Good Faith Properties Ltd and Others v. Cibean Development Company Ltd

LDCS 42000 of 2011

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LAND COMPULSORY SALE MAIN APPLICATION

NO.42000 OF 2011

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D E C I S I O N

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1.We handed down our judgment in this case on 31 May 2013 (“the Main Judgment”), granting an order for compulsory sale and made an order nisi that the respondent do pay costs of this case to the applicants with certificate for counsel, to be taxed if not agreed on party and party basis at High Court scale.  We shall adopt our abbreviations in the Main Judgment.

2.This is the application by the respondent to vary the costs order nisi by seeking an order to the following effect:

(a) The applicants do pay to the respondent its costs of these proceedings, with certificate for two counsel, to be taxed if not agreed on a party and party basis at High Court Scale save that there be no order as to costs in relation to :-

(i) the respondent’s legal contentions about the interpretation of Section 4(2)(b) of the Land (Compulsory Sale for Redevelopment) Ordinance, Cap. 545 (“the Ordinance”); and

(ii) the issue of age and state of repair of the existing development known as No. 20 Caine Road Hong Kong (“the development”); or

(b) Alternatively, the applicants do pay to the respondent its costs of these proceedings, with certificate for two counsel, to be taxed if not agreed on a party and party basis at High Court Scale save that :-

(i) the costs in relation to the respondent’s legal contentions about the interpretation of Section 4(2)(b) of the Ordinance be paid by the respondent to the applicants and taxed, if not agreed, on a party and party basis at High Court Scale with certificate for counsel; and

(ii) there be no order as to costs in relation to the issue of age and state of repair of the development.

3.Mr. Chang, Senior Counsel appearing for the respondent, relied on the following grounds in support of the application :-

(a) The compensation objective of the Ordinance calls for a corresponding compensation approach in determining the question of costs in compulsory sale cases (Capital Well Limited v Bond Star Development Limited (2005) 8 HKCFAR 578);

(b) The compensation approach in compulsory acquisition cases should be applicable (Penny’s Bay Investment Company Limited v Director of Lands LDMR 23/1999, 7 November 2007);

(c) It was the majority owner who had put the minority owner to costs and expenses by taking proceedings to compel the minority to sell, costs should be to the respondent.  “Costs should fall on him who caused it” (Emslie & Simpson Ltd v Aberdeen District Council (no. 2) [1995] RVR 159);

(d) A minority owner who unsuccessfully opposes a compulsory sale application should not ordinarily be found liable for the costs of hearing his objection.  The question is whether, in so opposing, the minority owner has created a readily identifiable situation in which his conduct of the case had led to an obvious and substantial escalation in the costs over and above those which it is reasonable for him to incur (Purfleet Farms Ltd v Secretary of State for Transport, Local Government and the Regions [2002] EWCA Civ 1430);

(e) The Tribunal had wrongly awarded the applicant costs which the applicant would in any event have incurred (Intelligent House Limited v Chan Tung Shing & Ors [2008] 5 HKC 390);

(f) The respondent is the overall successful party in this case.

Legal Principles

4.The following legal provisions are relevant in the determination of costs in the Lands Tribunal. 

5.Section 12(1) and (7) of the Lands Tribunal Ordinance (“LTO”) provides that :

“(1) The costs of and incidental to all proceedings in the Tribunal are in the discretion of the Tribunal, and the Tribunal has full power to determine by whom and to what extent the costs are to be paid.

(7) Notwithstanding subsection (1) and section 12C but subject to subsection (5) and any rules made by the Chief Justice under section 10(3), Order 62 of the Rules of High Court applies, with the necessary modifications, to the award, taxation and recovery of costs in the Tribunal.”

6.Order 62, rule 3(2) states the general proposition that costs should follow the event, unless in the circumstances of the case some other order should be made as to the whole or any part of the costs.

7.Order 62, rule 5 reads :

“5(1) The court in exercising its discretion as to costs shall, to such extent, if any, as may be appropriate in the circumstances, take into account –

(aa) the underlying objectives set out in Order 1A rule 1;

(a) any such offer of contribution as is mentioned in Order 16 rule 10, which is brought to its attention in pursuance of a reserved right to do so;

(b) any payment of money into court and the amount of such payment;

(c) any written offer made under Order 33 rule 4A(2);

(d) any written offer which is expressed to be ‘without prejudice save as to costs’ and which relates to any issue in the proceedings, but the court may not take the offer into account if, at the time it is made, the party making it could have protected his position as to costs by means of a sanctioned payment or a sanctioned offer under Order 22;

(e) the conduct of all the parties;

(f) whether a party has succeeded on part of his case, even if he has not been wholly successful;

(g) any admissible offer to settle made by a party, which is drawn to the court’s attention.

(2) For the purpose of paragraph (1)(e), the conduct of the parties includes -

(a) whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;

(b) the manner in which a party has pursued or defended his case or a particular allegation or issue;

(c) whether a claimant who has succeeded in his claim, in whole or in part, exaggerated his claim; and

(d) conduct before, as well as during, the proceedings.”

Compensation Approach in Compulsory Acquisition Cases

8.Lam J in Penny’s Bay (supra) said that :

“… costs in respect of compensation cases should not be dealt with in the same manner as ordinary hostile litigation. The special context in which such claim arises has to be borne in mind.” (at para. 18)

9.It is submitted by the respondent that, in view of the special context, costs in compulsory sale cases should be dealt with in the same manner as in compulsory acquisition cases, the principle being enunciated in Emslie & Simpson (supra) as follows :

“…the cost of litigation should fall on him who caused it. The cost of determining the amount of the disputed compensation would seem, according to this principle, to fall on the acquiring authority without whose resort to the use of compulsory powers there would have been no need for the owner or occupier to be compensated” (at page 164)

10.We do not agree that the special context in compulsory acquisition cases is also applicable to compulsory sale cases. 

11.For land acquisition cases, the only issue to be determined by the Tribunal is the amount of compensation to be awarded to the claimant. The Lands Resumption Ordinance does not confer on the claimant the right to raise objection to the resumption before the Tribunal.  Instead, by the time the claim for compensation is before the Tribunal, the decision to resume the land of the claimant is beyond argument.  As stated in Emslie & Simpson :

“the underlying principle in these cases is that the acquiring authority is liable to pay compensation to the owner or occupier of the lands taken. The expenses of determining the amount of disputed compensation may be seen to be part of the reasonable and necessary expense which is attributable to the taking of the lands compulsorily by the acquiring authority.” (at page 164).

This is the basis upon which the Court in Emslie & Simpson found that the acquiring authority should be liable to pay costs in the determination of the compensation by the Tribunal in land acquisition cases.  Since the resumption is already inevitable, the claimant “is in a different position from that of the ordinary litigant” (at page 164) and is entitled to compensation.  It would only be fair for costs incurred in the determination of the amount of compensation to be treated as part of the reasonable and necessary expenses to be borne by the acquiring authority.

12.In the same case, Lord Morison had said at page 162 that :

“A person whose interest in land is under threat of compulsory acquisition is in an unenviable position. He is compelled either to accede to the acquisition or to take the steps provided by the legislature to oppose it…If a person unsuccessfully opposes confirmation of a compulsory purchase order, he is not ordinarily found liable for the expenses of the statutory procedures which are laid down for the hearing of his objection. In respect of these procedures the principles applying to expenses in the courts do not apply, and it seems to me that there is justification for the adoption of a similar practice in respect of the other procedures which are laid down for determination of the amount of compensation after an order has been confirmed.”

13.It is clear from the passage quoted above that since the claimant is not required to pay for the expenses of the statutory procedures in opposing the compulsory purchase order, Lord Morison found it justified to adopt the same practice in the court proceedings for the determination of the compensation. 

14.For compulsory sale cases, the issue to be determined may not be confined to the compensation since the respondent is also entitled to raise objection as to the justification for redevelopment by way of age and state of repair of the building as well as to whether reasonable steps have been taken, like what the respondent in this case had done.  The objection raised against a compulsory sale order is to be determined by the Tribunal at the same time when the compensation is to be determined.  It is not by way of any other statutory procedure as in compulsory acquisition cases.  With an objection on any one of these grounds being upheld, the applicants will be denied of a compulsory sale order, and the respondent will not be entitled to any compensation.  This is utterly different from the context of a compulsory acquisition case.  To blindly adopt the principle in compulsory acquisition cases to compulsory sale cases, the special contexts of the respective cases are being ignored.

15.And as can be seen from Penny’s Bay (supra), for land resumption cases, it is always the case that in the relevant governing ordinances, there is either specific provisions on costs or a section providing for the resumption authority to pay costs or remuneration reasonably incurred or paid by a claimant in engaging professional service in connection with the claim.  This is the kind of provision which stipulated that the claimant is not required to bear the expenses of the statutory procedure, which is the hinge for Lord Morison to find that the claimant should not be liable for the expenses in the determination of compensation as well.  Similar provision is missing in the Ordinance governing compulsory sale cases.  There is nothing to justify a similar approach as suggested by Lord Morison.  To adopt the approach concerning costs in compulsory acquisition cases may not be appropriate in view of the difference in the legal provisions.

16.We found the approach concerning costs in compulsory acquisition cases are not applicable to compulsory sale cases.

Compensation Approach

17.We have no argument with Mr. Justice Ribeiro PJ’s finding in Capital Well (supra) that the objectives of the Ordinance is “to facilitate urban renewal in respect of old and dilapidated buildings” as well as “to ensure that the minority owner receives fair and reasonable compensation for his interest in the lot” (at para 21).  But we do not agree that the latter objective calls for a different approach in the consideration of costs and rendered the general rule on costs stipulated in the legal provisions cited above be replaced by a compensation approach.

18.Neither do we agree that what Mr. Justice Bokhary PJ said in the case of Sin Ho Yuen v Fineway Properties Ltd (2011) 14 HKCFAR 497 about the latter objective mentioned by Mr. Justice Ribeiro PJ that :

“(T)hat objective would be defeated if such compensation is swallowed up or materially eroded by the costs which the minority owner has to pay to his own or the other side’s lawyers” (at para. 7)

can be taken to mean that the principle of costs should follow the event is being displaced if a compulsory order is made.  What Mr. Justice Bokhary PJ said is about the duty of the Land’s Tribunal “to take resolute steps” to prevent the above quoted situation to occur by not allowing the proceedings “to have spun expensively out of control”.  Mr. Justice Litton NPJ had expressed similar concern in the same case in saying that :

“it behoves the Tribunal, in carrying out the scheme of the Ordinance, to ensure that such protection be not diminished, or be whittled down through inefficiency and delay. And there would be diminution if, for instance, the minority owner bore, at the end of the day, an inordinate burden of costs, so that what he got by way of his share of the proceeds of sale was largely taken away by the costs incurred in the legal process.” (at para. 25)

19.And the case of Wealrise Investment Ltd v Leung Chi Keung HCMP119/2011, 17 March 2011, relied upon by the respondent is only a case involving leave to appeal against a costs order made by the Lands Tribunal in a compulsory sale case.  Though the Court of Appeal granted the application for leave to appeal “because we question whether costs should necessarily follow the making of a Compulsory Sale Order”, this issue had not been fully argued and no finding had been made at that instance.  We do not find the case of Wealrise be of any assistance.

20.Whilst we do agree that the granting of a compulsory sale order is not the only determinative factor in the question of costs, we do not agree that the compensation objective of the Ordinance must necessarily mean that a compensation approach should be adopted in compulsory sale cases.

21.Rather, we agree with the observation by the Tribunal in Intelligent House that :

“10. … where an applicant under the Ordinance has a statutory right to come to the Tribunal to prove its case that an order for sale should be made, and where the respondents maintain a neutral stance (simply requiring the applicant to prove its case), we could well understand why there should be no order as to costs made against these respondents, as no extra costs (other than the costs that need to be incurred by the applicant to discharge its statutory duty to prove its case) have been shown to be unjustifiably increased by reason of the respondents’ stance.

11. This is however very different from the case where the applicant is required to further meet any active grounds of opposition raised by any of the respondents. If these opposing grounds are later found by the Tribunal to be unjustified (in that they are not upheld as valid grounds to oppose the making of an order for sale), we do not see any good rationale to say that the respondents raising these grounds should not be required to pay the additional costs incurred by the applicant in meeting these oppositions in the application.” (at page 394-395)

22.In the present case, the respondent had in its Notice of Opposition put the following points in issue :

(a) the values of some or all units of property as assessed in the application do not represent the market values;

(b) redevelopment of the Lot is not justified due to age or state of repair of the Building; and

(c) the applicants have failed to take reasonable steps to acquire all the undivided shares in the Lot, including negotiating for the purchase of the undivided share owned by the respondent on terms that are fair and reasonable.

Nevertheless, it is the respondent’s stance at trial that whether redevelopment is justified due to age and state of repair is no longer a live issue between the parties.

23.So this is not a case where the respondent just required the applicants to prove its case.  As rightly pointed out by Mr. Mok for the applicants, this is a “full blown war” in which the respondent had taken every possible point, leaving no stone unturned.  To allow the respondent to have its costs in this circumstances, adopting the words of Lord Woolf MR in AEI Redifussion Music Ltd v Phonographic Performance Ltd [1999] 1 WLR 1507, the respondent is “encouraged to leave no stone unturned approach which would unnecessarily increase costs”.

24.The respondent’s stance is clearly to oppose to the grant of an order for sale.  Even though the respondent had given up the argument on whether redevelopment is justified on the ground of age and state of repair at trial, the argument on reasonable steps, if successful, will result in an order for sale being refused.

25.All the grounds raised by the respondent in support of the argument on reasonable steps had been found to be unsubstantiated by this Tribunal.  We do not find it reasonable for the respondent to take the different points under the head of reasonable steps.  Paragraph 20-83 of the Main Judgment deals with the argument on reasonable steps.  From the findings of this Tribunal, it can be seen that the contentions of the respondent are plainly unmeritorious resulting in the trial being prolonged and costs unreasonably incurred.  Under such circumstances, we see no reason why the respondent should not bear the extra costs incurred in its argument on reasonable steps.

Respondent being the overall successful party?

26.We do not agree that the respondent is the overall successful party in this case.

27.As pointed out in paragraph 25 above, the respondent had raised the argument on reasonable steps trying to prevent an order for sale being granted.  Such contention had been rejected and the applicants had successfully obtained an order for sale.  We cannot see how the respondent can be considered the successful party in this issue.

28.As for the issue on assessment of the compensation, Mr. Chan, expert for the applicants and Mr. Lai, expert for the respondents had presented an assessment of the EUV and RDV with wide spread differences (para. 86 and 158 of Main Judgment).  Although the Tribunal had eventually found the value of the respondent’s unit exceeding the assessment by the applicants, the figure is also well below the amount assessed by the respondent’s expert. A summary of the experts’ assessments and the Tribunal’s findings are set out below:- 

	Mr. Chan’s assessment	Mr. Lai’s assessment	Tribunal’s finding
EUV of R’s Unit	$17,516,800	$47,890,000	$35,200,000
EUV of Domestic Units	$328,932,239	$274,690,000	$294,200,000
Total EUV	$346,449,039	$322,580,000	$329,400,000
Total RDV	$630,000,000	$1,291,000,000	$732,300,000
R’s share	$31,853,412	$191,660,952	$78,254,281

29.This is not a case where a party’s assessment had been able to beat the assessment by the Tribunal.  Between the 2 sets of assessed figures put forward by the parties, the amount found by this Tribunal stand closer to the assessments by Mr. Chan whilst Mr. Lai’s assessments well exceed the Tribunal’s findings.  In such circumstances, we cannot see how the respondent can be said to be the successful party in this aspect even though this Tribunal had awarded a sum more than the amount contended by the applicants. 

30.It may be the case that as between the 2 experts, we have accepted part and rejected part of their evidence in say the choice of comparables, the method used and/or the adjustment rate made.  We don’t think we should go into every item of dispute to determine who should be the winning party as far as the quantum of compensation is concerned.  It’s the end figure of assessment that tells it all.

31.The respondent’s share of the sale proceeds of its unit sold at the reserve price determined by this Tribunal may be at 3.2 times more than the figure offered by the applicants prior to the making of the application, this is apparently due to firstly, the large difference between the applicants’ assessment of the EUV of the respondent’s unit and the Tribunal’s determination of the EUV and secondly, the time difference as the market is generally on the rise.  The substantial difference is not as a result of the Tribunal’s adoption of the respondent’s assessments.

32.It is also the submission of the respondent that “the significantly higher compensation received as a result would not have been achieved had the respondent simply bowed to the applicants’ valuation figures or taken a passive or neutral stance”.  To accept such a contention is to encourage the minority owners to fight through the case hoping to gain some benefits from the time difference and the change of market as time goes.

33.However, we found the assessment approach taken by Mr. Lai to be unreasonable in the following areas:

(a) The suggestion that the frontages of the comparables should be computed by reference to their “clear frontages” shown in the approved building plans is against common sense (para. 121-130 of Main Judgment);

(b) The development model with shop premises on G/F and cockloft and apartments above is unmarketable (para. 166-172 of Main Judgment);

(c) The use of pre-sale comparables dated back in 2010, a date of transactions too far away from the valuation date for the RDV and the rejection of all post-October Government measure transactions without justification (para. 173-187 of Main Judgment);

(d) The use of Centi-Citi Leading Index which is unreliable (para. 193-194 of Main Judgment).

34.We found it not reasonable for the respondent to pursue with the above issues as a result of which significant amount of the Tribunal’s time has been wasted and the proceedings unduly prolonged, hence an obvious and substantial escalation in the costs incurred.  Mr. Chan, the applicants’ expert may also have pursued with the issue on Reduced Zoning Method (para. 101-108 of Main Judgment) as well as using rateable values to cross check the quantum of adjustment of different comparables (para. 133-135 of Main Judgment) which are found by this Tribunal to be improper, yet we found these issues taken are not unreasonable and the time spent on these issues taken by Mr. Chan are far from equivalent to the time spent on those issues set out above taken by Mr. Lai. And at the adjourned hearing on 18 February 2013, the abandonment by Mr. Chan of the comparables he used before that date and the replacement by another 4 new comparables were justified due to the fact that those were the latest sale transactions which the Tribunal should take into consideration.

Costs which the applicant would have to incur in any event

35.The respondent submitted that even if the applicants were to have costs in this case, costs which the applicants would in any event have to incur in discharging its statutory duty under the Ordinance should not be borne by the respondent.  This includes the costs in establishing the age and repair test to justify an order for sale as well as the costs of preparing and proving at trial the initial EUV and RDV reports and updated RDV reports.

36.We agree that the respondent should not be required to bear those costs which the applicants would have to incur in proving its case.  By this, we found that those costs should only include the costs named by the respondent in the paragraph above. 

37.And we also agree with the respondent that the costs incurred during the trial in relation to the applicant’s unsuccessful application to adduce an additional report on pre-sale transactions of Oakhill should also be excluded from the costs to be borne by the respondent.

Conclusion

38.Having considered the arguments from both parties, we found that the respondent had failed to establish the defence on reasonable steps which turns on the granting of the compulsory sale order and the respondent had been unreasonable in the conduct of the case as far as compensation is concerned, resulting in an escalation of costs.  Under such circumstances, we found that the respondent should be ordered to pay the costs of the applicants in these proceedings except for the costs which the applicants have to incur in any event as well as costs for the unsuccessful application to adduce further report.

Order

39.The costs order nisi dated 31 May 2013 be varied to the effect that the respondent should pay the applicants costs in these proceedings except the costs for:

(a) satisfying the age and repair test;

(b) the initial EUV and RDV reports as well as the Updated RDV reports; and

(c) the application to adduce further report at the hearing on 6 November 2012,

with certificate for counsel, to be taxed if not agreed on party and party basis at High Court scale.

40.As for costs of the application for variation of the costs order nisi, in view of the fact that each party is partially successful in their argument, we order that there should be no order as to costs.  This is an order nisi to be made absolute in 14 days.

Deputy Judge KOT	Mr. W. K. LO
Presiding Officer	Member
Lands Tribunal	Lands Tribunal

Mr. Y. C. Mok, instructed by Messrs Mayer Brown JSM, for the applicants

Mr. Denis Chang leading Mr. Julian Chan, instructed by Messrs Clayton Wong & Co., for the respondent