Oriental Generation Ltd and Others v. Ngo Kui Sing and Others

LDCS 4000/2013

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LAND COMPULSORY SALE APPLICATION NO. 4000 OF 2013

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BETWEEN

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DETERMINATION ON COSTS

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1.On 29 February 2016, after a 16-day trial this tribunal handed down its judgment granting an order for sale of all undivided shares of and in Kai Tak Mansion (“KTM”) pursuant to the Land (Compulsory Sale for Redevelopment) Ordinance, Cap 545 (“LCSRO”). A costs order nisi was made in favour of all the Respondents (collectively “Rs”) except the 47^th Respondent[1]. By their summons of 11 March 2016, the Applicants (collectively “As”) seek to vary the said order nisi. This is the hearing of the said summons vis-à-vis the 22^nd, 33^rd, 34^th, 40^th and 44^th Respondents (hereafter referred to as R22, R33, R34, R40 and R44 respectively, or the said 5 Rs collectively) with R47 taking over R22’s interest on costs and thus the conduct of this application. R47 had been a director of R22 until assignment of her interest to the As after trial.

2.At the commencement of the hearing, Mr Mok, counsel for the As, proposed that the As were willing to accept no order as to costs. This was rejected by Mr Bosco Cheng of counsel acting for the said 5 Rs.

The Defending Parties, Issues, Trial and the Judgment

3.When the Application proceeded to trial, there were 46 Rs. Despite service having been effected, many of them had never shown up. Some of them, though with legal representation, adopted a passive role and their attendance of hearings and trial was excused. Of those attending trial and actively defending the Application, they can be divided into two main groups, namely, those who are unrepresented and represented.

The Unrepresented Group

4.The unrepresented group comprises R2, R8, R9, R13 and R17. All are owners of residential units except R13 who owned a shop. They mainly contested that the As had not taken reasonable steps to acquire their units. They disagreed on the existing use value (“EUV”) of their respective units and the redevelopment value (“RDV”) of the KTM site adopted by the experts of the As and the said 5 Rs. However, they did not rely on any expert evidence. After trial, the tribunal was satisfied that reasonable offers had been made. The As’ valuation was basically accepted, subject to minor modification.

5.The As eventually agreed to have the said costs order nisi made absolute in favour of these unrepresented Rs. Save and except R13 and R17 whose costs are to be taxed if not agreed, the costs of R2, R8 and R9 were disposed of by summary assessment on 11 July 2016.

The Represented Group

6.The actively defending represented group comprises the said 5 Rs. They are represented by 3 firms of solicitors. R22, R33 and R34 are represented by one firm while R40 and R44 each by a separate firm. At the interlocutory stage they acted as 3 groups. At trial, they were represented by 2 teams of counsel, with R22, R33 and R34 as one team led by Mr Bernard Mak and Mr Bosco Cheng (“1^st represented team”), and R40 and R44 as another team led by Mr George Hui (“2^nd represented team” and collectively “the 2 represented teams”).

7.The said 5 Rs are all CPS holders. The four of them acquired from R22 their respective CPSs. Mr Mok, counsel for the As, complained that the timing and circumstances under which the sale took place were very suspicious and were with a view to extracting an unfair and more than reasonable sale price from the As.

The Unusual Transactions

8.R22 acquired 84 out of 100 CPSs of the KTM in 1998 for long term investment[2]. It rented them out for rental income. In around 2007, there had been attempts by some owners to have KTM sold for redevelopment. By 2010 these attempts proved to be a failure. In July 2010, the As started another round of acquisition, leading eventually to this Application.

9.Many of R22’s CPSs had been used for a purpose other than car parking purpose in breach of KTM’s lease conditions. There were complaints made to the Lands Department, leading to threatened re-entry by the Government. It was R47’s evidence at trial that she had been indifferent then as to the use the CPSs were put to[3]. At last, R22 paid a forbearance fee of $1 million and purged all breaches before the Government withheld re-entry[4]. It is the tribunal’s finding that the fear for further payment and re-entry by the Government was the genuine reason for R22 ceasing its non-conforming car parking business instead of waiting for redevelopment as alleged.

10.The As were unable to acquire from R22 any of its CPSs. They lodged their LCSRO Application on 21 February 2013. However, not long before the Application, R22 sold to each of R33 and R34 a CPS[5]. After the said Application, 7 more CPSs were sold to different purchasers on various dates[6]. All these purchasers were subsequently joined as Rs. R33 and R34 (teaming up with R22) were pre-Application purchasers while R40[7] and R44[8] were post-Application purchasers. R22 was still holding 76 CPSs at the time of trial.

11.Further, not long before the commencement of the As’ Application, R22 mortgaged another batch of 18 CPSs together with other securities, including a Thailand property to R41, which is a BVI company, for a loan of US$7 million. It is the As’ evidence that the Thailand property was untraceable and non-existent. The net worth of the other securities was only around US$1.6 million. The As queried how R22 could be able to raise such a huge loan of US$7 million on the strength of securities worth substantially less. It was explained by R47 that the money was required for a joint investment in Thailand, and the mortgagee, R41, was a company controlled by her relatives [9]. Although the non-existence of the Thailand security was denied, R47 admitted full security for the loan was not asked for[10].

12.The said 5 Rs complained that the As had not taken reasonable steps to acquire their CPSs. Both EUV and RDV were also heavily disputed. Surveyor Mr Keith Siu was appointed by the 1^st represented team to deal with the EUV while Ms Sat Wei Ling was appointed by R40 to deal with the RDV. The As appointed surveyor Mr Charles Chan.

EUV

13.It is fair to say that the difference in EUV of residential units and shops between Mr Chan and Mr Siu lies in the choice of comparables, the adjustment factors and the applicable rates of adjustment. However, for CPSs, Mr Siu adopted an investment method based on, inter alia, rental incomes supplied by R22. On the other hand, Mr Chan used the usual direct comparison method. The valuations arrived at by them differs substantially, and the difference is attributable solely to their different methodologies.

14.The total EUV of the 100 CPSs valued by Mr Siu was $79,475,000[11], while that attributable to those owned by the said 5 Rs was $60,698,000[12]. The corresponding valuations arrived by Mr Chan were only $45,400,000[13] and $36,150,000[14]. For CPSs, Mr Siu’s assessment represents respectively 75%[15] and 68%[16] over and above that by Mr Chan.

15.After trial, the tribunal rejected Mr Siu’s valuation method and accepted that of Mr Chan. The latter’s valuation on CPSs was accepted in its entirety. If Mr Siu’ assessment were to be accepted, the said 5 Rs altogether took up roughly about 5.4796% of the interest in KTM[17]. The said 5 Rs’ share in KTM was assessed by the tribunal to be only 3.2302%[18]. From this perspective, the claims of the said 5 Rs had been, by reason of their EUV valuation, inflated by about 70%[19].The following is a summary of the valuations of the residential units, shops and CPSs given by the respective experts and those assessed by the tribunal. They are repeated in order to show the sharp difference between the CPS valuations arrived at by Mr Siu (who changed his valuation several times at trial) and those of Mr Chan and the tribunal:

	Mr Siu’s valuation	Mr Chan’s valuation	The Tribunal’s assessment
Unit price of reference domestic unit	$5,225/ ft2 [20]  or 56,242/m2  [21]	$62,400/m2 [22]	$64,900/m2 [23]
Unit price of reference shop	$17,910/ ft2 [24]  or $192,783/m2  [25]	$211,000/m2 [26]	$232,000/m2 [27]
Uncovered CPS	$420,000[28]	$410,000[29]	$410,000[30]
Covered CPS	$889,000 to $2,213,000 initially, or $394,000 to $1,967,127[31], or $352,000 to $1,821,000[32] , or $1,010,000 or $930,000 after several revisions at trial[33]	$510,000[34]	$510,000[35]
Ramped covered CPS		$260,000[36]	$260,000[37]

16.Mr Mok submitted the EUV of CPSs proposed by the said 5 Rs was greatly exaggerated. It was done at the same time when several CPSs were sold at unusually high prices and the aforesaid mortgage created on the security of, inter alia, 18 CPSs for an exceedingly high loan. These were orchestrated moves to dress up a high market value of the CPSs. Coupled with other unusual features including the litigation tactics deployed by the said 5 Rs (see [65] to [66] below), Mr Mok invited the tribunal to draw an adverse inference against the said 5 Rs that they entered into a scheme to make the As as painful as possible with a view to extracting an as high as possible and more than fair compensation from the As. The transaction prices of CPSs disposed of by R22 shortly before and after the Application  are set out as  follows:

R	Date of Agreement (CPS No.)	Transaction Price ($)	Market Value assessed by As[38] (1/12/2012) ($)	Market Value assessed by Rs[39] (1/12/2012) ($)
R33	30/05/2012 (CPS28)	1,760,000	510,000	1,269,000
R42	20/12/2013 (CPS29)	1,920,000	260,000	1,540,000
R43	20/12/2013 (CPS30)	1,920,000	510,000	1,540,000
R34	06/09/2012 (CPS35)	1,780,000	510,000	1,540,000
R44	11/06/2014 (CPS36)	1,900,000	260,000	1,540,000
R44	12/12/2013 (CPS37)	1,900,000	510,000	1,540,000
R40	04/11/2013 (CPS49)	1,890,000	510,000	1,406,000
R39	07/06/2013 (CPS100)	1,988,000	410,000	420,000
R46	15/09/2014 (CPS66)	1,730,000	410,000	420,000

   AP & TP Consultant

17.Shortly before trial, R40 requested further expert evidence from an authorized person (“AP”) and a town planning expert (“TP consultant”). The former was to assess the impacts on plot ratio by the several land restrictions imposed by the outline zoning plans while the latter prospect of success of As’ impending application to the Town Planning Board (“TPB”). Both would affect the KTM’s valuation. The said request was subsequently granted by the tribunal on 3 February 2015. Because of this late application, the trial had to be divided into 2 parts. The trial originally fixed for 2 March 2015 was to deal with all issues other than the RDV. Issues relating to RDV were postponed to 27 April 2015.

18.Additional expert reports applied by R40 were eventually prepared by the parties. However, such reports were not relied on by R40.

RDV

19.Before trial, the parties’ valuation experts were able to agree on the following 3 important parameters:

i) The plot ratio achievable for the KTM site redevelopment[40];

ii) The RDV for redevelopment of the KTM was 2,293 million; and

iii) The land premium required to remove the building height restriction contained in the Government Lease of KTM (“GL-BHR”) was $1,697 million[41].

20.However, Ms Sat proposed that, in addition to the land value which had been agreed, there should be a “hope value”. In a nutshell, her opinion was that since the As were then pursuing legal proceedings in the High Court to declare the GL-BHR having no effect (“interpretation proceedings”), some purchasers would be willing to purchase the KTM site at a premium just in case the As might succeed in the interpretation proceedings. If that happened, the height restriction would be gone with nil payment of land premium. She came to a view of a site value of $2,557 million (revised to $2,527 million and subsequently $2,805 million), beyond which it would be unlikely that a purchaser would be willing to take the risk[42]. The “hope value” is basically either $264 million or $234 million. The main reason why there were several figures cropping up was that Ms Sat had revised her valuations at trial upon request of counsel for the said 5 Rs using different assumptions.

21.Ms Sat’s proposed hope value was rejected after trial. The RDV was fixed by the tribunal at the figure originally agreed between Mr Chan and Ms Sat.

The Open Offers made by the As to the said 5 Rs

22.It is not in dispute that the As have made to each of the said 5 Rs 2 open offers which were higher than that assessed by the tribunal. The first was made on 18 February 2015 (“February offer”) and the second on 23 April 2015 (“April offer”). The February offer was made 11 days before the first part of the trial commenced while the April offer 3 days before the second part of the trial:

		February Offer	April Offer	The Tribunal’s assessment
i)	R22	$69,974,470	$72,076,117	$69,354,078
ii)	R33	$1,054,268	$1,085,933	$1,045,608
iii)	R34	$1,054,268	$1,085,933	$1,045,608
iv)	R40	$1,054,268	$1,085,933	$1,045,608
v)	R44	$1,591,738	$1,639,546	$1,577,584

The As’ Proposed Costs Order

23.By reasons of the above, it is Mr Mok’s submission that the costs order (including all costs reserved) should be varied in the manner or along the direction[43] set out in [25] below. Mr Mok relies on the “compensation approach” enunciated by the Court of Appeal (“CA”) in Good Faith Properties Ltd v Cibean Development Co Ltd[44]. Regarding what “compensation approach” is meant Mr Mok relies on Purfleet Farms Ltd v Secretary of State for Transport, Local Government and the Regions[45]. It is Mr Mok’s submission that since Purfleet was cited with approval in Good Faith, the CA must have intended the principles elaborated in Purfleet and other English authorities to be adopted in its entirety in Good Faith otherwise the CA should have made it clear there.

24.Mr Mok submitted a “twin-starting point” proposition.  It is his submission that in a LSCRO case, the minority can be regarded as “successful” or “unsuccessful” depending on how much he can achieve after trial compared with any unconditional offer made to him by the majority. In the present case, as from the February offer, the said 5 Rs cannot be regarded as a “successful claimant”. Thus the As’ costs incurred thereafter should be borne by the said 5 Rs. The said 5 Rs’ expert costs should also be disallowed because such costs were either wasted or unreasonably incurred. It is also the As’ case that the said 5 Rs are related and concerted parties but chose to be represented by 3 legal teams for some perceived forensic advantage. Legal costs were unnecessarily increased. This amounts to unreasonable conducts. Since there is bound to be difficulty in the taxation to ascertain how much legal costs have been inflated by the multiple representations, Mr Mok suggested a lower scale as in the following sub-paragraph (v). Mr Mok submitted that alternatively, a percentage discount of the overall costs can be made by the tribunal. 

25.It is proposed the costs order nisi be varied to as follows:

i)   R40 do pay to the As all costs (including counsel’s fee) of and incidental to the preparation of:

(a)  The As’ expert report by their AP Barry Fegan Will dated 27 February 2015; and

(b)  The As’ expert report by their TP consultant Theresa WS Yeung dated 26 February 2015 with certificate for counsel to be taxed on High Court Scale if not agreed;

ii)   There will be no order as to costs incurred by R22/R47, R33, R34, R40 and R44 in respect of the following items:

(a)  All costs of and incidental to (including the preparation of) R40’s expert report by her AP Ng Kin Siu;

(b)  All costs of and incidental to (including the preparation of) the R40’s expert report by her TP consultant To Lap Kee Kenneth dated 9 March 2015;

(c)  All costs of and incidental to (including the preparation of) the evidence of Mr Siu, the valuation expert of R22/47, R33 and R34, given in these proceedings, including all his valuation reports filed in these proceedings and his oral evidence given during the trial; and

(d)  All costs of and incidental to (including the preparation of) the evidence of Ms Sat, the valuation expert of R40, given in these proceedings, including all her valuation reports filed in these proceedings and her oral evidence given during the trial;

iii)  Save as provided in (i) and (ii) above:

(a)  The As do pay costs of:

(1)  R22/47, R33 and R34 with certificate for one counsel;

(2)  R40 with certificate for counsel; and

(3)  R44

in these proceedings which were incurred up to 18 February 2015, i.e. the date of the February offer, but also subject to the provision in (v) below; and

(b)  The R22/47, R33, R34, R40 and R44 do pay the costs of the As in these proceedings as from 19 February 2015 with certificate for counsel, to be taxed on High Court scale if not agreed;

iv)  Alternative to what is provided in (iii) above, there be no order as to costs in these proceedings between the As and the said 5 Rs, save as provided in (i) above;

v)   In the event that the As are required to pay any costs to the said 5 Rs, the As do pay 80% of costs of each of the said 5 Rs (excluding those as provided in (ii above), to be taxed on District Court scale, if not agreed;

vi)  The costs of this application be provided for with certificate for counsel.

The said 5 Rs’ Proposed Costs Order

26.Mr Cheng appears to have no quarrel with Mr Mok on the legal principles applicable to the present case, i.e. the compensation approach in Good Faith as well as its meaning supplemented by Purfleet (supra).  The gist of the said 5 Rs’ case on costs is as follows:

i)   It was not unreasonable for the said 5 Rs not to accept the February offer because:

(a)  The February offer came very late: just 6 working days before the trial scheduled to commence on 2 March 2015;

(b)  The said 5 Rs were not in a position to make an informed decision as to whether they should accept the February offer on their merits or not. By then Ms Sat had not yet come up with her RDV; and

(c)  The February offer did not provide for costs.

ii)   The said 5 Rs should have accepted the April offer, which was lapsed on 6 May 2015, because the amount offered therein exceeded the shares received by them;

iii)  The said 5 Rs should be entitled to costs up to 6 May 2015, the last date for acceptance of the April offer;

iv)  Regarding costs incurred after 6 May 2015, the said 5 Rs accepted that they should bear one-third of the As’ costs for the hearings on 12 and 13 May 2015, and half of the As’ costs for the written submission on the admissibility of expert evidence; and

v)   Other than costs as specified in sub-paragraph (iv) herein, no further costs incurred by the said Rs for defending the proceedings should be disallowed for such costs were neither being wasted nor unreasonable.

Discussion

The Compensation Approach

27.Good Faith is a CA authority squarely on costs under the LSCRO. When the case was before the tribunal, a sale order was made after trial. The grounds of defence raised at trial by the only minority respondent included valuation and reasonable steps to acquire its interest. From the length of the hearing, it was a full-blown and perhaps a “no stone unturned” dogfight between the parties. The tribunal considered the minority respondent had been unable to establish its defence. It was asked to bear the majorities’ costs, save and except certain items of costs which the majorities had to incur anyway.

28.The tribunal came to its conclusion on costs despite the fact that its assessment was higher than the majorities’ open offer, though the minority’s open offer was considered far too high. In particular, the tribunal in Good Faith rejected expressly the compensation approach to LCSRO applications.

29.On appeal the CA considered that the statutory regime under the LSCRO gives protection to property right of a minority, which is entrenched constitutionally by the Basic Law, on at least two levels.

30.For the first level, the minority may choose to refuse the majority’s offer on various grounds including grounds unrelated to money. The majority then has to invoke a statutory process in order to obtain an order. It cannot be regarded as a legal wrong for a minority to reject an offer even though such an offer may meet the statutory reasonable steps requirement under s.4(2)(b): see [12] of Good Faith. The majority then has to demonstrate to the tribunal that certain statutory criteria have been met, e.g. age and state of repair, etc, before the tribunal would order a sale. The proceedings are therefore statutory means to justify the exceptional interference with right of private ownership. The right to raise objections is part and parcel of the process without which the process cannot be a fair one:  see [18] of Good Faith.

31.As for the second level protection, even on a balance the private rights of the minority are to be interfered with and an order for sale is made against the wish of the minority, he should be entitled to receive a fair and reasonable share of the sale proceeds. The compensation should not be easily diminished by an inordinate burden on costs otherwise the objective that the minority receiving fair and reasonable compensation under the LSCRO would be defeated: see [11], [19] and [20] of Good Faith.

32.The CA then considered what costs approach being consistent with the second tier safeguard for the LCSRO cases should be adopted: see [26] of Good Faith.

33.The CA in Good Faith went through certain English authorities, particularly, Purfleet. It appears that when exercising the discretion, the starting point is that the costs of litigation should fall on him who caused it[46]. In [28] of Good Faith, the CA considered paragraphs 29, 36 to 38 of Purfleet by Potter LJ a concise summary of the compensation approach. After citing the said paragraphs of Purfleet, the CA confirmed the said approach on costs applicable to LSCRO proceedings[47]. Lam V-P also referred to paragraph 43 of Purflect: see [44] of Good Faith. The principles comprised in the compensation approach referred to in Good Faith can broadly be summed up as follows:

i)   A successful claimant, i.e. a claimant who is awarded more than the amount of an unconditional offer by the acquiring parties, 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 claimant 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)  [48]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)  [49]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.

34.It is Mr Mok’s submission that the CA in Good Faith set out the principles in the context of a “successful claimant”, of which the minority in that case was one: see [33(i)] above. However, in the present case, the said 5 Rs are “unsuccessful claimants” as from the February offer which beat the tribunal’s final assessment. Though Mr Mok and Mr Cheng differ on whether the said 5 Rs should be tied to the February offer or the April offer to become an “unsuccessful claimants”, and whether the relevant date should be the date of offer or expiry, it is their common ground that conceptually, there is “successful” and “unsuccessful” claimant in the compensation approach for LSCRO cases, and the liability for costs should reverse when the said 5 Rs becomes “unsuccessful claimants”.

35.Mr Mok relied on the following passage by Chadwick LJ in Purfleet to support his proposition that unsuccessful claimant should, prima facie, be paying costs of the acquiring party:

“[42] As Lord Nichols pointed out, in the passage in Director of Buildings v Shun Fung Ltd [1995] 2 A.C. 111, 125 to which Potter L.J. has referred, a claimant whose land has been taken from him under compulsory powers is entitled to “compensation for losses fairly attributable to the taking of his land”. In a case where the acquiring authority have made an unconditional offer of an amount of compensation which exceeds the amount subsequently awarded on a reference to the Lands Tribunal, it can be seen that (at least prima facie) the costs incurred by the claimant in pursuing the reference after the offer has been made are not fairly attributable to the taking of his land; those costs are attributable to the claimant’s attempt to obtain more than the amount of the loss in respect of which he is entitled to compensation.”

36.The main thrust of Mr Mok’s submission is this. Good Faith and other line of authorities including Penny’s Bay Investment Co Ltd v Director of Lands[50] were decided by applying the English compensation approach on costs. Accordingly, the successful and unsuccessful “twin-starting point” concept discussed in Purfleet should also be part and parcel of the compensation approach in Hong Kong.

37.In the tribunal’s judgment, the discussion of an “unsuccessful claimant” in Purfleet was in the special context of s.4(1)(a) of the English Land Compensation Act 1961[51]. This is the Act under which Purfleet was determined. This particular provision reverses the liability to pay costs whenever an unconditional higher-than-assessment offer is made for claims under the said Act, unless there is a good reason not to do so. This is regarded as a “special rule” by the English Lands Tribunal’s Practice Directions[52], and does not appear in its Hong Kong counterpart(s), not to mention the LSCRO.

38.Further, it has been stated in Good Faith that a minority rejecting an offer falling within s.4(2)(b) of LCSRO cannot be regarded as a legal wrong[53]. In the tribunal’s judgment, Good Faith does not distinguish between a successful and unsuccessful applicant when adopting the principles distilled from the quoted parts of Purfleet. It may perhaps be the case that in Good Faith, the minority is a successful claimant[54] and therefore, it will be unnecessary for the CA to discuss the situation of a so-called “unsuccessful claimant”. However, it may perhaps be equally probable that the CA in Good Faith considers the discussion of whether or not a claimant is successful unnecessary because costs remain the discretion of the tribunal: see section 12(1) of the Lands Tribunal Ordinance, Cap 17 (“LTO”). The important question fell to be decided in Good Faith is the broad principles governing the exercise of such discretion in LSCRO cases, i.e., the compensation approach or that in ordinary hostile litigation.

39.Section 12(1) of the LTO provides:

“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.”

40.According to the express English provisions, a party is only prima facie liable for costs when the offer exceeds the tribunal’s assessment. Such provision is lacking in the LSCRO. 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.

41.This tribunal will bear in mind the aforesaid principles when considering costs in the present case.

Mr Siu’s Expert Evidence on EUV

42.Mr Siu’s evidence has been severely criticized by the tribunal. Mr Mok has set out a list of the tribunal’s criticism in his skeleton[55]. The tribunal does not intend to repeat them all here. To name a few, Mr Siu adopted an unusual investment approach as against the usual direct comparison method. When doing capitalization, he simply turned a blind eye and/or failed to raise queries to the rental incomes provided when there was obvious evidence suggesting the incomes being generated in breach of the lease conditions, and was incomplete. Although it was confirmed at trial he had not been told by R22 any of the Government’s enforcement actions[56], had he done the necessary land search of the CPSs which a prudent expert should have done, the enforcement action would have been discovered. He in fact knew that the CPSs in question had been used for purposes other than car parking in breach of lease conditions.

43.Further, the CPSs valuation arrived at by him showed an unusually wide range and is irrational, irreconcilable with each other which, we are sure, no professional independent valuer would have satisfied without raising further enquiry with R22. He did nothing but an averaging exercise. The following assessments discussed in the main judgment[57] are very telling of the irrationalities and unreasonableness of Mr Siu’s assessment:

	CPS	Valuations by Mr Siu	Tribunal’s Assessment
i)	CPS 14 (Covered CPS)	$1,010,000	$510,000
ii)	CPS 15 (Ramped CPS)	$1,515,000	$260,000
iii)	CPS 16 (Covered CPS)	$1,053,000	$510,000
iv)	CPS 45 (Covered CPS)	$1,967,127/$1,821,414[58]	$510,000
v)	CPS 46 (Covered CPS)	$842,666/$766,060[59]	$510,000

44.Apart from non-disclosure of the Government’s enforcement action aforesaid to Mr Siu by R22, the tribunal has not forgotten the fact that R22 had also not told Mr Siu about its payment to the Government of the $1 million forbearance fee. These are all crucial matters relevant to valuation which R22 ought to have disclosed but did not. One such letter among a series of them from Government was not disclosed until after a contested discovery application taken out by the As. The tribunal believes, on a balance, the withholding of material information to Mr Siu and to the As by R22 is deliberate.

45.Instead of admitting the weakness of his assessment, Mr Siu appeared to have lost his independence and advanced for the said 5 Rs totally unacceptable explanations, such as the pre-enforcement rentals might have already reflected the enforcement risk[60]. He even suggested that he had ways to ask for a modification of lease conditions without payment of premium[61].

46.What appears totally unacceptable to the tribunal is that despite the apparent problems of Mr Siu’s valuation, the said 5 Rs together with their respective legal teams chose to embrace such valuations and engaged with the As until the very last minute. Substantial time and effort were spent on the EUV issues as a result. It is not a case where the said 5 Rs were so unfortunate that they bumped into a valuer who happens to perform sub-standard. In the circumstances of this particular case the tribunal believes the said 5 Rs were acting in concert to exaggerate their claims deliberately. Assuming (without accepting) that the penalty of $1 million as well as the enforcement action of the Government was only disclosed for the first time in or about September 2014 by R22 to its legal advisors through R47’s witness statement[62], the legal teams of the said 5 Rs should have discovered the problems of Mr Siu’s valuation by then. No adjustment whatsoever was made. Mr Siu remained uninformed of the essential information. He was even asked to give further opinion on that basis. The tribunal believes it is a case where there is a deliberate exaggeration of claim by the concerted action of Mr Siu, the said 5 Rs and their legal teams. The exaggeration brought about by the inflated EUV alone is about 70%[63], and is significant at any rate.

47.The EUV of one’s unit relative to the overall EUV of the site will determine one’s interest in the final sale proceeds. Any inflation of one’s EUV would bring about a negative spill-over effect on other minorities’ interest. Mr Siu’s failure to inspect the residential units, or even ask to do so when he was doing his valuation[64], is very telling of his lack of interest in valuation of the non-CPS portions. The overall picture shows that the said 5 Rs are conducting the litigation in a totally unacceptable and unethical manner with Mr Siu’s assistance. Although Mr Siu did provide valuation regarding the non-CPS portions of KTM, against such background they are merely window-dressing and unhelpful. It added unnecessary burden and length to the trial respecting the CPS’s portion. 

48.This is a case where the said 5 Rs pursued an issue (i.e. the EUV of the CPSs) in a totally unreasonable and unacceptable manner with no real chance of success. No competent valuer would have used the investment method based on problematic rentals to come up with the EUV of the CPSs in question. In the tribunal’s judgment, not only is it appropriate to disallow all fees of Mr Siu incurred by those relying on his valuation (his contribution towards non-CPS valuation is considered minimal and not reliable) as well as the legal costs incurred by the 2 represented teams on the EUV (including the time spent by Mr Siu in giving oral evidence in court), it is a suitable case that the said 5 Rs be asked to shoulder the costs of and occasioned by the As in dealing with Mr Siu’s evidence on CPS’s EUV, including a part of Mr Chan’s fee on the said EUV issues, such costs to be shared by the said 5 Rs on a joint and several basis.

49.According to the tribunal’s record, about 5 days of the first part (lasted for 10 days) of the trial were spent by Mr Chan and Mr Siu on the question of EUV. Of these 5 days one day was spent on inspection and the rest shared by Mr Siu and Mr Chan, roughly, on an equal basis.

50.It is estimated 50% of Mr Chan’s reports on EUV were dealing with the EUV questions/issues raised by Mr Siu on the CPS valuation. A broad brush approach will be adopted in the overall assessment of costs.

Ms Sat’s Expert Evidence on RDV

51.Similar submission was made about Ms Sat’s evidence by Mr Mok. The land value assessed by Mr Chan and Ms Sat had been agreed prior to the 2^nd part of the trial at $2,293 million. Had Ms Sat not raised the concept of “hope value”, it was likely the second part of the trial would last for at most 1 day for cross-examination by the unrepresented parties. Alternatively, with a view to supporting the argument for “compensation for a lost chance”, the issues concerning “hope value” more particularly described in the following paragraph made clear, the second part of the trial on RDV could comfortably be finished within 2 days. The hope value inflated the RDV by about 10.2% to 11.5%[65]. Mr Mok had particularly highlighted certain comments of the tribunal in his skeleton[66].

52.The main criticism of the tribunal against Ms Sat’s “hope value” has been set out in detail in the main judgment, and can fairly be summarized as these:

i)   Firstly, she should have stated in her reports from the outset that the “hope value” put forward cannot be substantiated by reference to established professional valuation standards, namely, as a matter of valuation “hope value” has not yet started to engage if probability of success was below 50%[67]. She made no mention of such restriction in her first report;

ii)   Secondly, she should have made clear and be frank that she knew nothing about the prospect of the interpretation proceedings. She should have made it clear that she had never been advised, nor had she ever sought any legal advice on the prospect of success of the said proceedings. With prospect of success totally unknown, she should have realized it would be quite impossible for any investor to be able to form any view whether to take the land by paying an extra “hope value”. The weakness of her opinion was so obvious, and would have been revealed had she addressed her mind to the prospect of success. It was not until trial that she admitted the probability of success could be any anything between 0% to 99%. The tribunal cannot help suspecting she might have confused her role of an independent expert with an advocate, or she had lost her independence and simply did what she was told to do;

iii)  Thirdly, she should have stated clearly and unequivocally what she was doing was simply listing certain possible values for speculators upon request of lay clients or counsel instead of, apparently, dressing them up as professional valuation.

53.Time and expenses needed be incurred for Mr Chan to refute the “hope value” not being an acceptable “hope value” valuation by reference to established professional standards. Further, time and effort needed be spent in the cross-examination to reveal the problems of her opinions on hope value. It has to be remembered that a totally unsound opinion will not become sound even if uttered through the mouth of an expert. It is under these circumstances that the tribunal considers necessary to re-state the principles concerning independence of expert as said by Lam J (as the learned V-P then was) in Chinachem Charitable Foundation v Chan Chun Chuen[68].

54.The tribunal is of the view the two represented teams must have realized that the “hope value” cannot be substantiated by professional standards. It was because Ms Sat had later acknowledged in her rebuttal report she was aware of the required professional requirements before “hope value” can be engaged[69]. What Ms Sat in fact was doing was using the tool of IRR to come up with certain reference figures so that if the legal argument on “compensation on a lost chance” was accepted, the tribunal could have certain reference figures to turn to. However, the 2 legal teams did nothing to clarify the objective. The manner in which the “hope value” was dressed up and was fought by the 2 represented groups lead to significant amount of time being wasted and proceedings unduly prolonged to deal with Ms Sat’s views on “hope value”.

55.Having said that, the tribunal accepts that Mr Hui and Mr Mak had made arguable legal submission on the area of “lost chances” by relying on arguable authorities, some were on compensation cases. Though this tribunal rejected their proposition that a “hope value” should be awarded even though the probability of the scheme in question is less than 50%, that alone (our emphasis), according to Good Faith, is not a sufficient ground to deny the said 5 Rs’ costs. However, as will be seen below, 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.

56.The overall assessment of the RDV issue justifies a proportion of the costs in connection with Ms Sat’s valuation be disallowed. Further, certain time and costs by Mr Chan and the As’ legal team in connection with the dealing with Ms Sat’s “hope value” must be paid by the said 5 Rs. According to the tribunal’s record, the second part of the trial on RDV lasted for 4 days, and Mr Chan and Ms Sat each taking up half of the time. As said above, at most 2 days are sufficient to dispose of the RDV issue had the hope value by Ms Sat not been raised, or left to legal submission on “lost of a chance” with clear indication that the “hope value” was not based on established valuation standards.

57.As can be seen in [71] to [91] below, costs ordered to be paid by the said 5 Rs under this head would overlap with those ordered to be paid under those paragraphs. A broad brush approach will be adopted in the overall final costs order.

AP & TP Consultant

58.It was R40 who applied for the 2 additional expert reports as aforesaid. It was granted on 3 February 2015. One major reason for the application was that the 2 additional experts’ reports could assist the valuation expert in coming up with his RDV. The tribunal then accepted argument that TP consultant and AP were in a better position to assess the prospect of success of the impending application to the TPB[70] and the maximum plot ratio achievable in the special context of KTM than valuation experts.

59.Later, all, except R40, indicated they were not relying on the 2 expert reports. The 2 reports by R40 were eventually filed on 9 March 2015.

60.On 19 March 2015, solicitor for R40 wrote a letter to the As’ solicitors indicating, inter alia, that (i) R40 would not call upon the AP and TP consultant to give evidence at trial; and (ii) the plot ratio adopted for the redevelopment model would be 8.4375[71]; and (iii) the difference in opinion of the AP and TP consultant, if any, would not be material insofar as the assessment of the RDV is concerned. As a result, without prejudice meetings of the relevant experts of the two sides were not required and the two reports not relied on.

61.Mr Mok submitted that since the 2 issues were abandoned or wasted, R40 should be disallowed costs and pay the As costs incurred in connection therewith. Mr Bosco Cheng submitted without the reports the said 5 Rs would not have known the opinion of plot ratio adopted by the Government about KTM was unlikely to be correct. R40 did not rely on the TP report because the application to the TPB was withdrawn.

62.Ms Sat’s first report was dated 9 April 2015. She mentioned nothing that she had made reference to the AP and TP consultant reports, save and except that she did mention being told the application to the TPB was withdrawn on 13 February 2015. She adopted the plot ratio of 8.4374 (which is slightly different from 8.4375 originally indicated and arrived at by R40’s AP consultant: see [60] above). Taking into consideration matters to be elaborated below about the February offer, the tribunal believes these reports had not been consulted by Ms Sat.

63.The tribunal has asked Mr Cheng why, then, in the first place the reports were asked for. Mr Cheng originally answered that they were asked for on a theoretical basis. He later supplemented that valuation expert’s views had been sought before applying for further expert directions.

64.In the special circumstances of KTM, these reports are, prima facie, relevant. Although abandoned issue may qualify as “special reason”, the burden is on the As to show that it could not on any sensible basis be regarded reasonable and necessary to have the reports prepared, or that these reports were asked for in bad faith with a view to wasting costs, etc before this tribunal would disallow costs or even reverse the costs order. The mere fact that these reports were eventually not relied on by a party does not automatically make that party liable for costs when the compensation approach on costs is adopted. This tribunal does not think the As have made out a case under this head.

Multiple Legal Teams

65.Apart from the alleged unusual transactions set out in [8] to [12] above, Mr Mok launched a heavy attack against the manners in which the said 5 Rs conducted the present proceedings. The gist of his submission is that the said 5 Rs were acting in concert with a view to extracting a more than fair and reasonable price. He highlighted the followings concerted tactical moves of the said 5 Rs:

i)   R22 sold 9 CPSs, one at a time at very high prices and mortgaged 18 CPSs as security for an unusually high amount of loan shortly before and for some time after the As’ Application. This increased the As’ costs and efforts, including joining them as Rs some even being out of jurisdictions, and taking steps to deal with the impact of the unusual high sale prices, including administering interrogatories, making discovery and conducting title investigation in Thailand;

ii)   The said 5 Rs were in close co-operation and launched concerted and strategic procedural steps. Unusual features of their cooperation highlighted by Mr Mok includes:

(a)  R40, who confirmed herself a housewife, was with a out of jurisdiction, i.e. Shenzhen, address;

(b)  Yet she purchased at $1,890,000 a covered CPS on 4 November 2013 after the LSCRO application was issued on 21 February 2013 and registered with the Land Registry on 30 July 2013. She should have been advised by lawyers of the risks involved in her investment/speculation. The final tribunal’s assessment of her share was only $1,045,608;

(c)  Despite her relatively minor interest in the overall interest of the said 5 Rs, R40 took a very active role and, apparently, upfront injected substantial costs in participating in the legal proceedings since October 2014; more active than the rest of the said 5 Rs. Such active participation was wholly disproportionate to her investment or speculation in one single CPS for which she paid an extraordinarily high prices, including,

(1) applying unsuccessfully for the discovery of various documents;

(2) applying successfully for 2 additional AP and TP consultant reports;

(3) appearing by counsel in each of the above applications;

(4) the 1^st represented team was represented by another counsel in support in each of these applications;

(5) appearing by counsel in resisting interrogatories and discovery application of the As, though unsuccessfully;

(6) retaining, apparently on her own, AP and TP consultant;

(7) retaining, apparently on her own, Ms Sat for the RDV;

(8) R22, R33, R34 and R44 provided no RDV evidence but made full use of Ms Sat’s evidence on hope value made available by R40;

(9) R40 and R44 provided no EUV evidence and made full use of Mr Siu’s exaggerated EUV;

(10) appearing by counsel throughout the trial;

iii)  By organizing matters in this way, R40 could confine her risk to bear the As’ costs to her share and keep the rest of the said 5 Rs isolated from such risk.

66.Mr Mok submits that the separate representation increased costs for the said 5 Rs and the As, and is a relevant factors when the tribunal awards costs. Since it would be difficult to ascertain by taxation how and to what extent costs had been wasted or increased by the multiple representation, Mr Mok requests any costs to the said 5 Rs be awarded on District Court scale with one certificate for counsel to reflect such unreasonable conduct. Alternatively there can be an overall discount.

67.Mr Cheng’s submission, in a nutshell, is that each of the said 5 Rs is entitled to be represented by one team of lawyers in these proceedings. Now they are represented by 2 teams with 3 firms of solicitors only. This alone is insufficient to provide a basis for the As to challenge their decision to be separately represented.

68.Given the tribunal’s conclusion that the said 5 Rs were deliberately exaggerating their claims, on a balance this tribunal accepts what Mr Mok has portrayed being part and parcel of their overall plan to extract a more than fair and reasonable price from the As. The EUV and RDV are the two most important pieces of evidence in LSCRO litigation each having a material impact on the eventual interest that a party may get. Yet each of the said 5 Rs was willing to have one essential valuation delegated to be obtained by others. The said 5 Rs were willing to have their fate so closely tied up with each other despite the apparent lack of involvement in coming up with one essential valuation evidence. The logical inference is that they were either related parties or they in fact were fully involved in each and every step taken in the proceedings as if they were one even though an application might be taken out in the name of one or some of them.  We believe both cases are applicable.

69.They made orchestrated moves. For instances, after the Application was set down[72], the 1^st represented team applied about 4 months later for, inter alia, a stay of proceedings pending final disposal of certain judicial review proceedings in the CFA. At the same time there was the discovery application of R40. Only 3 days before the adjourned argument of the staying summons[73], R40 issued the further expert directions summons. Although there is no direct finding of this tribunal that there were ulterior motive behind these applications, both summonses, if granted, would bring about an effect of postponing the trial[74]. 

70.This tribunal accepts Mr Mok’s submission that an out of jurisdiction R40 was selected to take up major procedural attacks and provide essential evidence for all the said 5 Rs was part and parcel of their scheme to isolate the rest of them from costs liability. Since they are related parties, in the tribunal’s view they are not, as suggested by Mr Cheng, entitled to say that they could each engage a firm of solicitors as of right. The tribunal believes that without the parting with ownership of some of R22’s CPSs in the manners aforesaid having the effect of isolating individual’s costs liability, the exaggeration would not have been in such an outrageous and unacceptable manner. The tribunal agrees with Mr Mok that certain discount needs be applied to reflect the tribunal’s disapproval of these unacceptable conducts. Further, as it is the tribunal’s conclusion that the said 5 Rs were related or concerted parties, it would only be fair that their costs liabilities to the As should be joint and several.

The February or April Offer

71.Mr Cheng submitted that the said 5 Rs were not acting unreasonably in rejecting the February offer. He relied on Wong Yik Po v Director of Lands[75] citing with approval an English authority of The Salaverry[76]. In short, his proposition is that sufficient time should be given for a proper consideration of any offer, if the dispute goes to trial and the ultimate determination principally depends on expert evidence. In Salaverry, it was considered an offer made 11 days before trial insufficient, whereas in Wong Yik Po, 4 days was considered too short. In light of these principles, he submitted that it was reasonable for the said 5 Rs not to accept the February offer:

i) The February offer was made on 18 February 2015, which was the last working day before Chinese New Year holidays ending on 22 February 2015. There were 11 days, and only 6 working days before trial scheduled to commence on 2 March 2015. The said offer was good until and inclusive of 3 March 2015. The time given was too short for the said 5 Rs to consider the offer;

ii) When the February offer was received, their counsel was busily preparing opening submission (due on 23 February 2015) in response to that of the As which had already been served on them on 13 February;

iii) The valuation expert of the said 5 Rs had not yet finished her RDV report. Its preparation was in turn dependent on the AP and TP reports which were also not yet ready. In the absence of the updated RDV report, the said 5 Rs were not in a position to make an informed decision as to whether to accept the offer. They were entitled to and in fact it was perfectly legitimate for them to wait for all reports before making up their minds;

iv) The valuation date for the offer was assessed as at 16 February 2015 and therefore it was not an updated one. Experts on both side had eventually agreed on a valuation of $2,293 million as at 31 March 2015 for trial, which was higher than the RDV adopted in the February offer[77]; and

v) The February offer did not provide for costs of the proceedings.

72.If the tribunal finds the February offer should have been accepted, Mr Cheng submits that as a fallback the cut-off date should be 3 March 2015 when the offer expired. It is because the said 5 Rs should not be deprived of the time provided under the offer. Even if under these circumstances the As still have to proceed with trial to satisfy the statutory requirements such as age and state of repairs, proving the EUV and RDV under the LSCRO. Mr Cheng submits the said 5 Rs should only bear ⅓ of the As’ costs incurred after 3 March 2015, and 50% for the written submission on the admissibility of Mr Charles Chan’s evidence arising from his disciplinary proceedings.

73.As for the April offer, Mr Cheng’s proposition is that where a claimant is unable to do better than the offer made by the acquiring party, he/she would be entitled to costs of the proceedings up to the date of the offer which exceeds the awarded sum is lapsed. He relied on Leung Chuk Yau t/a Tin Cheung Ginseng Medicine Hong v Director of Lands[78].

74.Relying on Leung Chuk Yau, he accepts that the said 5 Rs should be entitled to costs only up to 6 May 2015 when the April offer lapsed. For reasons similarly applicable to the February offer, he submits it is fair and reasonable the said 5 Rs should only bear ⅓ of the costs of the As for the hearing on 12 and 13 May 2015 because the As needed to attend the hearing anyway to make submissions on matter which they were required to establish under the LSCRO. There were still other unrepresented and missing/non-appearing parties.

75.Mr Mok relies on his twin-starting point proposition and proposes to strictly tie the cut-off date to the first date of the February offer, i.e. 18 February 2015.

76.Mr Mok’s strict cut-off date proposition does not appear to sit well with the compensation approach as a matter of principle. The tribunal prefers an approach similar to Wong Yik Po. However, each case should be determined on its own facts and all circumstances need be taken into considerations before fixing the cut-off date.

77.The tribunal does not agree with Mr Cheng on his busy counsel argument. It is because the 2 legal teams are retained to have conduct of the legal proceedings and give overall advice on the said 5 Rs’ litigation. The consideration of whether an offer is acceptable is part and parcel of such conduct and advice. It is to be remembered the present case is not one where the said 5 Rs resisted the Application on grounds other than money. R22 participated as early as in 2007 in the first round of redevelopment sale exercise. The rest of the said 5 Rs acquired their CPSs with full knowledge of the Application or intending Application. They were speculators or R22’s related parties. They were all willing to sell their CPSs at a price they considered acceptable[79]. To achieve a sum highest possible should therefore rank top in their order of priority. It is for this the legal teams were retained. Any offer should therefore have been received due consideration by the said 5 Rs’ legal teams. Once an offer is accepted, the litigation will be over. It will then no longer be necessary for the legal teams of the said 5 Rs to prepare any opening submission.

78.Regarding the subsequently agreed RDV being over and above the RDV of the February offer, the tribunal has the following two observations to make.

79.Firstly, for LSCRO cases the assessed RDV is fixed as at the date of or close to trial. It is different from resumption cases the valuation date of which is the date of resumption, i.e. a date in the past. So in a rising market, the reality is that the longer a LSCRO case is being dragged on, the higher will be the eventual RDV. However, despite market fluctuation, in coming up with any market valuation as at a particular date all potentials, including its rising potential, must have already been factored into that valuation before it can qualify as the market value as at that date. One therefore cannot say that because there was a rising market, the valuation of, says $2,293 million as at 31 March 2015 for KTM, was not its market value as at that date. That remained the market value as at 31 March 2015 no matter the market was rising or declining; otherwise no one will be able to give any valuation for a particular date unless the market is stagnant. Accordingly, as a matter of principle, whether it was unreasonable or otherwise for the said 5 Rs to accept the February offer must be judged by reference to the circumstances as at the date of the February offer, not any other date. That includes whether or not the RDV adopted as at the date of the offer was reasonable. The submission of Mr Cheng that the parties had subsequently agreed at a RDV, which was higher than the RDV of the February offer, cannot therefore be accepted as a matter of principle. Whether a market is rising or falling is only an afterthought. To accept his argument is to leave one’s present decision to be justified or condemned by future events. It encourages litigation and discourages settlement, particularly in a rising market, for the simple reason that in such market, any subsequently agreed amount must be higher than any previously unaccepted offer. A higher price agreed subsequently per se, cannot render any prior lower offer unreasonable.

80.Secondly, from the RDVs provided by Mr Chan in his valuation attached to the February offer, his final report and the one finally agreed[80], the tribunal accepts it was then a rising market. We believe the said 5 Rs do not seek to disagree. By a rough estimate there was then a rise of about 3% to 11%[81] from mid-February to end of March 2015. Despite the rising market, the February offer based on a lower RDV can still beat the tribunal’s final assessment, though marginally. Prima facie, the February offer can be regarded as a rather generous offer as at the date of offer. After going through the trial, the said 5 Rs still could not do better despite a rising market.

81.Turning to the argument that no costs were provided in the February offer, it was stated in the offer letter that if the offered purchase price was agreeable, the said 5 Rs could contact the As to discuss other terms, logically and presumably including costs incurred in the LSCRO Application. They did not accept the offer. Discussion on costs thus did never take place. If it had ever happened, the dispute on costs, like the present hearing, could have been dealt with by the tribunal in case of disagreement. We do not see this being a good ground to reject the February offer.

82.After reading Leung Chuk Yau, the tribunal does not accept it an authority to support Mr Cheng’s proposition that an offeree is entitled to costs up to the date on which the offer lapsed. Leung Chuk Yau concerned different claims settled or disposed of at different time, and were decided on its own fact.

83.This tribunal accepts some time should be given for the said 5 Rs to consult their experts before deciding whether to accept the offer. However, the time frame discussed in Wong Yik Po or The Salaverry is no useful yardsticks to the present case as what amounts to reasonable time for acceptance of an offer is fact-sensitive. Each case is to be determined on its own facts. In this connection, the tribunal notes that on 9 March 2015 (one week after the trial started on 2 March 2015), the said 5 Rs issued a joint letter to the As to, inter alia,

i)   reject the February offer; and

ii)   make a counter-offer of about $130.2 million[82]. This counter-offer is more than the tribunal’s assessment by about 76%[83]. It was stated in their counter-offer letter that according to Ms Sat’s preliminary assessment, the RDV was between $2,200 to $2,300 million[84].

84.The RDV of $2,200 to $2,300 million stated in the counter-offer came earlier than Ms Sat’s valuation of $2,321 million in her first report of 9 April 2015. Accordingly the allegation that the said 5 Rs had to wait for Ms Sat’s report is factually incorrect. It is obvious Ms Sat were ready to provide opinion on RDV, and in fact had done so, the latest, by 9 March 2015. On a balance, the tribunal believes Ms Sat’s advice must have been sought some time prior to 9 March 2015 before a structured and well-advised counter-offer duly signed by all solicitors acting for the said 5 Rs could be made on that date.

85.Although R40 filed the 2 reports by their AP and TP consultant on 9 March 2015, in fact solicitors for R40 indicated on 13 February 2015 by letter that their AP and TP consultant were in the course of “perfecting” their reports which were ready for exchange by 27 February 2015[85]. A consent summons to that effect had been filed. On 26 February 2015, solicitors for R40 even wrote to inform the As’ solicitors that they were ready to exchange. The exchange, however, did not take place for some unknown reasons. It was explained by Mr Hui at trial that R40’s solicitors did not do the exchange because R40 knew on 25 February 2015 the As’ withdrawal of its TPB application[86]. They wanted to have the reports updated on this.

86.On the first date of trial (2 March 2015), all except R40 had confirmed to the tribunal through counsel that they were not relying on the evidence of the AP and TP consultant. In the tribunal’s judgment, the withdrawal of the As’ application to TPB should not have affected in any way the expert’s assessment of the chance of success of that application. The TP assessment would be done on a hypothetical case basis anyway. R40’s TP report was self-explanatory in this regards. In addition, the plot ratio arrived at by Mr Chan, R40’s AP expert Mr Ng and Ms Sat were identical. The TPB application or its withdrawal was unrelated to the issue of plot ratio. The tribunal therefore does not believe the allegation that Ms Sat needed to consult those reports in coming up with her advice. Alternatively, the AP and TP reports, or their substantially completed reports, were ready a few days before end of February. Mr Cheng’s submission that the said 5 Rs were entitled to consult these reports appears inconsistent with the facts of this case. From the available evidence, Ms Sat did not appear to have consulted the AP and TP reports. If the tribunal were wrong, Ms Sat could still have consulted these reports which were ready a few days before end of February 2015. The tribunal does not believe the delay in accepting the February offer was because experts’ reports were not available when the said 5 Rs needed them most.

87.Although it will be unreasonable to regard 18 February 2015 as the cut-off date, it is equally unreasonable to adopt the April offer as such. Given the tribunal’s views in the preceding paragraphs, the tribunal considers the relevant cut-off date should neither be 9 April[87] nor 9 March 2015[88].

88.Taking all the circumstances of this case into consideration, this tribunal considers the day before trial being the cut-off date fair and reasonable. By the first day of trial, they had already got one full week to consider the offer. Although the first part of the trial was for all evidence other than RDV, the purpose of the trial was for the said 5 Rs to establish their maximum case stated before the tribunal. They had already got Mr Siu’s advice on EUV by then. The tribunal believes the said 5 Rs should have already got their RDV in mind before trial. It was R47’s evidence at trial that she had instructed valuation expert(s) to advise on valuation at around the time table set by the tribunal[89]. Expert directions were given as early as on 17 June 2014. The fact that they made a counter-offer on 9 March 2015 shows that they needed not wait until any formal reports were ready before knowing the RDV at any particular date.

89.As discussed above, the said 5 Rs exaggerated their claims by enlarging their share of EUV by about 70%[90]. The tribunal believes their rejection of the As’ both offers was mainly because they chose to embrace the exaggerated EUV. We do not believe Ms Sat’s valuation, no matter with or without “hope value”, plays any or any significant part in their rejection of the February offer. The February offer simply did not appear attractive enough to them because of the exaggerated EUV. By proceeding to trial as scheduled, the said 5 Rs had already decided to reject the February offer. They were determined to embark on a course for perpetration of a scheme to extract as much as possible a compensation from the As based on a deliberately exaggerated EUV. Substantial time, efforts and costs had to be spent as a result. Since no reasonable expert could have come to the conclusion as Mr Siu did but the said 5 Rs chose to embrace it on proper legal advice, it will be fair and reasonable that the said 5 Rs, apart from being disallowed costs as from the cut-off date, should bear some of the As’ costs. In fact as a matter of principles the said 5 Rs do not express otherwise. They only differ with the As on when the appropriate cut-off date should be and the quantum of costs payable.

90.The following is a rough estimate of the trial time:

i) for the first part of the trial (10 days), the first 5 days were spent on submission, case management of the RDV and additional expert opinion, the evidence of the structural engineer, the condition survey expert and factual witnesses. The second 5 days were spent on joint site inspection (1 day) and dealing with EUV evidence, and the evidence of Mr Chan (about 2 days) and Mr Siu (about 2 days);

ii) for the second part of the trial (4 days), all were spent on evidence of Mr Chan and Ms Sat. Roughly, the time can be split equally for the 2 experts; and

iii) for the third part of the trial (2 days), it was for closing submission of the 3 counsel and the unrepresented parties.

91.Had the case between the As and the said 5 Rs been settled by the February offer before trial, we consider the trial between the As and the unrepresented parties would last for, at most, 6 days dealing with issues raised by the unrepresented parties and those which the As needed to establish anyway statutorily. Furthermore, the main submission concerning applicability or otherwise of Mr Chan’s evidence arising from his disciplinary action came from the said 5 Rs. We therefore consider by reasons of the rejection of the February offer by the said 5 Rs, it is fair and reasonable in the circumstances, on a broad brush basis:

i)   that the said 5 Rs be disallowed their costs as from 2 March 2015, save and except 50% of the total costs payable to Ms Sat for preparing her reports on RDV ;

ii)   to bear 60%[91] of the As’ costs as from and inclusive of 2 March 2015, i.e. the date of trial, including the submission on the applicability of Mr Chan’s evidence arising from his disciplinary proceedings.

Disposition and Orders

92.The costs implications on the parties flowing from the above can briefly be summed up as follows:

A. The said 5 Rs:

i) subject to A(ii) and A(iii) immediately below, are entitled to costs up to and inclusive of 1 March 2015, i.e. the date before trial[92], with certificate for one counsel for the 1^st represented team and certificate for one counsel for the 2^nd represented team, such costs be taxed on the District Court scale to reflect dissatisfaction of escalation of costs by multiple representation and conduct of these related parties[93];

ii) should be disallowed all costs incurred for preparation of Mr Siu’s EUV reports and all legal costs by their respective legal advisors as a result of relying on such  EUV evidence[94];

iii) Should be disallowed 50% of costs incurred for preparation of Ms Sat’s reports on RDV and “hope value” and all legal costs by their respective legal advisors as a result of relying on such reports[95];

iv) Should pay 60% of the As’ costs, including legal costs  and those of Mr Chan in attending trial as from and inclusive of 2 March 2015 onward with certificate for counsel, such costs be taxed on High Court scale, to be shared by them on a joint and several basis[96]. This part overlaps with this tribunal’s indication that the said 5 Rs should bear a certain proportion of the As’ costs in dealing with Ms Sat’s evidence on “hope value”, and therefore it would be appropriate no separate order in the As’ favour in connection with the said “hope value” be made;

v) Should pay 50% of Mr Chan’s fee in preparing his reports in connection with the EUV issues, to be shared by them on a joint and several basis [97];

vi) Should pay the As’ legal costs in dealing with Mr Siu’s evidence on CPS’s EUV prior to 2 March 2015, such costs be on High Court scale, to be shared by them on a joint and several basis[98];

B. R40

i) is entitled to costs of the reports of AP and TP consultant[99];

ii) is entitled to 50% of Ms Sat’s reports on RDV[100]; and

C. The As

i) is entitled to and liable for costs as set out above.

93.As it is the tribunal’s conclusion the said 5 Rs were related and were deliberately arranging their affairs with a view to, inter alia, keeping some of them isolated from costs liabilities, it will therefore be fair their respective liabilities to pay costs to the As be joint and several. It would also be appropriate that the parties’ liabilities under the aforesaid payment heads should be set off against each other. Further, although some items of costs aforesaid can easily be ascertained, we believe there are bound to be items in this long-entangled litigation which may be caught by more than one head, making taxation difficult and costly. Substantial time and costs on taxation will be incurred.

94.On a broad brush assessment of the overall costs of this case, we believe each side’s liabilities to the other are very likely to cancel out against each other. In the circumstances of this case and with a view to saving further time and costs, we believe it is fair and reasonable to make no order as to costs between the As and each of the said 5 Rs for the Application, and the tribunal do make such order. The costs order nisi in favour of the said 5 Rs with R47 taking over the interest of R22 is therefore varied accordingly.

95.As for costs of the costs variation application, the tribunal notes that Mr Mok has made an open offer that there be no order as to costs for the Application at the commencement. It was rejected outright. Now the costs order is so varied. In any event the As can be regarded as having succeeded in the costs variation application. There is no reason why costs should not follow the event. This tribunal therefore makes a costs nisi that the said 5 Rs (with R47 substituting and in place and stead of R22) do pay the As’ costs of the costs variation application, on a joint and several liability basis, on High Court scale with certificate for counsel, to be taxed if not agreed. This is an order nisi, and will be made absolute if there is no application to vary the same within 14 days from today.

Mr Y C MOK, instructed by Philip T F Wong & Co, for the 1^st to 4^th applicants

Mr Bosco CHENG, instructed by Li, Wong, Lam & W I Cheung, for the 47^th, 33^rd and 34^th respondents, by Lui & Law, for the 40^th respondent, and by Simon C W Yung & Co, for the 44^th respondent