to insist on running the revitalization issue resulting in a waste of costs and trial time for which R4 should be paying the applicants the costs incurred for the revitalization issue and, after a set off of the two sets of costs, the applicant should only pay 30% of R4’s costs.
R4’s Defense on Costs
33. Mr Desmond Leung and Michelle Chan (“Messrs Leung & Chan”) on behalf of R4 also referred to Good Faith as the leading authority in respect of the Compensation Approach on costs for an application under the LCSRO. Being a judgment of the Court of Appeal, Messrs Leung & Chan submitted Good Faith should be binding on the Tribunal.
34. Messrs Leung & Chan emphasized that by virtue of the principle laid down in Good Faith, R4 as the minority owner was entitled as of right to resist the application and reject any offer from the applicants, even though the offer might meet the reasonable step requirement. In doing so, R4 had committed no legal wrong. It was only upon the Tribunal having decided after hearing all relevant evidence that the statutory criteria had been met that R4 became obliged to sell. We have no difficulty with that.
35. Here Messrs Leung & Chan recited the following paragraphs in the judgment of Good Faith which they relied on:
“11. We must recognise that the LCSRO is a statutory compromise balancing the competing interests of the co-owners: the majority owner’s interest in utilising his property by releasing the land for redevelopment versus the minority owner’s proprietary interest in the disposal of his own property. The right of private ownership protected under Article 6 of the Basic Law (see Litton NPJ in Sin Ho Yuen v Fineway Properties Ltd supra at para 24) should not be overridden without justification. Even if the right of private ownership of the minority owner were to be overridden when there is proper justification, there must be fair and reasonable compensation. Thus, the statutory compromise is to provide safeguards on two different levels:
(a) The majority owner(s) (who must hold at least 90% of the interest in the land) must establish his justification to the satisfaction of the Tribunal before he could override the private right of ownership of the minority owner. To do this, he must produce evidence to satisfy the statutory criteria; and
(b) If he manages to establish the grounds to the satisfaction of the court, the minority owner would have to sell his property even though he does not wish to do so. But he would get back a fair share of the sale proceeds on a pro rata apportionment determined by the Tribunal.
12. It is necessary to analyse the first tier safeguard at greater length because the proper understanding of this safeguard is important for the purposes of this appeal. First, until the Tribunal is satisfied that the statutory criteria are met, the majority owner(s) does not have any right to compel the minority owner to sell. The minority owner is quite entitled to insist on his right as private owner in rejecting any offers from the majority owner(s). After all, a person can have many reasons for refusing to sell his property and one should not simply focus on the monetary market value of a property to form views about the worth of one’s ownership. Though Hong Kong is a capitalistic society, we do not sell everything just because the price is right. There are other abstract matters which we treasure and one cannot simply put a price tag on them. Thus, it should not be regarded as a legal wrong for a minority owner to reject an offer from the majority owner even though such an offer may meet the statutory reasonable step requirement under s 4(2)(b).
13. LCSRO gives the majority owner(s) a means to override the will of the minority owner not because the minority owner has done something wrong: there is no legal wrong committed by the minority owner against the legal interests of the majority owner(s). It merely gives the majority owner(s) an opportunity to establish the justification for doing so to the satisfaction of the Tribunal. And it is only upon the Tribunal deciding that the statutory criteria have been met that the minority owner becomes obliged to sell.
…
15. Further, the LCSRO also gives a right to the minority owner to have his objections heard by the Tribunal. Objections can be raised in several respects. Under s 4(1)(a), the minority owner can dispute the value of the property. Under s 4(2), objections can be raised as to whether the applicant has met the statutory criteria in s 4(2)(a) and (b).
…
17. In our judgment, one should not be too ready to condemn the exercise of such rights to be heard by the minority owner as unreasonable conduct in resisting an application under LCSRO. There is no justification for drawing a line between passive oppositions (in terms of putting the applicant to strict proof) and active oppositions (in terms of putting forward positive evidence to challenge the case of the applicant):
(a) First, it is an exercise of a statutory right in a statutory process which entails a potential exercise of statutory power on the part of the Lands Tribunal to compel a sale against the will of the minority owner.
(b) Second, as discussed above, in several respects the determination of the Tribunal would depend on the assessment of expert opinions. As highlighted by Ribeiro PJ in Capital Well, supra, at para 33, there is always room for differences of opinion in these areas. In many cases, the expert opinions put forward by one side had to be calibrated in the wake of the opinions from another expert. Thus, the exercise of the statutory right by the minority owner by putting forward respectable expert opinions from another expert will assist the Tribunal in coming to a proper assessment. In the absence of another set of expert opinions, the Tribunal would only have the evidence adduced by an applicant (unless it directs an assessor to be appointed or independent experts to be engaged) which may or may not give the Tribunal a full and satisfactory picture.
(c) Third, in most cases an objection would not be too meaningful unless the minority owner adduces expert evidence to support his opposition. Therefore, it is well within the contemplation of the statutory scheme that such evidence would be adduced. The mere production of such evidence cannot be regarded as unreasonable conduct on the part of a minority owner, particularly bearing in mind that the purpose of the exercise is to examine whether there is sufficient ground to override his constitutionally guaranteed right to private ownership of his property.
(d) Fourth, as a corollary of the third proposition, if one were too ready to regard a challenge by the minority owner to an application by putting forward a positive case as unreasonable conduct, there is a serious risk that the exercise of the statutory right to be heard on his opposition is so unduly curtailed that it becomes illusory. It is not conducive to the fairness of the process if a minority owner always has to wary of the risk of being labelled by the Tribunal as acting unreasonably, with the costs ramifications that may flow from being so characterised, whenever he chooses to adduce expert evidence to contradict the evidence adduced by the applicant.”
18. To sum up, the first tier safeguard is to ensure that the minority owner’s right of private ownership of property is not taken from him without the Tribunal being satisfied in the statutory process that there are sufficient justifications for the same in terms of the statutory criteria. The proceedings in the Lands Tribunal should be regarded as a statutory means to justify this exceptional interference with the right of private ownership of property. The right to raise objections is part and parcel of the process, without which the process cannot be a fair one.
…
34. Like the case of a landowner in the context of compulsory acquisition, the minority owner in LCSRO proceedings does not wish to dispose of his private property. The whole process, including the proceedings in the Lands Tribunal, is instigated by the majority owner. To the extent that the exercise of the discretion should be informed by the principle that he who caused the litigation should pay for it, the consideration in proceedings under the LCSRO and resumption cases is the same…
35. As regards the wider scope of LCSRO proceedings in terms of the onus on the applicant to satisfy the Tribunal of the statutory criteria, for reasons we have already canvassed in the overview of the LCSRO regime, the right of the minority owner to raise objections is an important element in the process. Without such right, the determination by the Lands Tribunal would not have the legitimacy which provides the necessary justification for the interference with the constitutional right of private ownership. Viewed thus, the observation by Lord Morison in Emslie & Simpson Ltd v Aberdeen District Council (No 2), supra, at p.162 is equally apposite in the context of compulsory sale:
“… In these respects it appears to me that he is in a different position from that of the ordinary litigant and my understanding is that, if a person unsuccessfully opposes confirmation of the compulsory purchase order, he is not ordinarily found liable for the expenses of the statutory procedures which are laid down for the hearing of his objection.” [underline added by Messrs Leung & Chan]
36. We agree with the principle set out above. Relying on the principle as set out in Good Faith, Messrs Leung & Chan argued that it was reasonable for R4 to resist the compulsory sale application on the following grounds:
(1) “Age” or “state of repair” based on the structural assessment and condition survey expert evidence; and
(2) Revitalization scheme on the basis of the following two routes:
(a) The revitalization scheme represented the highest and best use of the Lot, such that redevelopment of the Lot was not justified; or
(b) Notwithstanding that the revitalization scheme was not the highest and best use of the Lot, it was nevertheless economically worthwhile to do so as the enhancement in value would be higher than the cost.
37. On “age” and “state of repair”, Messrs Leung & Chan submitted that the applicants had to persuade the Tribunal with expert evidence that redevelopment was justified. Whilst in the end, the Tribunal ruled in favour of the applicants, there was no finding that no competent structural engineer and building surveyor could have held the view of R4’s experts. R4 was reasonable in rejecting the offers and resisting the application based on the opinions of her experts.
38. Yet, we agree with the applicants that it is obvious that R4 did not reject the offers simply based on the argument on age and state of repair of the Building.
39. Perhaps realizing the argument on revitalization above was self-contradictory and defiance of evidence found by the Tribunal, Messrs Leung & Chan stated then that the argument was only one of the grounds upon which R4 was resisting the application. Messrs Leung & Chan tried to rely on the “usual” ground ie on the basis of the structural assessment and condition survey expert evidence that redevelopment was not justified.
40. We agree that a minority respondent is entitled to challenge the evidence on “age” and “state” of repair adduced by the applicant. But here the respondent was not only running the argument on “age” and “state” of repair. R4 has put forward the added argument that an order for sale should not be granted in light of the claim that the Building should be revitalized. Expert evidence and legal costs have been incurred on the specific issue.
41. On revitalization, this Tribunal had at very early stage of the trial asked R4 to justify whether this was a factor to be considered under section 4 of LCSRO. The respondent submitted that they were aware that the argument had not been successful in previous LCSRO cases. Yet these were first instance rulings and they were advancing in a different approach. They called these “Rolls Royce” repair and accordingly the economic life span of the Building had not come to an end. The argument was not accepted by this Tribunal (see paragraph 112 of the Judgement.)
42. As regards the applicants’ citing of Oriental Generation, Messrs Leung & Chan submitted that that case should be distinguished because none of the respondents there adduced any expert evidence to oppose the application on the ground of “age” and “state of repair”, and the disputes were only on valuation matters and whether reasonable steps were taken. More particularly, Messrs Leung & Chan cited His Honour Judge KW Wong’s remark in First Kind Limited & Another v Wong Fu Cheung & Others, LDCS 21000/2014 (unreported, dated 2 March 2017) at §11 as follows:
“Mr But also relied on my decision of Oriental Generation & Others v Ngo Kui Sing & Other[5] in support. In Oriental Generation (supra), apart from disallowing certain costs of the minorities, the Tribunal even made adverse costs order against the same group of minorities in respect of some issues raised by them. It has to be noted that Oriental Generation(supra) is with very extreme facts, and is in no way similar to the present case. Firstly, Oriental Generation (supra) follows the “compensation approach” enunciated in Good Faith (supra) on costs. Secondly, and most important of all, in Oriental Generation (supra), the defending carpark minorities were found acting in concert perpetrating a scheme with a view to inflate the redevelopment value (“RDV”) as well as the existing value (“EUV”) of their car parking spaces. In this connection, experts instructed by them produced reports which were obviously falling short of the required professional standards. The minorities and their legal teams chose to embrace such reports which were so apparently faulted. Argument was built up and developed on these totally unreliable valuations. As a result, lot of time and costs were wasted.” (underline added)
43. We have set out our analysis of the Oriental Generation. The facts of the case could be different. But the analysed reasoning in the judgment is helpful for our analysis of the facts herein. As we said earlier, the case applied Good Faith and should be read as an example of how the Compensation Approach we do not agree that it could be distinguished.
Our View on Costs
44. Summing up, following Good Faith, the Compensation Approach should be engaged in determining the issue of costs in LCSRO application.
45. While Purfleet, supra, was cited with approval in Good Faith, the Court of Appeal must have intended the principles elaborated in Purfleet and other English authorities to be adopted, but with such modification necessary as the laws in UK and Hong Kong are different as aforesaid.
46. The principles comprised in the Compensation Approach referred to in Good Faith can broadly be summed up as follows:
i) A respondent, (as compared to a successful claimant, i.e. a claimant who is awarded more than the amount of an unconditional offer by the acquiring parties in an application in the Lands Tribunal or more properly the Upper Tribunal (Lands Chamber) as is now called in UK), should be entitled to his costs incurred in the proceedings in the absence of “special reason” to the contrary;
ii) Whether there is any “special reason” is a judgment of the tribunal;
iii) Wasted, or unnecessary costs incurred because of conduct of the respondent such as abandoned issues, unnecessary adjournments, failure to comply with directions, etc may qualify as “special reasons”;
iv) “Special reasons” should only be regarded as established where the item of costs or issue raised was such that it could not on any sensible basis be regarded as part of the reasonable and necessary expenses of determining the amount of disputed compensation;
v) Exaggeration alone is not enough in the event of a large disparity between the sum claimed and the sum awarded. The matters to which the tribunal should have regard are:
(a) The reasons for that disparity;
(b) Their effect on the conduct of the claim.
vi) For (a), if the reasons are defensible, in the sense that there was a legitimate, albeit unsuccessful, argument put forward in support of a figure, that does not justify a sanction in costs;
vii) For (b), if, in any event, the effect on the proceedings in terms of time spent and costs incurred in disposing of the issue or argument concerned is relatively insignificant, adverse order is unlikely;
viii) If exaggerated claim is based on valuation opinion, it will rarely be appropriate to make an adverse order against the successful claimant because valuation is an inexact science;
ix) If the exaggeration is due to choice of comparables because there is no close or obvious comparables available, there is bound to be legitimate room for argument and difference of opinion. That should not ordinarily invite a penalty in costs on grounds that its assertion or resultant discussion has taken up the time of the tribunal unnecessarily;
x) That, however, does not lead to the conclusion that the claimant’s conduct in exaggerating his claim can be of no relevance;
xi) [12]Disallowance of a proportion of the claimant’s costs will usually only be justified where the tribunal is satisfied that:
(a) No competent valuer could reasonably have regarded the comparable as of real relevance or assistance in the valuation exercise;
(b) As a result of its introduction and discussion, a significant amount of the tribunal’s time has been wasted and the proceedings unduly prolonged;
(c) No equivalent or near equivalent proportion of proceedings has been spent dealing with issues unreasonably and unsuccessfully raised by the acquiring party;
(d) The amount or proportion of the costs disallowed is proportionate to the time wasted.
xii) [13]Costs sanction can be imposed in plain cases where the rejection of an offer or pursuit of a line of opposition is obviously unreasonable, e.g. the exaggeration was the product of the claimant’s reliance on expert evidence which should have been recognized as unreliable; and that the decision to rely on that evidence had led to the waste of substantial time and expense. The sanction can range from depriving the claimant of costs and even asking it to bear the applicant’s costs in a serious case for those hopeless challenges;
xiii) If experts engaged by both sides have adopted polarized positions and there have been lack of realistic offer and/or counter-offer, it may be appropriate to order each party to bear his own costs.
47. With these principle, we begin with an analysis of R4’s revitalization argument in the present case. On the hoof of the trial, the Tribunal was urged by a Summons heard on 11 July 2022 by R4 introducing Mr Kenneth Cheung’s last minute revision in form of new valuation reports[14]. As commented by Mr Mok resisting the Summons, it was a U-turn from the agreed case by Mr Kenneth Cheung on behalf of R4 on how the premium payable to the Lands Department was to be assessed in calculating the RDV.[15] We responded immediately[16] and then at §31 of the Judgment: “even if Mr Kenneth Cheung was correct in all circumstances, revitalization by a wholesale conversion does not necessarily represent the highest and best use of the Lot.”
48. Indeed, after trial, as found by the Tribunal at §33 and admitted by Mr Kenneth Cheung, he had no experience in making such application for revitalization of industrial buildings. Mr Kenneth Cheung’s 2-stage approach was also defying the Government’s policy for encouraging the redevelopment of pre-1987 industrial buildings. Mr Kenneth Cheung also conceded, as recorded at §35 that his 2-stage approach was wrong. Further at §39, Mr Kenneth Cheung confirmed during cross-examination that:
(a) It would be unrealistic to expect the applicants and R4 to agree on every possible issue of the wholesale conversion scheme before the application for lease modification; and
(b) It is impossible to know whether the co-owners can agree on all details concerning the wholesale conversion scheme and all technical issues arising during the process of application which includes lease modification, premium payable, special waiver and alterations & additions plans etc.
49. On the basis of the above, we cannot stop imagining that the last minute’s amendment was inspired by R4 to rescue her case on revitalization which was doomed to fail at the start.
50. In fact, the Tribunal had rejected the similar rehabilitation/ revitalization issue earlier in Success Active Limited v Harbourview International Holdings Limited & Others, LDCS 31000/2018 (unreported, dated 19 April 2021) and Able Luck Development Limited & Others v Boly Metal Manufactory Limited & Others, LDCS 11000/2018 (unreported, dated 22 April 2022). In the former case, the Tribunal at §110 drew the parties to the attention that “The statutory criteria the Tribunal has to apply is “whether redevelopment is justified due to age and state of repair” under section 4(2)(a) but not whether the building in question is suitable for rehabilitation.” And in the latter, the Tribunal had rejected this same revitalization issue because:
(a) The Court of Appeal already held in Pacific Base Holdings Limited & Others v Lee Hop Biu & Others, CACV 426/2020 (unreported, 31 May 2021) at §49 that in handling a compulsory sale application the Tribunal is not expected to be concerned with the feasibility of the redevelopment as compared with other options. (§§95-96 & 98-103)
(b) “Revitalization is not feasible because it requires the consent of all owners. The hard fact of the present case is that the applicants do not agree to revitalizing the Building” (§104)
51. R4 may argue that by the time of trial on 11 July 2022, the point (a) above had not been affirmed by the Court of Appeal in CAMP 435/2022 (unreported, 17 February 2023). Yet her team of legal advisor should be competent enough to advise her on the issue. In any event, the point (b) was manifest at the time of trial as illustrated by R4’s building condition expert himself regarding his experience in making a revitalization application in respect of Precious Industrial Centre at 18 Cheung Yue Street[17].
52. It is obvious that revitalization was technically not arguable as a ground of objection to the Application.
53. Given the fact that the applicants had by evidence rejected the suggestion of revitalization, and that R4 had not provided any evidence that she was willing and capable of performing the project with the applicants if they were willing, the argument of revitalization did not get off the ground at all.
54. Messrs Leung and Chan sought to argue that this Tribunal should adopt an objective test. But before we could test the proposal objectively, the viability of revitalization must be support by certain basic element, which was the willingness of the owners to jointly participate and to fund the project. It is clear that revitalization was an argument with no real chance of success.
55. In this regard, what the Tribunal stated at §102 in Able Luck Development Limited, supra, is highly relevant:
“R4 tries to rationalize their argument by emphasizing that they are not asking the tribunal to order revitalization in place of redevelopment (which R4 concedes that the tribunal has no such power) but only asks the tribunal not to make an order for sale so as to allow the parties to undertake the revitalization exercise. Our short answer to this is that there is actually no difference between directly ordering the applicants to go for revitalization and indirectly coercing the applicants into doing so by declining an order for sale for redevelopment such that the applicants will be left with no choice but to revitalize. Bearing in mind that revitalization is not mandatory but voluntary in nature, the majority owners are under no legal obligation to pursue the same if they do not wish to. We see no reason why an otherwise successful application should be refused simply because the applicants have decided against revitalization which is a decision they are fully entitled to make.” (underline added)
56. In the present case, as stated at §16 above, even if Mr Cheung’s evidence on which R4 relied on was correct, R4 was unreasonable in not accepting the unconditional offers made to her by the applicants. Unsurprisingly in the end, the Tribunal ruled that the RDV or the auction reserve was $1,128,000,000 which fell short of Mr Cheung’s valuations from 13 June 2022 onwards.
57. We share the applicants’ submission that it was totally unreasonable for R4 to reject the offers by the applicants for acquisition of her interest either in April 2022 or June 2022 by placing reliance on the revitalization issue. The legal proceedings have been lengthened unnecessarily. And further or in the alternative, all the costs relating to revitalization, including experts fees and legal costs were wasted. The matters set out above constituted a “special” reason justifying the Tribunal to deprive R4 of the costs relating to revitalisation, and award costs against R4 in favour of the applicants. But we have to accept that some of the costs should be awarded to R4 as far as her claim to protect her rights.
58. Thus bearing in mind that the Court of Appeal considered that the statutory regime under the LSCRO gives protection to property right of a minority who cannot be regarded as a legal wrong in rejecting an offer even though such an offer may meet the statutory reasonable steps requirement under s.4(2)(b). And yet the issue on revitalization was a non-starter which the respondent should be liable for costs even when applying the Compensation Approach. Taking a board brush approach and having regard to all matter, we hereby vary the costs order nisi to that the applicant should only pay 30% of R4’s costs (including all costs reserved) with certificate for two counsel, to be taxed on High Court scale if not agreed. And there be a costs order nisi that R4 do pay the applicants costs of this application with certificate for one counsel, to be taxed on High Court scale if not agreed.
| (Roy Yu) | (Lawrence Pang) |
| Deputy District Judge | Member |
| Presiding Officer | Lands Tribunal |
| Lands Tribunal |
Mr Edward K S Chan, SC and Mr Mok Yeuk Chi instructed by Messrs Sit, Fung, Kwong & Shum, for the 1st to 10th applicants
The 2nd respondent was not represented and did not participate in this application for variation of the order nisi
Mr Desmond Leung and Michelle Chan instructed by Messrs Li, Kwok & Law, for the 4th respondent
[1] See §117 of the Judgment.
[2] See §119 of the Judgment.
[3] By Part 3 of Schedule 1 to LCSRO, the basis of apportionment of proceeds of sale of the Lot would be on a pro rata basis in accordance with the values of the respective properties of each majority owner and each minority owner of the Lot as assessed in the application concerned under section 3(1).
[4] See §15 of the Judgment.
[5] See Bundle F1/33/165.
[6] See §17 of the Judgment and Bundle F1/33/164.
[7] See §18 of the Judgment.
[8] Ditto.
[9] See Bundle B4/8/771.
[10] See §20 of the Judgment.
[11] See Bundle B4/12/823.
[12] Per Potter LJ at [38] of Purfleet
[13] Per Lam VP at [44] and [46] of Good Faith citing [44] of Purfleet cited by Chadwick LJ
[14] “Supplemental Information to JES dated 22 June 2022” where JES stood for Joint Expert Statement.
[15] From 10:04 to 10:13 of the hearing.
[16] At 12:03 – 12:04 of the trial on 11 July 2022.
[17] See §38 of the Judgment.
