Dr. Lui Tat Hung v. The Director of Lands
Read the full judgment text of LDLR 1/1998 on BabelCite. This Lands Tribunal judgment was delivered on 14 January 2000.
1. This is an application for a review made by the Applicant on 11th February 2000 under Section 11A of the Lands Tribunal Ordinance, Cap. 17 of the decision of the Tribunal given on 14th January 2000 ("the Judgment"). Section 11A provides:-
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LDLR000001A/1998 LDLR 1/1998 IN THE LANDS TRIBUNAL OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION Application No.: LDLR No. 1 of 1998
Coram: Deputy Judge LEE and Member W K LO Dates of Hearing: 8, 11, 12 October 1999 Date of Original Judgment: 14 January 2000 Date of Review: 11 February 2000 Date of this Review Judgment: 28 April 2000 _________________ JUDGMENT _________________ 1. This is an application for a review made by the Applicant on 11th February 2000 under Section 11A of the Lands Tribunal Ordinance, Cap. 17 of the decision of the Tribunal given on 14th January 2000 ("the Judgment"). Section 11A provides:-
2. Upon hearing the Applicant's application for a review on 11th February 2000, the Tribunal decided to exercise its power of review. 3. Also, the Tribunal agreed to proceed to review the Judgment immediately without calling for another appearance by the parties so as to save judicial resources as well as costs of the parties. The Tribunal heard the submission by the counsels for the Applicant and the Respondent after which the matter was adjourned to a date to be fixed by the Tribunal for delivery of this judgment of the review. First, we recount below the key background of the original application. Background 4. The original application, which was heard before the Tribunal on 8th, 11th and 12th of October 1999, was made pursuant to section 10(2)(d) of Lands Resumption Ordinance, Cap. 124 ("the Ordinance"). At the hearing, the Applicant claimed compensation for loss or damage to his medical practice due to the removal of the business practice as a result of resumption of land in the implementation of the K-2 Scheme at Mongkok, Kowloon by the Land Development Corporation ("the LDC"). 5. The LDC's K-2 Scheme comprised a rectangular area bounded by Argyle Street, Portland Street, Shantung Street and Reclamation Street, and dissected by Shanghai Street in Mongkok, Kowloon. In about 1985, the Applicant who is a GP doctor cum Obstetrics and Gynaecology Specialist, began to carry on his profession in his clinic situated at the subject premises of ground floor, No. 551 Shanghai Street, Mongkok, Kowloon ("the Old Clinic") within the K-2 Scheme area. He last had a tenancy with the landlord for a term expiring 31st March 1997 at a monthly rent of $35,000. It was not disputed by the parties that the Applicant's landlord had agreed to grant the Applicant another tenancy for 2 years from 1st April 1997. 6. In or about October 1993, the LDC began to implement its K-2 Scheme and resumed properties within the K-2 area, before resorting to resumption by Government. In August 1996, some months prior to the reversion date, the Applicant opened a new clinic at Shop 4, Ko's House, 577 Nathan Road, Kowloon ("the New Clinic") which is outside the K2 area. He ran the Old Clinic and New Clinic simultaneously until December 1996 when he closed his Old Clinic. The Old Clinic was not actually resumed until 3rd April 1997. 7. The Applicant did not claim compensation for his leasehold interest under section 10(2)(a) of the Ordinance. The particulars of his claim for loss or damage to his business under section 10(2)(d) of the Ordinance were as follows: -
The Respondent's estimate of the compensation were as follows: -
8. In respect of losses after 3/1999, the Respondent's final submission was that "the claim for losses beyond March 1999 is precluded by s. 12(c) of Ordinance. Claimant's landlord only agreed to grant the Claimant another tenancy for 2 years from 1/4/1997. It is plain that he had no right to an automatic renewal." 9. The Applicant submitted that section 12(c) had no application to a claim under section 10(2)(d) of the Ordinance. The Applicant relied on Director of Public Works v. Dr. Renald Ching and Dr. Maria Feng [1978] HKLTR 320, Weco Textiles Manufactures Ltd. v. Secretary for Transport [1991] HKLTLR 77 and Dr. Gordon N Cruden's Land Compensation and Valuation Law in Hong Kong 2nd edition at p. 143 to 145. The Applicant had reiterated this submission in the Applicant's Closing Speech. The Respondent made no reply to the Applicant's submission that section 12(c) had no application to this present case. 10. In the Judgment, the Tribunal stated that the dispute in the original application was "very much in the interpretation of the facts, in particular the unaudited accounts of the Applicant for the years before and after the reversion". The Tribunal found that the parties had not carried out any detailed analysis of the Applicant's actual accounts but proceeded with their projection in the construction of hypothetical accounts assuming a no-scheme world using all the figures in the unaudited accounts. The Tribunal determined that the actual accounts produced by the Applicant show that "with the exception of the year 1993/94, which was a particularly good year, there has been no appreciable variation in profits for the period before the year 1996/97. Therefore, the gross income or net profit figure for the year 1995/96 should be adopted as the base year, for the purpose of assessing the loss in profit (if any), for the subsequent years." 11. Based on this finding of facts, the Tribunal proceeded to estimate the annual net profit of the Applicant's business in the years 1996/97, 1997/98 and 1998/99. These estimates were compared with the actual net profit shown in the Applicant's unaudited accounts (with several obviouly erroneous items being adjusted by the Tribunal) before arriving at the estimated loss to the Applicants for these years. In the Judgment, (1) The Tribunal duly awarded the Applicant with the undisputed items of "Distrubance on Removal of Stock" and "Cost of relocation to the New Clinic". (2) The Tribunal further awarded a compensation of $513,572 for Pre-resumption Loss (from 4/1996 to 3/1997) and a compensation of $1,553,859 for Post-resumption Loss (from 4/1997 to 3/1999). (3) In respect of the compensation for business loss beyond March 1999 and permanent loss, the Tribunal agreed with the Respondent and did not award any compensation for the business loss of the Applicant for the year 4/1999 to 3/2000 or consider any application for permanent loss as claimed by the Applicant. (4) An order nisi that the Respondent pay the Applicant's costs on the High Court party to party scale, to be taxed if not agreed, to become absolute unless, within 14 days, application is made to the contrary. The Issues 12. The Applicant accepted the compensation stated in paragraphs (1) and (2) above. In this review application, the Applicant submitted that he should be awarded compensation for loss of profit for the year 1st April 1999 to 31st March 2000 and for permanent loss of profit. 13. In the Applicant's written skeletal submission and further submission, he set out his claim for loss of profit for the year from 1/4/1999 to 31/3/2000 in the sum of $671,816 and for permanent loss in the sum of $858,554. The estimate of the loss of profit from 1/4/1999 to 31/3/2000 was made on the basis of the difference between the estimated net projected profit and the estimated actual net profit for the period. As for the estimate of the permanent loss, the Applicant used a formula that adopted a factor of 4 multiplying by 15% of the average of the estimated annual profits for the three years of 1997/98, 1998/99 and 1999/2000. That is, the Applicant claimed that the permanent loss should be 60% of the estimated average yearly profit. 14. The Tribunal first has to decide whether the additional claims for compensation for loss of profit for the year from 1/4/1999 and 31/3/2000 should be acceded to. If the answer is yes, then the Tribunal has to proceed to determine the additional compensation amount payable by the Respondent to the Applicant. Arguments put forward by the Applicant 15. The Applicant submitted that in determining whether or not section 12 (c) of the Lands Compensation Ordinance applies, the question to ask is "whether [the applicant] when seeking an award under section 10(2)(d) [is] asking for compensation in respect of the probability of the continuance of [his] tenancy." (See Director of Public Works v. Dr. Renald Ching and Dr. Maria Feng [1978] HKLTR 320, Weco Textiles Manufactures Ltd. v. Secretary for Transport [1991] HKLTLR 77 and Dr. Gordon N Cruden's Land Compensation and Valuation Law in Hong Kong 2nd edition at p. 143 to 145) 16. The parties and the Tribunal had agreed that the Applicant's medical practice was not totally extinguished but relocated to the New Clinic. This must mean that the medical practice was not tied to the rented premises but could be relocated. Therefore, the Applicant submitted that it was not asking for compensation in respect of the probability of the continuation of his tenancy. 17. Since the Applicant is claiming loss due to the removal of the business and unless the expiry of his tenancy will extinguish his business as in Leung Sze (Director of Public Works v. Leung Sze [1977] HKLTLR 158), the length of the Applicant's tenancy is irrelevant. The Applicant suggested that "A long lease of say 10 years will not earn him more compensation in a relocation case. A short lease of 2 years will likewise not reduce what he is entitled to in such a case". 18. The Applicant further submitted that if the Applicant's entitlement to compensation should be restricted by section 12(c), "the logical conclusion is that his business would have extinguished upon the expiry of the tenancy. The resumption would thus have brought forward the tenancy expiry and hence put an early extinguishment to the business. But the irrefutable fact is that the medical practice has not been extinguished by the resumption." 19. The Applicant argued that further or in the alternative, because the tenancy of the subject premises was subject to the provisions of Part V of the Landlord and Tenant (Consolidation) Ordinance, Cap. 7, and in the absence of any notice of determination given by the landlord under section 122 of that Ordinance, the tenancy would continue indefinitely as in the case of a periodic tenancy. It was held in Cheung Tai-hee v. Director of Lands [1983-85] CPR 497 and confirmed in Weco Textiles that section 12(c) has no application to periodic tenancy. Therefore, there is no basis for the application of section 12(c) to the Applicant's claim. 20. The Applicant finally submitted that if the Tribunal should be of the view that section 12(c) should apply, the resumption would have put an early end to the tenancy and hence extinguished the Applicant's medical practice. The compensation for extinguishment should then be assessed on the basis of an open market sale of the business as a good concern as in Leung Sze. That includes an assessment of the worth of the goodwill. Only in such a case when the goodwill would be measured by the length of the remaining period of the tenancy. Such an assessment of goodwill in the event of total extinguishment of business should not apply in the present relocation case as extinguishment and relocation could not stand together. 21. The Judgment in this case had adopted the relocation approach and used the income of the new business as the basis for assessment of compensation. The Applicant submitted that "There is thus no room for the extinguishment approach and section 12(c) has no application here. It is also not in accordance with sound compensation principle to firstly award compensation on a relocation basis by taking into account of the income from the new business and then to cut short the period for compensation by applying section 12(c) to extinguish the relocated new business." Also, the Applicant said that "Either the extinguishment approach should be applied or the relocation basis will prevail. There should not be any blending of the two approaches into one or the application of half of each principle. There is no principle of compensation by transplantng the length of the old tenancy to the new tenancy of the relocated place of business so as to limit the period for compensation. The use of the unexpired portion of the old tenancy as a basis of valuation is only for assessment of the worth of the goodwill in the case of extinguishment." 22. The Applicant claimed that under section 10(2)(d), he was entitled to compensation for loss due to the relocation of the business until the relocated business reaches its full production capacity. See Shun Fung Ironworks Ltd. v. Director of Building and Lands [1994] 1 HKC 35 at 84. 23. The Applicant then proceeded to estimate the loss for the year 1999/2000 using the same approach as adopted by the Tribunal in the assessment of the loss for the years 1996/97 to 1998/99. The Applicant also estimated the permanent loss. 24. In summary, the Applicant submitted the following arguments-
Respondent's submission 25. The Respondent submitted that section 12(c) of the Ordinance which applies to all compensation to be paid "under this Ordinance" is clear and "the words should be construed applying the primary or literal rule" (Crairies on Staute Law, 7th Ed., p. 64-66). 26. The Respondent said that "the Claimant's submission that on the authorities, s.12(c) does not apply to a claim under s. 10(2)(d) is not correct, as can be seen from a closer analysis of the authorities." 27. The Respondent then distinguished the following cases from the subject case for various reasons: Director of Public Works v Dr. Renald Ching and Dr. Marie Feng [1978] HKLTLR 320 28. The Respondent argued in this case, the important question for the Tribunal to decide was whether Dr. Ching and Dr. Feng were acting reasonably in deciding not to relocate their medical practice in 1976 after receiving notice of resumption. President Power held they acted reasonably as a result of which all the loss and damages of the total extinguishment of the business arising from the resumption was to be compensated. This was contrasted to the subject case where the Applicant had relocated. 29. The Respondent suggested that "the family grocery business carried out by Leung Sze (which was also decided by President Power in Director of Public Works v Leung Sze[1977] HKLTLR 158) and the medical practice carried out by Dr. Ching and Dr. Feng (which carried out research and teaching as to the use of acupuncture in eye surgery) represented two end of the spectrum. In the former case, goodwill is highly localised, whereas in the latter case, goodwill can be carried from one premises to another premises." Weco Textiles Manufactures Ltd. v Secretary for Transport [1991] HKLTLR 77 30. The Respondent submitted that "this case simply does not apply here." In the words of HH Judge Cruden, "s.12(c) may apply to a fixed term tenancy but it has no application to the case before him because it was a periodic tenancy" (p.86E-G) Cheung Tai-hee v Director of Lands [1983-85] CPR 497 31. This was again a case of oral periodic tenancy and cannot be of any assistance to the subject case. Shun Fung Ironworks v Director of Buildings and Lands [1994] 1 HKC 35
Callwin International Electric Co. Ltd. v Director of Engineering Development [1983] CPR 448 32. The Respondent submitted that "this is a case in which s. 12(c) was applied by HH Judge Cruden (450C, 462H)" 33. In the submission, the Respondent criticised the Applicant for trying to take advantage of both worlds. "On the one hand he is saying that his practice is not dissimilar to that of a family grocers, in that customers would not seek him out after he had moved his clinic. On the other hand, he claimed to be a specialist doctor and also seeks to rely on the principle in Dr. Ching and Dr. Feng's case." 34. In particular, despite their similarities, the Respondent distinguished the case of Director of Public Works v Dr. Renald Ching and Dr. Marie Feng case from the subject case as Dr. Ching and Dr. Feng were forced to totally extinguish their practice while the Applicant had relocated his practice. Therefore, "to the extent that his (the Applicant's) goodwill was localised, any loss would be caught by s.12(c) and limited to the remaining duration of the tenancy. To the extent that his goodwill was not 'tied to the premises', by definition he would not have suffered any loss and no compensation is payable. 35. The Respondent submitted that "a review of the authorities therefore shows that s.12(c) does apply to a claim under s.10(2)(d) in appropriate circumstances, and the present claim of Dr. Lui falls squarely within the ambits of s.12(c)." The provisions of the Ordinance 36. The relevant statute for the determination of the amount of loss or damage to a business conducted by a claimant at the date of resumption is section 10(2)(d) and 10(2)(e)(i) of the Ordinance which states,
Goodwill 37. The loss or damage to a business due to the resumption is also commonly known as the loss of the goodwill of the business. A definition of business goodwill can be found in the work - Land Compensation and Valuation Law in Hong Kong 2nd edition, pp. 132 as follows:
38. This definition distinguishes two different classes of goodwill, site goodwill which is that part of the value of the business arising from the location of the business and personal or floating goodwill arising from the personality and reputation of the business owner operating in the affected premises. Therefore, although goodwill is often valued by reference to profits, it is profitability on account of shop location and personal connection that is the true measure of goodwill. In Shun Fung Ironworks Ltd. v. Director of Buildings and Lands [1994] 1 HKC 35, part of the claim was for loss of future profits over the specific number of years to be taken for the appellant in that case to re-establish its production capacity after relocation to another site, the Court of Appeal, at pp. 86-87, quotes Wells J in Emerald Quarry Industries Pty Ltd v. Commissioner of Highways [1996] 18 SASR 438 as saying: -
39. The Court of Appeal explained this more explicitly later, at pp. 87-88: -
40. This is reinforced by the Privy Council as follows: -
41. There are a range of methods to value goodwill, extending from the simplistic to the sophisticated (Land Compensation and Valuation Law in Hong Kong by Dr. Cruden at pp. 134). In Callwin International Electric Co. Ltd. v. Director of Engineering Development [1983-84] CPR 462, the Tribunal stated that: -
The Tribunal also observed that : -
Basis of assessment of goodwill of leasehold interest 42. In Land Compensation and Valuation Law in Hong Kong 2nd edition, Dr. Cruden gave a detailed summary of whether disturbance payments under section 10(2)(d), in relation to land held on short term lease, must be discounted to reflect the residue of the term of the lease held by the applicant. He said that "the general approach of the Lands Tribunal has been to award full disturbance payments and not to make any discount in relation to the residue of the existing lease. 43. Although Dr. Cruden said that "a variety of routes have been followed in arriving at that conclusion", the major arguments are found in Director of Public Works v. Dr. R Ching and Dr. M Feng [1978] HKLTLR 320, in which the Tribunal explained that section 12(c) was irrelevant to a claim under section 10(2)(d):
44. Dr. Cruden set out in page 144 of his text that,
45. He went on to sum up what he considered to be the position of medical partnership, as follows:
46. Dr. Cruden also discussed the decisions of the following cases in Hong Kong, Canada, Australia and England all concerning the assessment of disturbance or loss of goodwill of a short-term lessee. 47. In Scaiffee Ltd v. Chow Hei Chun [1983] HKDCLR 11 where the Lands Tribunal in assessing the tenant's interest under the Landlord and Tenant (Consolidation) Ordinance (Cap. 7) held that a tenant was not entitled to his total removal costs but only to an amount as compensation after reflecting the term of the tenancy. The Tribunal in arriving at the decision cited the Ontario Court of Appeal's decision in Re Frankel Steel Corporation Construction Ltd v. Metropolitan Toronto (1966) 58 DLR (2d) 578. 48. Later, in Cheung Tai Hee v Director of Lands [1983-85] CPR 497, the Canadian principle was further discussed where leases had residues of three years. The Tribunal declined to follow the Canadian principle but awarded full disturbance compensation after considering the English statutory provisions for short term tenancies and an Australian case where full disturbance was paid to a mere monthly tenancy: Brisbane City Council v Michael (1973) Qd R 14. 49. More recently, in Weco Textiles Manufactures Ltd. v Secretary for Transport [1991] HKDCLR 77, the Tribunal decided "that the limitations in section 12 (c) do not apply to periodic tenancies because they are not subject to an act of renewal or continuance by the landlord. To the contrary, a periodic tenancy, in terms of its original grant, continues for an indefinite period until terminated by notice." (Cruden's work, pp. 145) 50. In conclusion, Dr. Cruden summed up that "in the assessment of disturbance, Hong Kong practice is therefore not to reduce compensation by applying the Canadian principle." Tribunal's findings and determination 51. All the relevant cases in Hong Kong dealing with whether s.12(c) applies in the assessment of disturbance, goodwill or loss or damage to the applicant due to resumption of a short-term leasehold interest are decisions of Lands Tribunal in the last three decades. In fact, in most instances, there are some important differences between the facts of these cases and that of the present application. Therefore, the subject case can be distinguished from the other cases. Director of Public Works v. Dr. Renald Ching and Dr. Marie Feng [1978] HKLTR 320 52. The lease of the claimants in this case, the owners of a medical practice, had only six months tenure to run at the date of resumption. Compensation under s. 10(2)(a) for the owners' landed interest was limited to the remaining six months terms, in view of s. 12(c). Government submitted that s.12(c) required that compensation for disturbance should also be assessed on the same basis as the compensation for the leasehold interest of the owners. This was on the basis that the owners would, in any event, have vacated the premises at the end of six months. President Power held that the continuance of the business was not dependent on the probability of the continuance of the tenancy because the business could have been continued elsewhere. For this reason, he decided that s. 12(c) was irrelevant to a claim under s. 10(2)(d). 53. This is the only Hong Kong case quoted by the parties that involves compensation for resumption of the leasehold interest of a medical practice, similar to the subject application. The Applicant suggested that this case has since its judgment established the principle of valuation of goodwill in that s.12 (c) be disregarded if the resumed business (such as a medical practice) was not inextricably tied with the land. 54. As contended by the Respondent, the important and distinguishing fact is that in this case, although the medical practice could have been relocated, Dr. Ching and Dr. Feng decided not to continue because of their special circumstances. The Tribunal held that they acted reasonably in the circumstances and all the loss and damages arising from the resumption is therefore a subject of resumption. We agreed with the Respondent's argument that "from an accounting point of view, all the loss and damages to the medical practice occurred upon the resumption of the land", when the applicants made the decision to extinguish the medical practice. 55. We also distinguish this case from the subject application in that according to the Lands Tribunal, this case warrants total extinguishment in the first place. On the other hand, the subject application is one involving relocation where we determine that a separate rule shall apply as an applicant in a relocation case will be able to recoup all the personal goodwill by carrying its business in the new location. In addition to that, the aggrieved applicant should be able to get other compensation associated with a relocation claim. Weco Textiles Manufactures Ltd. v Secretary Transport [1991] HKLTR 77 56. We distinguish this case from the subject application as this was a case affecting a periodic tenancy and compensation awarded was on the basis of total extinguishment. We agree with the Respondent that this case does not apply here. 57. The Applicant of the subject application submitted that the Applicant's fixed term tenancy was the same as a periodic tenancy because under the Landlord and Tenant (Consolidation) Ordinance, Cap. 7, a landlord would have to serve a 6-months' notice to quit, to expire at the expiration of the original term of the tenancy. However, as at the date of resumption, the Applicant was occupying on the basis of fixed term tenancy. The tenancy had not expired and a statutory monthly tenancy had not come into play yet. We could not assume that the Applicant's tenancy was the same as a periodic tenancy, as in Weco's case. 58. However, we also note and agree with the Applicant that what Judge Cruden commented in this case about the differences between a periodic and a fixed tenancy was in respect of the compensation for the landed interest. Cheung Tai-hee v Director of Lands [1983-85] CPR 497 59. Again, we agree with the Respondent that this was a case of oral periodic tenancy and cannot be of any assistance to the subject case. Shun Fung Ironworks v Director of Buildings and Lands [1994] 1 HKC 35 60. Although this is the most important case in the matters of land and disturbance compensation in Hong Kong, the main distinguishing fact of this case is that the applicant was the owner of the land resumed, but not a short-term leaseholder, as in the present application. Therefore, s.12(c) does not apply here too. Callwin International Electric Co. Ltd. v Director of Engineering Development [1983] CPR 448 61. In this case, Judge Cruden decided by s.12(c), Callwin could not ask for more compensation beyond the 6 years tenure (see p. 462G to I). Although the Respondent submitted that Callwin's decision supported the application of s.12(c) in the assessment of the goodwill of the Applicant. The Judgment of the case did not have that conclusion. 62. The wordings in section 12 (c) do not limit the type of compensation for which the section applies, or does not apply. In view of the primary or literal construction of the words of the section, this Tribunal has to ask whether the application of section 12 (c) would deprive the applicant of a fair compensation and would put the applicant in a worse condition had there been no resumption. 63. We agree the general classification of goodwill into the so-called personal and locational goodwill. We decide that for the personal goodwill, s. 12(c) should not apply while for the locational or site goodwill, we cannot understand why s. 12 (c) should not apply. The fact that there is locational or site goodwill must be due to the advantages of a particular location and that by definition, must be tied in with the tenure under which an applicant is occupying the site. Therefore, the duration of the lease matters in the assessment of the locational goodwill, as for the assessment of the landed interest of a leaseholder. 64. In the subject case, it was determined as a matter of common sense and facts that the Applicant enjoyed both types of goodwill before the resumption. The Applicant, in giving evidence, emphasised that despite his best efforts in mitigating the loss and restarted renting a New Clinic several months before the date of reversion, occupying the Old Clinic and the New Clinic at the same time for a number of months, he was never able to get back to the sane volume of patients, turnover and profits for several years following the resumption. This is the best testimony that this business of medical practice owned by the Applicant must enjoy a fair amount of locational or site goodwill, using the jargon that was commony employed in the market and defined by Dr. Cruden in his work. 65. In fact, we agree with the Respondent that two years following the resumption, the personal goodwill of the Applicant, should either have been relocated to the New Clinic or should have been compensated by the estimate of the loss or damage to the claimant for the period from 1/4/1997 to 31/3/1999. 66. We agreed that if the business of the Applicant were extinguished by the resumption, a fair compensation would be to disallow the application of s. 12 (c). It would be firstly difficult if not impossible to accurately estimate the amount of locational or site goodwill if the Applicant had not relocated and had not been compensated for the period of the residue of the lease following the resumption. Orders 67. In the circumstances, the review application is dismissed. Costs to the Respondent, to be taxed if not agreed. Dated this 28th day of April 2000.
Representation: Mr. Louis Chan and Mr. Tommy Ho, counsel instructed by C W Yung & Co., Solicitors for the Applicant Mr. Nelson Miu, Government Counsel for the Respondent | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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