Pak Hop Restaurant Ltd v. Director of Public Works

LDMT000001/1981

Coram: J. Lyons, Presiding Member, and W. Hume, Additional Member, in Court

Date: 17 February 1982

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JUDGMENT

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1. The Tribunal was assisted in this matter by Mr D.J.T. McKenzie, C.A., F. H. K. S. A., who was appointed as an assessor under Section 9(4) of the Lands Tribunal Ordinance.

2. In these proceedings the Applicant, which during the period of the claim operated a restaurant known as Pak Hop Restaurant at the junction of Nelson Street and Sai Yeung Choi Street in Kowloon, required the Tribunal to determine the amount of compensation to be paid under Sections 17 and 18 of, and item 4 of Part I of the First Schedule to, the Mass Transit Railway (Land Resumption and Related Provisions) Ordinance (hereinafter referred to as "the Ordinance"). That amount is described in the said Schedule as the pecuniary loss or damage caused or likely to be caused by the closure or substantial alteration of a street or part of a street under Section 10 of the Ordinance.

3. The Applicant's claim for compensation arose out of certain works carried out by the Mass Transit Railway Corporation ("MTR") at the junction of Nelson Street and Sai Yeung Choi Street between 1976 and 1979 in connection with the construction of Argyle Station. The order the Governor authorizing the said works, which was dated 16th January 1976 and published in the Government Gazette of that date as G.N. No. 136 of 1976, included authorization of the following items of work:

4. According to the Rule 18 document of Mr H.A. Faruqi, F.C.A., a Senior Treasury Accountant attached to the Mass Transit Adviser's Office of the Public Works Department, who gave evidence for the Respondent, the restaurant was not directly affected by the works until 26th October 1976, when mesh and chain fencing and wooden hoardings were erected. These continued to obstruct the restaurant until the end of the claim period.

5. One of the witnesses for the Applicant, Mr Cheung Chung-bun, a Director and the General Manager of the Applicant company, testified that during the progress of the works machinery was located outside the main entrance to the restaurant, that materials were stored in the streets and that particularly in 1978 there was considerable noise due to the carrying out of foundation work.  In addition, the Applicant had to remove an illuminated overhead sign which stretched across Nelson Street, and to replace this with a smaller sign that did not stretch across the street.

6. Prior to the application to the Tribunal, the Applicant had lodged a claim for $3,132,230 with the Respondent, who had rejected the claim under Section 21(5) of the Ordinance on the ground that "the said claim was substantially in excess of the loss that the Applicant sustained due to the undertaking". In its application the Applicant purported to bring its claim before the Tribunal under Section 21(6)(b) and (c) o the Ordinance. Under those provisions, however, only the Director of Public Works may commence proceedings, and we have therefore treated the application as made under Section 21(7) of the Ordinance.

7. The original claim for $3,132,230 referred to above covered the period from let January 1976 to 31st August 1979. That period was disputed by the Respondent, but on opening his case for the Applicant, Mr Frankie F. L. Leung of Counsel stated that common ground had been found between the parties on this issue, and that the period of claim was agreed to be from let April 1976 to 30th June 1979.

8. It was not disputed by the Respondent that the business of the Applicant had been affected by the works referred to above, so that the only issue before the Tribunal was the proper amount of compensation to be awarded. The parties were in agreement that this amount should be ascertained by estimating the notional profits that the restaurant might have been expected to produce during the period of claim had the said works not been carried out, and by deducting from that amount the actual profits produced during the same period. The difference between the two would be the proper amount of compensation.

9. The Applicant's audited account from 1973 to 1979 were included in its Rule 18 documents. Figures from these accounts had been adjusted to arrive at the figures for Actual Profit and Loss set out in Table 1 of the Rule 18 document of Dr Raymond Kwok Chak Li, B. A. (H.K.), M. Sc. (Lond.), M. A. (Wharton), M. B. A. (Wharton), F.I.S., Ph.D., a Lecturer in Statistics at the University of Hong Kong, who gave evidence for the Applicant. These figures were not in dispute, and the only material disagreement between the parties, therefore, was how to estimate the notional profits assuming the said works had not been carried out. The parties were agreed that in order to arrive at a proper estimate of notional profits only two factors have to be considered, namely, the rate of growth of notional sales to be used (with which is associated the determination of the base line from which to start), and how to deal with variable overheads.

10. As has already been indicated, Rule 18 documents were lodged on behalf of the Applicant by the above-mentioned Dr Raymond Kwok Chak Li, and on behalf of the Respondent by the above-mentioned Mr H.A. Faruqi.

11. Mr Leung called as witnesses, in addition to Dr Li, Miss Lily Fong, an Acting Senior Statistician of the Census and Statistics Department, Mr Dennis Chan, a Certified Public Accountant whose firm was the Applicant's auditor, Mr Choy Pak-lai, an expert in fung shui and Chinese customs and the author of a Chinese almanac, and the above-mentioned Mr Cheung Chung-bun.

12. In his Rule 18 document Dr Li adopted as his base line the year 1975, as being in his view the last year in which the Applicant's business was not yet affected by the MTR works. He then proceeded, by the use of the Consumer Price Index ("CPI"), Deflated Gross Domestic Product ("GDP") figures, statistics relating to the number of restaurants in Hong Kong, average percentage of household expenditure on meals-bought- away-from-home, and estimated population, and also by the application of the sophisticated technique of regression analysis in relation to the variable overheads, to estimate the loss of net profits at $2,648,103.54. During the course of the hearing, however, Dr Li produced a revised calculation of $2,277,775.45 arrived at by the same method. This latter figure, which recognised the new agreed period of claim, he considered to be the proper amount of compensation.

13. Dr Li's figures were calculated after deduction of tax. We apprehend this to be incorrect, since any award of compensation will itself be liable to tax. Adding back the tax element produces a pre-tax loss figure of $2,630,610.73 according to Dr Li's method. It is tote noted, however, that in his final submission Mr Leung claimed that the Applicant should receive "around $2,000,000".

14. The method adopted by Mr Chan was to take the year 1975 as a base line and to assume, for reasons to be indicated later, an annual sales growth of 1096. It was this calculation that resulted in the original claim for $3,132,230.

15. Mr Farugi's method was, like Dr Li's, theoretical. He adopted as his base line the quarter ending 31st March 1977. His reasons for so doing were that in his view the business of the restaurant had not been affected by the MPR works during the year from April 1976 to March 1977, and that for the period subsequent to lst April 1977 there were available quarterly statistics issued by the Census and Statistics Department, in the shape of the Quarterly Business Survey ("QBS") Reports, on which his calculations were based. As for his annual sales growth rate, he adopted5% for reasons that will appear later.

16. We turn now to a more detailed consideration of the arguments, and we start with the evidence of Mr Dennis Chan and Mr Cheung Ch Chung-bun.

17. Mr Chan in his evidence stated that his firm had audited the Applicant's accounts from 1973 to 1979, and he Justified his adoption of a 10% annual growth rate in sales on three grounds, namely, that it had been supplied to him by the Applicant, that the prices of dim sum in the restaurant had risen by more than 10% per annum during the claim period, and that other clients of his firm had shown growth of l0% - 15% during the same period. Mr Chan said that the prices of dim sum were significant because it was the restaurants major product, being served at both breakfast and lunch. When Mr Cheung gave evidence, however, it appeared that breakfat and lunch business accounted for only 50% of the total profits. As for the experience of Mr Chan's other clients, when it was pointed out to Mr Chan in cross-examination by Mr W.E. Johnson, Crown Counsel, who appeared for the Respondent, that the Applicant's restaurant suffered negative growth between 1973 and 1975 and he was asked if his other clients had had similar experience, he was unable to say. On reexamination, in reply to questions from Mr Leung, he said that about five of his other restaurant clients were in a similar location to the Applicant's, but he could not remember the growth rate of those five between 1976 and 1979.

18. In our view Mr Chan's evidence, which was unsupported by any written evidence, was unreliable and did little to advance the Applicant's case.

19. When Mr Cheung gave evidence, it was clear that he has considerable experience in the catering trade in Hong Kong, being the owner of several other restaurants besides being the Managing Director of the Applicant company. Mr Cheung stated that the restaurant had commenced business in 1969, and about a month later the Applicant ompany had been incorporated to continue the business. From the beginning the directors had estimated that after 5 or 6 years from the commencement of business the restaurant should be producing net profits of $100,000 per month, and the impression we were given by Mr Cheung was that because in 1976-79 that result was not achieved, and because those years coincided with the MTR works, nothing would deflect him from the belief that the whole of the shortfall must be attributed to the MTR.

20. Given the directors' optimistic early expectations, the Applicant has a particular difficulty in explaining away the poor record of the restaurant from 1973 to 1975, a period prior to its business being affected by they MTR.

21. Before we reach those years, however, we note that Mr Cheung in his examination in chief stated that, while he could not give actual figures, the business of the restaurant was profitable from 1969 to 1973 and that profits during that period increased by 10% per annum or slightly less. By the time he was cross-examined' he was able to state that the sales and profits for those years were as follows:

22. Clearly, if the figures are correct, Mr Cheung's recollection that the profits had increased by 10% per annum or slightly less had been inaccurate. Unfortunately we have nothing but Mr Cheung's unsupported word for either his recollection or the figures, a circumstance that we regard as particularly regrettable since audited accounts for the years in question must be available.  In the absence of such corroboration we are unable to attach weight to this aspect of the evidence.

23. We turn now to the years 1973 to 1975, the audited accounts for which are, as already mentioned, included in the Rule 18 documents. These reveal that in 1974 sales were 0.6 % less than in 1973, and in 1975 were 1% less than in 1974; while the net profits/losses, continuing the table set out above, were as follows:

24. As has already been indicated above, the discrepancy between these results and the hoped-for results in 1976 to 1979, which are the basis of Mr Cheung's method of calculation, obviously called for some explanation. This was provided in part by Mr Cheung and in part by Mr Choy.

25. Mr Cheung's explanation for 1973 was that it was the year of a major stock market collapse, that the whole economy was affected, that there was less money about and that fewer people patronised restaurants. We note, nevertheless, that sales figures for the restaurant for 1973 Actually showed an increase over the sales figure for 1972 quoted by Mr Cheung.

26. The 1974 results were explained by Mr Cheung by the rapid increase in oil prieces that year, and the ban imposed by Government from December 1973 to May 1974 on the switching on of illuminated signs between 7 p. m and 10.30 p.m. Mr Cheung claimed that the ban affected the evening business to the extent of 50%, and that the general economic climate again meant that people were not spending so much. Regrettably, monthly sales figures were not produced to support this claim.

27. As for 1975 Mr Cheung explained that this was a "blind" year i. e. one in which there is no Lap Chun (1st day of Spring) and which is traditionally regarded by Chinese as inauspicious for marriages. This meant a falling off in wedding banquets by, in Mr Cheung's estimation, as much as 30%. Mr Choy Pak-lai's evidence was also directed to the effect that blind years have on Chinese customs, particularly with reference to marriages. He was unable to say to what extent marriage figures might be affected by a blind year. Later in the hearing there was produced an excerpt from the Population Chapter in the Hong Kong Government Review of 1975. This revealed that the number of marriages celebrated in 1975 was 36,201, only 1,433 (or 3.8%) less than in 1974. As it appeared from statistics included in Dr Li's Rule 18 document that in the 4th quarter of 1975 there were 3,354 restaurants in Hong Kong it seems fairly clear that on average the loss of business for any one restaurant as a result of reduced wedding banquet business could hardly be material, even allowing for the fact that not all restaurants would have such business.

28. We are prepared to accept that the factors mentioned by Mr Cheung as having affected business in 1973, 1974 and 1975 would indeed have some effect on the Applicant's trading results for those years, but in the absence of any evidence other than Mr Cheung's opinion as an experienced caterer, we are unable to accept that  but for those factors  the profits would have shown an annual growth of 10% in those years or that by 1976 the restaurant would have been producing net profits of $100,000 per month. In our view, the assumption of a 10% growth rate produces unrealistically high notional results, having regard to the evidence we have been able to accept with respect to the restaurant's actual performance.

29. Mr Cheung's evidence included also a description of the works carried out by the MTR during the claim period, and a description of how they affected the business. He emphasised the noise and dust, the presence of fences, hoardings and stored materials which made access to the restaurant more difficult or less agreeable, and the dismantling of the overhead neon advertising sign stretching across Nelson Street. During this evidence there was produced an agreed album of photographs taken during the progress of the works. In brief, Mr Cheung's conclusion was that the effect of the works on the business was a reduction of 25% 30% in the number of customers.  He was, however, unable to identify any particular time at which such reduction became evident in the monthly sales figures.

30. We accept that the dust generated by the works would have an adverse effect on the decoration of the entrance to the restaurant, which was claimed to be one of the most important attractions of any restaurant, that the dust, noise and more restricted access would discourage customers, and that the loss of the overhead neon advertising sign could lead to some loss of business, but again, unfortunately, there was nothing in Mr Cheung's evidence that would enable us to quantify any loss on that account.

31. Another aspect of Mr Cheung's evidence to which we should refer is that he claimed that the years 1976 to 1979 were boom years for the economy, that people had more money to spend, that the restaurant business generally was doing well, that the Pak Hop Restaurant could have coped with a 30% increase in business without any increase in staff, and that accordingly those years should have been very profitable for the Applicant. That they were not he attributed, as already mentioned, to the MTR works. Here it may be noted that Mr Johnson during cross-examination of Mr Cheung introduced as an exhibit a newspaper cutting of 15th dune 1979 (Exhibit 8) in which a certain Mr Au Sum, described as Chairman of the Kowloon Restaurant Workers' General Union, was reported as representing to the Urban Council; which was proposing to raise licence fees, that about 80% of restaurants were at that time losing money.  Mr Cheung's reaction to Mr Au's representations was that Mr Au's purpose was different from his own. Clearly this was so. Mr Au was trying to put the worst possible face e on the restaurant business, while before the Tribunal Mr Cheung was trying the very opposite. However, as Mr Au was not called as a witness to be examined on his statement we have attached no weight to it.

32. We note here, too, that Mr Johnson also produced as Exhibit 10 a table showing inter alia that in the years from 1975 to 1979 the prices of dim sum at the restaurant were rising at a much faster rate than the average Consumer Price Indices for those years. There was no dispute that the patrons of the restaurant were mostly in the lower income groups, and we accept Mr. Johnson's argument that, at those income levels, volume of sales is likely to be more price-sensitive than it would be if the clientle were financially better off.

33. Finally, before leaving Mr Cheung we note that although the restaurant had a lease of its premises that ran to 31st January 1981 it actually ceased business on 30th June 1979.   Mr Cheung's explanation for the closure at that time was that the landlord had indicated that he would not extend the lease in 1981, that considerable redecoration of the restaurant costing. $1m.-$2m.  would have been necessary and the applicant was not disposed to spend so much money at a time when business was still affected by the MIR works, and that the landlord paid the Applicant $280,000 for the early termination of the lease. while we can see the force of the explanation, we consider that the willingness of the Applicant to close the restaurant earlier than necessary casts some doubt on Mr Cheung's estimate of the profitability of the restaurant.

34. We turn now to Dr Li's evidence, and should say at once that we were impressed by his statistics. As has been mentioned above, he took as his basis the actual results of the restaurant for 1975, and proceeded from there, by the application of the statistics already mentioned, to estimate first the notional sales of the restaurant assuming there had been no MTR works, secondly the notional gross profit, thirdly the notional amount of overhead costs, and finally the notional net profit.

35. In his cross-examination Mr Johnson questioned Dr Li's basis, pointing out that the Year 1975 ended three months before the start of the agreed claim period on 1st April 1976 and that those three months were a seasonally busy period for the restaurant. Dr L explained that in his final calculations in his Table 10 he had-taken account of the gap by reducing the claim for 1976 by 25%, which in the circumstances he regarded as conservative conservative. We agree with Dr Li that the whole year 1975 is a reasonable basis for his calculations, notwithstanding that it was "blinds" year, and that appropriate adjustment is made in Table 10 for the 3-month gap.

36. The first stop in Dr Li's calculations involved estimating the e sales figures for 1976 to 1979 at current prices (the 1975 constant prices being also shown in his  Table 5 for illustration Purposes). This was done by the application of the CPI for meals-bought-away-from-home by persons in Spries A and Series B, i.e. Persons with incomes in the ranges $400 - $1,499. p. m. and $1,500 - $2,999 p. m respectively. According to the evidence, the customers of the restaurant were mainly derived from those two categories.

37. The next step was to bring in the economic growth of Hong Kong between 1976 and 1979 by the use of deflated GDP figures. It should perhaps be noted here that Mr Farugi denied the validity of using the GDP figures in this-context since they relate to the whole economy of Hong Kong and not specifically to the restaurant business. When these figures are applied to the Table 5 current sales prices they produce the true sales figures at current prices for the years 1976 to 1979 i. e the sales figures that would have been expected on a purely statistical basis (using the CPI and GDP figures) starting from the actual sales figures for 1975.

38. Dr Li acknowledged that these estimated figures could be 6 affected by competition, but produced further statistics to show (in his Table 6) that, comparing the 4th quarter of 1975 with the list quarter of 1979, there were in Hong Kong 11.5% more people With 60.3% more money available to them and spending 32.3% more of that increased  money in only 25.3% more restaurants. Dr li therefore concluded that the downward effect of more restaurants was more than counter - balanced by the greater number of people with more money spending higher proportion of it in restaurants. We do not dispute the figures, but were not persuaded that any benefit was evenly spread over the whole of the restaurant business,

39. Having thus estimated the sales figures that should have been obtained by these statistical methods, Dr Li proceeded to calculate the loss of gross profits by applying to them the actual ratios of costs to sales in the years 1976 to 1979. This he justified on the ground that these ratios are affected by the management of purchasing inventory control, spoilage and wastage control, and use of materials control functions of the restaurant. In his view, if the same quality standards of the-food and the same managerial functions were maintained with and without the MTR works, the ratios would have to be the same in both circumstances.

40. Dr Li's final step was to deal with the question of overheads, and it Was at this stage that we were introduced to his use of regression analysis. This Tribunal has recently in the case of Secretary for the New Territories v. Lee Pui - leung (Crown Lands Reference No. 1 of 1981) indicated its views an the use of regression analysis in relation to the valuing of land. The Tribunal there rejected the use of the procedure at the present time on the grounds that-

We have similar views on the use of regression analysis in the present context. Notwithstanding Dr Li's evidence that he personally has made use of the method in other cases, and notwithstanding that evidence was produced to show that regression analysis is a subject in which accountancy students are examined, there was no evidence to suggest that the method has been generally adopted by the accountancy profession for practical application in such situations.

41. As it happens, however, we are fortunately not required to base our decision en the present case on our attitude to the method, The reason for this is that the more variable overheads that are used the greater the deductions that have to be made from the notional loss of gross profits. Dr Li's regression analyses produced sex variable overheads, namely (1) salaries and wages, (2) staff messing, (3) water and electricity, (4) consumable stores,(5) laundry and (6) fuel, which he used for the purpose of making his deductions from the notional loss of gross profits. Mr Faruqi, however, in his Rule 18 document was satisfied that only two variables were sufficiently material to be relevant in the present case, namely salaries and wages, and consumable stores, though he did say in the course of his evidence that if there restaurant's loss had been I greater he would have had a closer look at the extra staff implications, and he accepted that Dr Li's (2) and (5) might also be regraded as variables. Since Mr Faruqi's view is somewhat more generous to  the Applicant we propose to adopt it.

42. Inherent in Dr Li's statistics analysis is the assumption, as Dr LI mentions on p.6 of his Rule 18 document, that in the absence of other information the business of a restaurant may be expected to grow in line with the economy. Elsewhere Dr Li justifies this assumption in the case of the present restaurant by arguing that the management must have been increasing in experience since the restaurant opened in 1969 and by pointing to the fairly constant ratios between sales and costs of sales and between sales and salaries/wages from 1974 to 1979,which in his view showed that there was no obvious deterioration in the management and no drastic change of management policies.

43. Notwithstanding Pr Li's argument,  we are left with an assumption, which was challenged by Mr Johnson, that the benefits of an increase in GDP are evenly spread throughout the whole economy and the whole community, and also with an assumption that the effects of a rising CPI(which includes increases in the goats of restaurant meals) are equally reflected in the eating-out habits of rich and poor alike. Those assumptions are contrary to our experience, and there was before us to suggest that they are valid assumptions. we have already mentioned that Exhibit 10 produced by Mr Faruqi reveals chat the prices of dim sum in Pak Hop Restaurant actually increased much faster than the average CPI between 1976 and 1979. This would in our view be a more material consideration for the low-income patrons of the Pak Hop Restaurant than it would for more prosperous people, who could more easily absorb much higher prices. In all the circumstances, therefore, we are not disposed to make the assumptions referred to, although we are prepared to accept that a general increase in prosperity has some beneficial effect on the business of restaurants, and vice versa. Unfortunately, however, the statistical figures do not in themselves help us to assess the actual effect on the particular restaurant with which we have to deal.

44. We turn now to Mr Faruqi's calculations, according to which the pre-tax loss of the Applicant for the whole of the agreed claim period amounted to $206,606. These calculations, as previously noted, were based upon the actual results of the restaurant for the quarter ending 31st March 1977. Mr Faruqi explained that he had chosen a quarterly basis simply because the statistics that he used, namely the QBS Reports, are presented in a quarterly form; and he sought to justify this particular quarter by showing that in the year from lst April 1976 to 31st March 1977 there was no loss of sales by the restaurant due to the MTR. Since he had satisfied himself on that score, he said that it: followed that the calculation for lost sales for the subsequent period should be done with reference to the actual sales for the quarter ended 31st March 1977.

45. Mr Faruqi's method of showing that there was no loss of sales due to the MTR from 1st April 1976 to 31st March 1977 was to take the actual sales figures for the year from 1st April 1975 to 31st March 1976 and to crease these by his assumed 5% growth rate.   Since this produced a figure that was slightly less than the actual sales figures for the year from 1st April 1976 to 31st March 1977, Mr Farucgi concluded that there was no loss of sales in that year due to the MTR This method appears to us to be spurious. Part of what we have to determine is what effect the MTR works had on the restaurant's business in 1976-77. Merely to show that during that period sales did not go up by substantially more than his assumed 5% and to conclude that therefore the MTR had no effect is surely to beg the question. It fails to take account of the possibility that but for the MTR works sales might indeed have gone up by substantially more than 5%. That, however, is not to say that there is no to support the conclusion, and the fact that no actual MTR works took place outside the restaurant until 26th October 1976 points towards no effect on the restaurant at least until that date. This indication is borne out by an examination of the monthly sales figures for 1976, which do not show any immediate impact. Nevertheless, the fact that the assumption of a 5% growth rate leads to a conclusion that there was no loss of business from October 1976 to March 1977, a conclusion that we cannot accept indicates to us that 5% is too low a figure.

46. As there were no QBS Reports for the period prior to lst April 1977, Mr Faruqi had to justify his assumed growth rat rate of 5% for that period. He did this by pointing to the fact  that the QBS Reports for quarters subsequent to 1st April 1977 showed an approximate annual growth rate of 5%, and to the fact that 5% fell about midway between the actual minus 1% growth of sales in the year from 1st April 1976 to 31st March 1977 and Mr Chan's assumed rate of 10%.

47. The basis of Mr Farugi's calculations was attacked on four main grounds, which were explained by Dr li in the course of his evidence. Objection was taken to-

48. As to (1), Dr. Li first objected to the use of the index in the last column of Appendix 4 to Mr Farugi's Rule 18 document, where Mr Farugi had set out the quarterly percentage changes in restaurant sales taken from the QBS and from that had calculated an index based on the quarter ended 31st March 1977. However, since Mr Faruqi explained in his evidence that the index had been included for illustration purposes only and had not actually been used by him in his calculations, the objection to the index is not relevant.

49. A more material objection to the QBS figures, which Mr Faruqi preferred to GDP figures because they are industry-specific while GDP figures are not, was that the size of the sample and the sampling method used by the Census & Statistics Department, which were dictated by the need to produce quarterly figures promptly if they were to be of any value, rendered the results too inaccurate for present purposes. Miss Fong in her evidence had stated that the QBS figures for restaurants are derived from a sample of 13 restaurants, all larger than the Pak Hop Restaurant, and that the purpose of the figures is to provide a prompt assessment of business experience and expectations of firms from various sectors in the short term.  According to Miss Fong, the QBS indicates economic trends, but the level of detail is not great. For much more detailed information one would have recourse to the 1977 Census of Wholesale, Retail and Import/Export Trade, Restaurants and Hotels Report, which is designed to provide comprehensive information on operating characteristics. For the purpose of the Census Report, the Census and Statistics Department had contacted about 2,000 restaurants. including all with more than 20 employees.

50. In commenting on the relative reliability of the Census Report and QBS figures, Dr Li stated that whereas the Index compiled by Mr Farugi in his Appendix 4 showed a quarterly variation in the value of restaurant sales ranging from 89-102 in 1977, and from 90-116 in 1979, the Census Reports (off 1977 and 1979) showed a growth between those two years of   49%.  Unfortunately the Census Reports of 1977 and 1979 were not produced to the Tribunal, but since Dr Li's evidence on these figures was not challenged we take it to be accepted, and we agree that it casts some doubt on the propriety of relying too heavily on the QBS figures for present purposes, though we must bear in mind, as Mr Faruqi pointed out in his evidence, that the QBS figures do broadly correspond with the restaurant's actual turnover.

51. Dr Li's objection (2) derives from the fact that the accounts of the restaurant reveal a marked quarterly seasonal pattern in sales, which was recognised and admitted by Mr Faruqi. According to Dr Li,  the use of quarterly figure's in such circumstances means that there is a greater probability of random errors, which would tend to be cancelled out if annual figures were used. We accept that the use of quarterly figures in the present case is a weakness in Mr Faruqi's approach, and we have already indicated above that we accept the whole year 1975 as  a reasonable basis.

52. Dr Li's objection(3) was to the assumption of a 5% rate for growth of sales for the year ended 31st March 1977. Mr Leung described it as an arbitrary figure, and Dr Li's opinion was that it had been chosen merely to produce no loss of sales in 1976-77. While we do not go so far, we are not satisfied that the figure is soundly based.  The mere fact that the QBS figures for the period after lst April 1977, even if they were acceptable without question, reveal a growth rate of approximately 5% per annum is not evidence that 5% was appropriate for the preceding year while the fact that 'it happens to fall about midway between the minus 1% growth for the year 1975-76 and Mr Cheung's assumed 10% is immaterial.

53. Objection (4) was to the use of the quarter ended 31st March 1977 as the base period.   Dr Li felt that this was illogical because it fell within the period of disruption of business caused by the MTR works, and the f figures for the period were already affected by the works. Mr faruqi's attempt to justify his position by saying (a) that it was only from 1st April 1977 that QBS figures were available and(b) that up to that time the restaurant had suffered no loss due to the MTR works will not stand up to examination. The availability or otherwise of QBS figure's is quite irrelevant, while (b) repeats the question-begging to which we have already referred.  It has been established that from 26th October 1976 the restaurant had chain fencing and hoardings erected in front of it, and we cannot therefore accept that in the quarter ended 31st March 1977 there was no effect at all as a result of the MTR works.

54. Having reviewed the evidence, we are now in a position where, for the reasons indicated above, we are not satisfied with Mr Cheung's attempts to reconcile the directors' early optimistic expectations with the actual results for the years 1973 to 1975, and are unable to accept without qualification the assumptions on which Dr Li's calculations depend, or to accept Mr Faruqi's base period or growth rate.

55. We can summarise our principal conclusions from the evidence as follows:

56. With these considerations in mind, and accepting that the correct amount of compensation is the difference between actual profits for the claim period and the notional profits that could have been achieved if the MTR works had not taken place, we have determined the claim in the following manner.

57. As we have already indicated, we accept Dr Li's basis of the whole year 1975 as a reasonable one. We have therefore adopted that basis in our own calculations.

58. The rate of growth of sales to be assumed presents greater difficulty. We have already indicated that we regard Mr Cheung's forecast of profits rising at 10% per annum as being unduly optimistic, that we regard Mr Farugi's estimated 5% growth in sales as being too low, and Mr Chan's 10% as being unreliable, and that we believe the truth to be somewhere between Dr Li's $2,630,610.73 and Mr Farugi's $206,606. Accordingly, in the absence of any conclusive evidence before us that points to a particular figure to betaken for the assumed growth in sales, we have had to do the best we can with the available evidence. Taking, therefore, a broad view and notwithstanding our comment on Mr Faruqi's reference to an average in arriving at his own assumed rate of 5%, we have decided to adopt a mean figure of 7½%, subject, however, to a weighting in 1976 to reflect the gradual loss of business in the early part of the claim period, and in 1979 to reflect the requirement for substantial redecoration expenses then necessary. Although this results in our adopting a 5% growth rate for 1976, we point out that, unlike Mr Faruqi, we allow the Applicant the benefit from October to December 1976.

We thus arrive at the following tabulations:-

Estimate Profit and Loss Account with the influence of MTR.

(Taken from Dr Li's Table e 1)

and using 1975 as the base year and 7½% as the average loss of business

Less :

Overhead Adjustment on Adjusted Sales Figures (Mr Farugi's Rule 18 Document)

Savings in Overheads

Loss of Profits before Tax

59. We therefore find that the Applicant is entitled to compensation amounting to &900,665.48 As the Applicant has already received form the MTR a total of $225,201.61 as advance payment of compensation under the staged payments scheme, the balance now due to the Applicant is $675,463.87.

60. We were surprised that no application was-made to us for interest on any amount we might award. Nevertheless, in exercise of the power conferred upon us Section 26 of the Ordinance, direct that interest be paid on $370.779 84 from lst January 1979 and on $304,684.03 from lst July 1979, in each case to the date of payment and at the rate of interest from time to time in force under the said Section.

61. The Respondent will pay the Applicant's costs on the High Court Scale with certificate for counsel, in the absence of agreement to be taxed by the Taxing Master of the Supreme Court.