Tsan Luk Yuk Yin v. The Secretary for The Environment, Transport and Works

LDMR 3/2005

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS REFERENCE APPLICATION NO. 3 OF 2005

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D E C I S I O N

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Background

1.The application by the applicant for determination of compensation pursuant to sections 13, 27 and 29 of the Roads (Works, Use and Compensation) Ordinance (“Cap. 370”) was heard by this Tribunal with judgment handed down on 9 May 2014 (“the Judgment”).  The background of this case can be found in the Judgment and we are not going to repeat here.

2.In the Judgment, it is ordered that :

(a) the respondent do pay the applicant compensation for the Lots in the sum of $20,600,000 (“the Compensation”); and

(b) the matters of professional fees, interest and costs shall be adjourned to a date to be fixed, with liberty to apply for any other ancillary and consequential matters (§81 of the Judgment).

3.By way of a consent order, parties agreed for the issue of professional fees, interest and costs (“Outstanding Issues”) to be dealt with by way of paper application. This is our ruling on the Outstanding Issues.

4.It is not in dispute that the Compensation fails to beat the offer of $26,107,347 made by the respondent to the applicant by way of letter dated 12 April 2007 (“the Offer”).

5.And it is also not in dispute that, after deducting the provisional payment previously made by the respondent (“Provisional Payment”), the balance of the Compensation payable is $4,226,300 which had already been paid on 14 July 2014.

Interest

6.It is agreed between the parties that interest for the Compensation should be differentiated into 4 periods, namely :

(a) From 24 June 1997 to 2 July 2000 (“the 1^st Period”);

(b) From 3 July 2000 to 2 October 2000 (“the 2^nd Period”);

(c) From 3 October 2000 to 11 April 2001 (“the 3^rd Period”); and

(d) From 12 April 2001 onwards (“the 4^th Period”).

7.The disagreement falls on the interest rate to be adopted for the 1^st, 3^rd and 4^th Period.

8.It is the respondent’s contention that for the 2^nd Period, the interest rate should be fixed in accordance with Section 13(2)(b) of the Interest Rates (Miscellaneous Amendments) Ordinance, i.e. “at the lowest interest paid by members of The Hong Kong Association of Banks on time deposits on 2 July 2000”. The applicant has no argument on this and accepted this should be the interest rate adopted for the 2^nd Period.

9.For the 1^st, 3^rd and 4^th Period, the respondent submitted that the lowest rate, i.e. a 24 hours’ call deposit rate (“the Lowest Deposit Rate”) should be adopted in the calculation of interest for these periods.

10.The applicant disagrees and contended that the interest rate for the 1^st Period should be the Lowest Deposit Rate + 1% whilst Prime + 1% should be adopted for the 3^rd and 4^th Period.

1^st Period

11.Section 17(3A) of the then Lands Resumption Ordinance (“s.17(3A)”) stated that :

“The rate of interest for the purposes of subsection (3) shall be such rate as the Lands Tribunal may fix having regard to the lowest rate payable from time to time by members of The Hong Kong Association of Banks on time deposits.”

12.Parties agreed that s.17(3A) is applicable in the consideration of interest rate as far as the 1^st Period is concerned.  It is also not in dispute that in Director of Buildings and Lands v Shun Fung Ironworks Ltd [1995] 2 AC 111, it was held that :

“… in requiring the tribunal to have regard to the lowest time deposit rate, the legislative purpose must be that this should be the rate fixed by the tribunal unless in the particular case there is good reason for departing from it.”

13.Mr. Mok for the respondent relied upon the judgment of Shun Fung (supra) and Li Po Chun Estate Ltd v Director of Lands (No. 1) [1997] CPR 330 and submitted that the interest rate for the 1^st period should be the lowest time deposit interest rate, i.e. a 24 hours’ call deposit rate.

14.Mr. Khaw for the applicant contended that there is no reason why the applicant should suffer an extremely low interest rate for this period which has been caused by the Government’s inordinate delay in making the offer for Provisional Payment in March 2001[1]. This should provide a good reason for an increase of 1 % on the interest rate in respect of the 1^st Period as what the Tribunal in Li Po Chun had found.

15.In Shun Fung, the Privy Council had said the followings about good reason :

“The rate specified is a low one, but the legislature must be taken to have intended that ordinarily this should be adequate recompense to a claimant for being kept out of his money. This would not cover a case where one of the parties has behaved unreasonably, and by his conduct protracted the time taken in determining the claim. In a suitable case that could furnish good reason for the tribunal fixing a higher or lower rate, depending on who was at fault.”

16.Delay is apparently a factor to be considered in deciding whether good reason is established.  It is a fact that the Provisional Payment was only agreed and paid on 22 March 2001, i.e. 4 years after the resumption.  But we found the delay in the present case can be distinguished from the scenario in Li Po Chun in which the Government had delayed in the payment of the agreed compensation, a delay found to be “unreasonable and unjustified”.

17.The only evidence before this Tribunal concerning the course of event leading to the Provisional Payment comes from the witness statement of Mr. Tsang dated 28 June 2006[2].  The chronology is summarised as follows :

24 April 1997	Date of resumption
24 February 1998	District Land Office (“DLO”) invited the applicant to submit a written claim
23 June 1998	A claim of compensation registered with the DLO without valuation report
19 August 1998	Valuation report submitted together with a claim for compensation
11 November 1998	Applicant revised the amount of claim
10 February 1999	Further clarification raised by DLO
10 March 1999	Applicant requested the Government to issue a compensation offer
20 January 2000	DLO requested the applicant to prove its good title
9 February 2000	Solicitor for applicant submitted title documents of the Lots to DLO
22 March 2001	Agreement and payment of Provisional Payment

18.It is apparent from the chronology above that during the 4 years period, the applicant had only finalised its amount of claim by late 1998 and upon being satisfied with the applicant’s title in early 2000, the Provisional Payment was agreed and settled in March 2001.  We found the delay is not solely caused by the respondent and even if it were, it’s far from “unreasonable and unjustified”. 

19.We found the applicant had failed to show a good reason to justify a departure from the Lowest Deposit Rate which should be adopted as the interest rate for the 1^st Period.

3^rd & 4^th Period

20.It is not in dispute that the current Section 13(4) of the Interest Rates (Miscellaneous Amendments) Ordinance 2001 (“s.13(4)”) and Section 17(3B) of the current Lands Resumption Ordinance (“s.17(3B)”) are applicable in the consideration of interest for the 3^rd and 4^th Period respectively (these legal provisions are collectively called the “Legal Provisions”).  Terms of the Legal Provisions are more or less identical which stipulate that the rate of interest fixed should be :

(a)     in respect of a working day must not be lower than the lowest of the interest rates paid on deposits at 24 hours’ call by note-issuing banks at the close of business on that day; and

(b)    in respect of a non-working day must not be lower than the lowest of the interest rates paid on deposits at 24 hours’ call by note-issuing banks at the close of business on the last working day before that day.

21.It is also agreed that in Happy Dragon Restaurant Ltd v Director of Lands CACV 115/2012, unreported, 31 January 2013, it was held that:

“provision for interest was amended 6 years after the Shun Fung judgment by the Interest Rates (Miscellaneous Amendments) Ordinance 2001 … the Tribunal is no longer enjoined to ‘have regard to’ the stated rate, and the stated rate is now a minimum rate” (at §25) and

“the Tribunal is to have an unfettered discretion to fix the interest rate for compensation, and the claimant is entitled to a minimum rate” (at §37).

The stated rate refers to the rates stipulated in s.17(3B) quoted at §20 above. 

22.So the principle of Shun Fung (quoted at §12 above) is no longer applicable to the Legal Provisions and the wordings of the Legal Provisions only sets the minimum rate of interest for the compensation and should not be considered as a starting point.

23.Mr. Mok submitted that the rate at the lowest of interest rates paid on deposits at 24 hours’ call should be adopted for these periods since the applicant has behaved unreasonably in the present case in protracting the time taken in determining her claim.  The unreasonable behaviour of the applicant[3] includes :

(a) The applicant’s claim is grossly exaggerated and is wholly unreasonable and unjustifiable as found by the Tribunal;

(b) Pre-action conduct was equally unprofessional and unreasonable, with the effect of protracting and wasting the time and effort required under the regime of out-of-court settlement by a shifting claim amount and only taken out this case on 10 November 2005, more than 8 years after the date of resumption;

(c) The applicant’s first claim based on the 2003 Scheme was conducted with equal lack of professionalism in disregard of the significance of the existence of the Right of Way; and

(d) The applicant had unreasonably declined the Offer and unreasonably persisted in her claim based on the 2009 Scheme.

24.Mr. Khaw submitted that the fair and appropriate interest rate for the 3^rd and 4^th Periods should be Prime + 1% which is a long established practice of the courts in Hong Kong and the UK in a commercial setting and beyond as found by the Tribunal in Happy Dragon (LDLR17/2006, unreported, 20 January 2014) after the case was remitted from the Court of Appeal for reconsideration of the issue of interest.  As for the unreasonable behaviour alleged, it is contended that :

(a) The applicant is entitled to put forward a claim on the maximum basis and exaggeration is not a sufficient consideration for the question of reasonableness of an applicant’s conduct (as per Potter LJ in Purfleet Farms Ltd v Secretary of State for Transport [2003] 1 P&CR 20 at 36);

(b) The issues are not straightforward and it cannot be said that the applicant’s valuation has shown any unreasonable conduct which would justify applicant being deprived of any interest and the proceedings have no doubt been delayed by the Building Authority’s unreasonable conduct in failing to determine the feasibility of the 2009 Scheme and the respondent’s objections to adduce further experts reports by the applicant;

(c) The respondent never expressly challenged the 2003 Scheme on the basis of the issue of footpath before the hearing resulting in the issue being raised and argued at the hearing on 8 October 2007 as a preliminary issue; and

(d) The decline by the applicant in accepting the Offer is relevant to the question of costs and should not affect the determination of the interest rate.  In any event, the respondent had failed to make further payment in order to fully protect its position on interest.

25.By relying on the Tribunal’s decision in Happy Dragon as suggested by Mr. Khaw, one must not lose sight of the findings of the Tribunal that :

“the long established practice, which remains a practice, not law that we must follow… However, the ‘broad brush’ approach in awarding interest rate at Prine +1% in the absence of any other evidence may still be relevant for our consideration, as it may well represent an amount that could compensate the applicant fairly and fully for being kept out of the money in accordance with the principle of equivalence” (at §42) (emphasis added).

26.The Tribunal, in Happy Dragon, has also found that :

“As held in The Hong Kong Electric Co Ltd v Commissioner of Rating and Valuation, supra, the practice of awarding interest at Prime +1% amounts to no more than a presumption which can be displaced if its application would be ‘substantially unfair either to one party or the other’. The burden of displacing this presumption lies on the party seeking to displace it” (at§57).

27.We agree with the observation of the Tribunal in Happy Dragon.  In our consideration of the interest rate, we should consider whether the respondent’s contention of the unreasonable behaviour of the applicant tends to displace the presumption of awarding interest at Prime +1% and the minimum rate stated in the Legal Provisions should be adopted instead.

28.Whilst what is stipulated in the Legal Provisions is just a minimum rate and the long established practice of Prime +1% may well be a consideration of this Tribunal, we find the rationale of Lord Nicholls in Shun Fung quoted at §15 above should still be applicable in the consideration as to whether a higher or lower interest rate was justified. 

29.Having considered the submissions of both parties, we agree with Mr. Mok that the applicant had behaved unreasonably in the manner particularised by Mr. Mok in his written submission.  Such conduct of the applicant had prolonged these proceedings and the applicant should not take advantage of her own fault in getting a higher interest rate.  To accept the applicant’s contention in awarding a higher interest rate than the minimum stated rate could not be in line with the principle of equivalence.

30.Exaggeration on its own may not be a sufficient consideration, but this should be one of the factors to be considered.  The exaggeration of the applicant’s claimed amount is based on an argument which is not supported by the market demand and the only comparable is not a suitable one[4]. Allowing the applicant to run an exaggerated case in a full blown trial and declining any reasonable offer from the respondent and yet granting the applicant a higher interest rate, this is against the principle of equivalence in the sense that the applicant is getting more than she should be entitled by putting up an unjustified case and prolonging the period for interest to accrue.

31.We found the minimum rate stipulated in the Legal Provisions should be adopted as the interest rate for the 3^rd and 4^th Period.

Costs and Professional Fees

32.It is agreed between the parties that the respondent shall pay the applicant’s costs including professional fees incurred before the Offer.  The outstanding issue falls on the costs and professional fees after the Offer as well as whether certificate for 2 counsels is justified in this case.

33.Section 30 (3) of Cap. 370 (“s. 30(3)”) provided that :

“Where the Secretary has made any offer … which is not accepted by the claimant and the compensation assessed by the Lands Tribunal does not exceed the amount of compensation comprised in the offer, the Lands Tribunal shall, unless for special reason it thinks it proper not to do so, order the claimant to bear his own costs and to pay the costs of the Secretary in so far as the costs are incurred after the making of the offer.” (emphasis added)

34.The principles set forth in Re Elgindata (No. 2) [1992] 1 WLR 1207 concerning the question of costs are :

“(i) Costs are in the discretion of the court.

(ii) They should follow the event, except when it appears to the court that in the circumstances of the case some other order should be made.

(iii) The general rule does not cease to apply simply because the successful party raises issues or makes allegations on which he fails, but where that has caused a significant increase in the length or cost of the proceedings he may be deprived of the whole or a part of his costs.

(iv) Where the successful party raises issues or makes allegations improperly or unreasonably, the court may not only deprive him of his costs but may order him to pay the whole or a part of the unsuccessful party’s costs” (at 1214A-D).”

35.There is no argument on the legal provisions and principles cited above.

36.Mr. Khaw for the applicant submitted that since the respondent had raised issues improperly and unreasonably in the conduct of these proceedings, special reasons anticipated by s.30(3) are established.  Mr. Khaw is referring to the unreasonable and irrational decision of the Building Authority (“BA”) in refusing to make a determination on the 2009 Scheme and the respondent’s acting on this and failure to act fairly and properly in not admitting the 2009 Scheme was a feasible one. The BA never took issue on whether it was within its power or authority to consider the 2009 Scheme, a revised proposal till 24 December 2008[5].  This has resulted in experts, namely Professor Chung for the applicant and Mr. SK Chan for the respondent to be engaged on the feasibility of the 2009 Scheme which is an agreed issue in dispute between the parties.  And the respondent had failed, at trial, in seeking leave to adduce further documents which consisted of copies of land grant of 14 properties in Cheung Sha and 4 properties in other parts of Lantau Island.  This has caused a substantial increase in the length and costs of the proceedings.  The total time spent is about 1/3 of the hearing.

37.The proposed costs order suggested by the applicant is :

(A) If the Tribunal takes the view that the respondent has raised the above issues improperly and unreasonably :

(1) Subject to any previous costs orders made herein :-

(a) The respondent shall pay the applicant’s costs incurred up to and including 26 April 2007 to be taxed on High Court scale, if not agreed, with certificate for 1 counsel;

(b) the respondent shall pay the applicant’s professional remuneration incurred up to and including 26 April 2007 to be assessed by the Lands Tribunal, if not agreed;

(2) Subject to any previous costs orders made herein :-

(a) the applicant shall pay 1/3 of the respondent’s costs incurred after 26 April 2007 to be taxed if not agreed with certificate for 1 counsel; or alternatively there be no order as to costs;

(b) the applicant shall pay the professional remuneration incurred by Mr. Faulkner after 26 April 2007, to be assessed if not agreed;

(c) the respondent shall pay the professional remuneration incurred by Professor Chung after 26 April 2007, to be assessed if not agreed; and

(d) there be no order as to the professional remuneration incurred by Mr. SK Chan.

(B) If the Tribunal takes the view that the respondent has not raised the above issues improperly and unreasonably but that the raising of such issues did cause a substantial increase in the length and costs of the proceedings:-

(1) Subject to any previous costs orders made herein:-

(a) The respondent shall pay the applicant’s costs incurred up to and including 26 April 2007 to be taxed on High Court scale if not agreed, with certificate for 1 counsel;

(b) The respondent shall pay the applicant’s professional remuneration incurred up to and including 26 April 2007 to be assessed if not agreed;

(2) Subject to any previous costs orders made herein;

(a) The applicant shall pay 2/3 of the respondent’s costs incurred after 26 April 2007 to be taxed, if not agreed with certificate for 1 counsel;

(b) The applicant shall pay the professional remuneration incurred by Mr. Faulkner after 26 April 2007, to be assessed if not agreed;

(c) There be no order as to the professional remuneration of Professor Chung and Mr. SK Chan.

38.As for certificate for counsel, it is the contention of the applicant that in all previous substantive hearings before the Lands Tribunal in these proceedings, the Tribunal only allowed certificate for 1 counsel, this should be the order adopted at this stage as well.

39.Mr. Mok submitted that the respondent, being the successful party, should be entitled to have its costs after the Offer.  Irrespective of whether the BA had acted unreasonably or whether the respondent had failed to concede that the 2009 Scheme is feasible, the findings of the Tribunal is that it could not be satisfied that the 2009 Scheme “is the optimal development for the Lots since the applicant had failed to show that there is the demand for it.”[6]  It is apparent that the Tribunal had ruled in favour of the respondent and accepted the respondent’s case.  The feasibility of the 2009 Scheme does not qualify as an event under Seepersad v Persad, but rather it only forms part of the relevant event.  And even though the respondent had sought to adduce further documents at trial, this does not affect the basis and substance of the respondent’s case and the final result of this case.  In any event, not much time had been spent on these 2 issues and had not prolonged the trial. 

40.Mr. Mok also asked for certificate for 2 counsels in this case contending that the complexity and technicalities of the issues do justify the engagement of 2 counsels.

41.The wordings of s.30(3) is clear without ambiguity.  Applying s.30(3) to this case, since the Compensation fails to beat the Offer, we should make an order for the applicant to bear its own costs and to pay the costs of the respondent after the deadline to accept the Offer, i.e. 26 April 2007 unless the applicant can demonstrate special reason to justify a departure. 

42.Having considered the submission of the parties, we find the issue on whether the BA or the respondent had acted unreasonably concerning their stance in the approval of the 2009 Scheme is not “something so distinct and separate in itself that the decision of it constitutes as ‘event’”[7]. The crux of the matter at trial before this Tribunal, i.e. the event, is whether the 2009 Scheme is an optimal development and the uncertainty of the approval of the same is just part and parcel of this main issue.  It cannot be considered as an isolated issue unnecessarily pursued as having no bearing on the real question in the case. 

43.The complaint by the applicant of the BA’s unreasonable refusal to make a determination on the 2009 Scheme is not justified.  There is nothing to show that the BA is obliged to entertain such a request.  Both Professor Chung and Mr. SK Chan accepted that the request is only considered as an informal inquiry made to the BA.  And there is nothing to challenge the evidence of Mr. SK Chan that the practice of not answering enquiries for hypothetical development had in fact been in place since 18 December 2003 and due to oversight of some staff, the applicant’s enquiry had been wrongly entertained between 18 December 2003 and 24 December 2008. 

44.Given our findings that the feasibility of the 2009 Scheme is not unreasonably pursued, the calling of Professor Chung and Mr. SK Chan is required and necessary.  And the time and costs incurred is also insignificant (1 report each from Professor Chung and Mr. SK Chan and testimony of them takes up less than half a day).

45.As for the failure by the respondent to adduce the further document on the second day of the trial, we have handed down the reason for our decision on 3 April 2014 (“the Decision”).  Even though we found it to be a separate and distinct application to adduce further evidence, the time and costs incurred in disposing of the same is relatively insignificant (only a 1 hour argument on 25 March 2014). 

46.We found the 2 special reasons raised by the applicant are not substantiated to justify a departure from the requirement under s.30(3) and the professional fees concerning the feasibility of the 2009 Scheme are reasonably incurred. 

47.As for the certificate for counsel, the fact that certificate for 1 counsel is being granted in previous hearings is not the basis to determine this dispute.  Given the complexity of this case, we are not convinced that the assistance of leading counsel is necessary at trial.  There is no difficult legal argument involved in this case and the mere fact that the size of the claim is substantial is neither here nor there since this does not add anything onto the complexity of the case.

Order

48.Accordingly, we order that :

(a) The interest of the Compensation from 24 June 1997 to 2 July 2000 should be paid by the respondent to the applicant at the rate of the lowest 24 hours’ call deposit rate paid by members of the Hong Kong Association of Banks;

(b) The interest of the Compensation from 3 July 2000 to 2 October 2000 should be paid by the respondent to the applicant at the rate of the lowest time deposit interest rate paid by members of the Hong Kong Association of Banks on 2 July 2000;

(c) The interest of the Compensation from 3 October 2000 to 11 April 2001 should be paid by the respondent to the applicant at the lowest 24 hours’ call deposit interest rate paid by those members of the Hong Kong Association of Banks that provide the Government with the relevant interest rate at the close of business on that day if it’s a working day and on the last working day before that day if it’s a non-working day;

(d) The interest of the Compensation after 12 April 2001 should be paid by the respondent to the applicant at the lowest 24 hours’ call deposit interest rate paid by those members of the Hong Kong Association of Banks that provide the Government with the relevant interest rate at the close of business on that day if it’s a working day and on the last working day before that day if it’s a non working day;

(e) The respondent do pay the costs incurred by the applicant up to and including 26 April 2007, to be taxed on High Court Scale if not agreed, with certificate for 1 counsel;

(f) The applicant do pay the costs of the respondent incurred after 26 April 2007, to be taxed on High Court scale if not agreed, with certificate for 1 counsel;

(g) The respondent do pay the professional fees incurred by the applicant up to and including 26 April 2007, to be assessed by the Tribunal if not agreed;

(h) The applicant do pay the professional fees incurred by the respondent after 26 April 2007, to be assessed by the Tribunal if not agreed;

(i) Costs of this argument on interest, costs and professional fees be to the respondent, to be taxed if not agreed at High Court scale, with certificate for 1 counsel.  This is a costs order nisi.  Unless any of the parties apply by summons to vary it, the costs order nisi shall be made absolute upon expiry of 14 days.

Mr Richard Khaw, instructed by Keith Lam Lau & Chan, for the applicant

Mr Y C Mok and Ms Teresa Wu, instructed by the Department of Justice, for the respondent

[1] Bundle B/306-312

[2] Bundle A/104-106

[3] §21 of respondent’s Submission on Interest, Costs and Professional Fees

[4] §37-44 of the Judgment

[5] Bundle D/164

[6] §56 of the Judgment

[7] As per Lord Carswell in Seepersad v Persad as quoted by Lam J. in Hong Kong Kam Lan Koon Ltd v Realray Investment Ltd. (No. 4) [2005] 4 HKC 162