Happy Dragon Restaurant Ltd v. The Director of Lands

LDLR 17/2006

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LANDS RESUMPTION APPLICATION NO. 17 OF 2006

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

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

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

JUDGMENT

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

Background

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

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

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

(1)  permanent loss of business in the sum of $40,455,300; and

(2)  disturbance payments from the permanent loss of business in the sum of $7,366,129.56.

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

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

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

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

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

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

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

The law

11.Section 10 of the Ordinance provides that: -

“(1)  The Tribunal shall determine the amount of compensation (if any) payable in respect of a claim submitted to it under section 6(3) or 8(2) on the basis of the loss or damage suffered by the claimant due to the resumption of the land specified in the claim.

(2)  The Tribunal shall determine the compensation (if any) payable under subsection (1) on the basis of: -

(d)  the amount of loss or damage to a business conducted by a claimant at the date of resumption on the land resumed or in any building erected thereon, due to the removal of the business from that land or building as a result of the resumption;

(e)  in the case of land resumed under an order made under section 3 on or after the commencement of the Crown Lands Resumption (Amendment) Ordinance 1984 (5 of 1984)-

(i)  the amount of any expenses reasonably incurred by him in moving from any premises owned or occupied by him on the land resumed to, or in connection with the acquisition of, alternative land or land and buildings, but excluding any amount to which paragraph (d) applies;”

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

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

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

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

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

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

(1)  The extinguishment of business is the exception rather than the rule, as put by Lord Nicolls at The Director of Buildings & Land v Shun Fung Ironworks Ltd. [1995] 1 HKC 417 (page 429, lines B – C):

“Most businesses are capable of being relocated, but exceptionally this may not be practicable: for example, another suitable site may not exit.  If the business is not capable of being relocated, then perforce compensation will have to be assessed on the extinguishment basis.”

(2)  The Applicant’s Restaurant was a general Cantonese food restaurant, like most restaurant businesses in Hong Kong.  It did not offer anything new or unique.  There were 4 other Chinese restaurants carrying on a similar business in the area, and some were larger and some were smaller.  As it was not tied to its location, it was capable of being relocated.  It was most certainly not an exceptional case as far as relocation was concerned. .

(3)  Whether the Respondent had acted reasonably is a question of fact and degree.

(4)  The burden is on the Applicant to satisfy the Tribunal that there were no suitable alternative premises for him to relocate the business, and is not for the Respondent to show that there were such alternative premises.

(5)  “There is no principle in law that a business must be conducted in property that is owned by the affected party even though it was the case before the resumption.”

The main issue of the present case

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

The Applicant opted for total extinguishment of the Restaurant business

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

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

(1)  Despite of the Applicant’s tremendous efforts to look for alternative premises from August 2004, spanning various districts in both Hong Kong Island and Kowloon, well beyond Shaukeiwan and Kwun Tong where Mr. Ho had personal experience of managing restaurants, the Applicant was still unable to find any suitable alternative location for the Restaurant business save for the “Wah Do” location in Kwun Tong.

(2)  The Applicant in particular submitted that although the Applicant had actually closed the Restaurant after the end of February 2005 in order to mitigate its loss and to “deal with the immediate anxiety of the employees, it could not be equated that the Applicant extinguished its business at that time or broke the chain of causation as alleged by the Respondent because the Applicant actually continued to look for alternative premises until December 2005”.  So, the Applicant claimed that the Applicant’s efforts to look for alternative premises spanned from August 2004 to December 2005 for a period of 17 months, or 10 months after the actual cessation of its Restaurant business in February 2005.

(3)  As for the Wah Do location, although the Applicant had taken various serious steps to consider the proposal to relocate the Restaurant there, including the consideration of both the leasing or purchasing options, and the preparation of investment proposals for the consideration of the property investors (i.e. the shareholders of Bright Dragon) and the restaurant investors (i.e. the shareholders of the Applicant), and that Mr. Ho himself had voted in favour of the proposal, he failed to convince the other investors (of both the property ends and the restaurant ends) as a result of which the Applicant decided that it was not a suitable alternative premises for relocation of the Restaurant.

(4)  The main reasons that the other investors of the Applicant, apart from Mr. Ho, voted against the proposal was due to (i) the size of investment involved in the Wah Do proposal, (ii) the Applicant alone was not resourceful financially, coupled with the unfortunate timing of the unexpected resumption causing the tying up of significant investment of the investors on the Properties and the Restaurant business, (iii) the Applicant did not have the financial ability to relocate even if all the shareholders’ loans of the Applicant were not to be repaid prior to relocation and that all available funds of the Applicant were to be used in effecting the relocation, and finally, (iv) no other financial resources to supplement the existing funds of the Applicant could be found since all the investors of the Applicant did not wish to inject further capital, all the directors did not wish to lend new money to the Applicant and the Applicant could not get any loan facilities from any bank even if the Applicant wished to borrow from the banks.

The Respondent’s criticisms of the Applicant’s decision

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

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

(1)  As early as 29 November 2003, the Applicant knew about the intention by the HKHS to possibly resume the Properties, yet the Applicant’s related party, Bright Dragon continued with the purchase of the Part I premises and the Applicant continued with (i) the leasing of the Part I premises on 3 December 2003, for a term of 10 years with no break clause and no option to renew; (ii) the leasing or negotiating for the leasing of the Part II premises; (iii) the decoration and the purchase of furniture and equipment, tableware, uniforms and table cloth, etc. for the Restaurant; and (iv) the commencement of the Restaurant business on 12 December 2003.  Therefore, the Respondent alleged that the Applicant’s acts broke the chain of causation between the resumption and the extinguishment losses because the Applicant decided to commence business even after knowing that the Properties would be resumed.  But for its decision to commence business even after knowing that the Properties would be resumed, the Applicant would not have suffered the losses.

(2)  The Applicant did not put adequate efforts in looking for alternative premises.  The Applicant had started too late to look for alternative locations.  Also, the Applicant should have looked for alternative premises until the resumption date; instead, the Applicant decided to cease the business at the Properties too early, about 2 months before the proposed date of resumption.  Also, the information obtained on these alternative premises, with the exception of the Wah Do location, were too little to enable anyone (including this Tribunal) to have a realistic analysis of the suitability of these premises for relocation.

(3)  The Applicant could not find a suitable alternative premises because the Applicant was more interested in finding a relocation premises that was for sale so that the Applicant could again join hands with the shareholders of Bright Dragon with the latter acquiring the relocation premises and the Applicant continuing its role as the tenant of the relocation premises, like what the 2 groups of shareholders had previously worked out for the Properties and the Restaurant business at the Properties.  Moreover, the Applicant was not realistic in requiring a lease for any alternative premises to be of at least 10 years. 

(4)  Most importantly, of all the locations considered by the Applicant, at least one premises (the Wah Do location) was a suitable alternative premises for relocation of the Restaurant business even though it was available for lease only, for terms of 3 plus 3 years, or a total of 6 years.  Although even Mr. Ho himself found this to be suitable for relocation, the Applicant still chose not to relocate.

(5)  The Applicant had sufficient financial resources to relocate the Restaurant business to a suitable alternative premises such as the Wah Do location and, even if the Applicant had insufficient resources, the Applicant could have taken a bank loan / bank loans, or could have taken capital injection from its shareholder or loans from its directors, or could have taken capital injection or loans from the shareholders of Bright Dragon, the owner of the Part I premises or Ever Power International Investment Limited (“Ever Power”), the ultimate shareholder of the Applicant comprising of 24 investors who injected funds of different sizes to operate the Restaurant business. 

The causation of resumption

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

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

The Search for alternative premises

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

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

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

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

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

The proposal to relocate to the Wah Do location

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

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

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

Financial capability of the Applicant in effecting the relocation

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

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

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

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

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

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

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

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

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

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

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

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

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

Tribunal’s findings on sufficiency of financial resources for relocation

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

(i)  The Applicant’s Restaurant had a proven track record of making a profit; it was profitable even in the first year’s of operation (the Applicant’s profit tax return for the year 2004-2005 show a net assessable profit of $3,081,133; and alternatively, the Applicant’s profit and loss account show a profit of $2,297,088); this was quite a feat bearing in mind that the Applicant only commenced its new Restaurant business at the Properties in December 2003;

(ii)  The Applicant’s Restaurant, according to Mr. Ho, experienced growth due to the booming market trend after June 2003, and the restaurant businesses in general improved with the improved economy after the impact of SARS in Hong Kong;

(iii)  The Applicant’s Restaurant had an experienced management team under Mr. Ho, and a trained workforce;

(iv)  Mr. Ho had experience, good reputation and a proven track record of successes in the restaurant business; and

(v)  The Applicant could expect to receive much more provisional compensation and then, if agreed by the Applicant without the need to refer to the Lands Tribunal for determination, final compensation from the Government for the partial extinguishment of business and disturbance based on relocation, after its actual relocation from the Properties to the new premises, such as the Wah Do location.

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

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

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

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

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

The Applicant’s alternative disturbance payments claim

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

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

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

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

(1)  Section 10(1) of the Ordinance where compensation can only be awarded “on the basis of the loss or damage suffered by the claimant due to resumption of the land specified in the claim”.

(2)  Director of Buildings and Lands v Shun Fung Ironworks Limited, [1995] 1 HKC 417 at page 426, line D.

(3)  Yip Kui trading as Tai Wo Trading Company v The Secretary for Transport (unreported, CACV 379 of 2002), at paragraphs 11 and 21.

(4)  Hongda Containers Ltd. v The Secretary for Transport (unreported, CACV 269 of 2004), at paragraphs 5, 6, 9, 10 and 11.

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

Order

54.We therefore order that: -

(1)  No compensation is payable in respect of the Applicant’s claims;

(2)  All consequential and ancillary matters, including professional fees, interest and costs, be adjourned to a date to be fixed by the listing officer at the request of the parties.

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

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