Director of Buildings and Lands v Shun Fung Ironworks Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 20 February 1995 |
| Date | 20 February 1995 |
| Court | Privy Council |
Hong Kong - Land - Resumption - Claimant's land resumed by Crown - Claimant suffering loss and damage to business - Whether compensation to be assessed on basis of extinguishment or relocation of business - Whether compensation payable for injury to goodwill - Whether loss sustained prior to resumption order “due to” resumption - Proper interest rate -
The claimant operated a mini-mill business on land in Hong Kong. In November 1981 the claimant was notified by the government that it intended to develop the area as a new town and that the claimant would have to relinquish its site. Thereafter the claimant's business was adversely affected by the threat of its land being resumed by the Crown under the Crown Lands Resumption Ordinance.F1 On 15 October 1985 a resumption order was made under section 3. The claimant was unable to find an alternative site by 30 July 1986, when, the land reverted to the Crown and its business was closed down and the land vacated in January 1987. The claimant, having found a suitable site in China, submitted a claim for compensation to the Director of Buildings and Lands based on the relocation of its business to that site, and the matter was referred to the Lands Tribunal for determination under section 10. In November 1988 on behalf of the Crown the director made an offer “without prejudice” to settle the claim for $170m. exclusive of interest and costs, and subsequently a similar offer to settle part of the claim. Neither offer was accepted by the claimant. The tribunal held that the claimant's business had been effectually extinguished in 1986, that the business which the claimant intended to establish in China would not be the same, and that compensation for the claimant's business loss had to be determined on an extinguishment basis by valuing the business at the date of resumption. The tribunal awarded the claimant $131m., which included a sum for the claimant's loss of profits from November 1981 until January 1987, holding that during that period the business had declined owing to the shadow of resumption hanging over the claimant. The tribunal made no award in respect of injury to the goodwill of the business because the discount rate which it applied in capitalising the future profits which the claimant would have made if its land had not been resumed resulted in a sum considerably less than the value of the land, buildings, plant and machinery. By section 17(3) interest was payable on compensation and the tribunal, disregarding the rate specified in section 17(3A), fixed interest at the prime lending rate plus 1 per cent. The tribunal took the Crown's first settlement offer into account under R.S.C. (Hong Kong), Ord. 22 and Ord. 62F2 and ordered that the claimant was to receive its costs up to the date of that offer but was to pay the director's costs thereafter on a common fund basis. On appeal by both parties the Court of Appeal of Hong Kong increased the award to $519m., holding that relocation was the proper basis of assessment, but held that compensation was only payable in respect of losses arising after the resumption order had been made. The court also held that the tribunal had misdirected itself as to interest and fixed the rate at the seven-day call rate plus 2 per cent. and that the settlement offers could not be taken into account, and ordered the director to pay the claimant's costs of the proceedings before the tribunal.
On the director's appeal to the Judicial Committee and the claimant's cross-appeal:—
Held, allowing the appeal, (1) that under section 10 of the Crown Lands Resumption Ordinance a claimant was entitled to fair and adequate compensation for loss or damage suffered due to resumption of his land, including loss or damage to his business; but that, although the compensation related to the value of the land to the claimant, in respect of any particular loss it was necessary to show a causal connection between the resumption and that loss, that it was not too remote and that it was one which a reasonable person in the position of the claimant would have incurred; that provided those conditions were satisfied a claimant might recover compensation on a relocation basis for the cost of moving the claimant's business to another site even though that would exceed the amount payable on an extinguishment basis in respect of the value of the business at the date of resumption; that in order for a claim to be assessed on a relocation basis the claimant had to establish that the business was capable of being relocated, that he intended to relocate, and that a reasonable businessman would do so; and that since there was no ground entitling the Court of Appeal to reverse the tribunal's conclusion, based on its findings of fact, that the claimant's business had been effectually extinguished at the date of resumption and since, despite the claimant's genuine intention to relocate its business, a reasonable businessman would not take that course, compensation had properly been determined by the tribunal on an extinguishment basis (post, pp. 411H–412A, B–C, F–G, 413C, D–F, 414G–H, 416A–B, G, 418A).
(2) That R.S.C. (Hong Kong), Ord. 22, r. 14 and Ord. 62, r. 5 enabled offers made “without prejudice save as to costs” to be taken into consideration by the court in exercising its discretion with regard to costs unless the party making the offer could have made a payment into court under Order 22, and since Order 22 did not apply to a claim for compensation, because it was not an action for a debt or damages, the tribunal had been entitled to take into account the Crown's first settlement offer and had been justified in ordering the claimant to pay the director's costs after 7 November 1988 on the common fund basis (post, p. 426E–G).
(3) Dismissing the cross-appeal in part, that the claimant was not entitled on appeal to present an entirely different case from that advanced before the tribunal with regard to the discount rate to be applied in calculating the value of the future profits which the claimant would have been expected to make if its business had not been extinguished; and that since the issues in relation thereto were essentially issues of fact for the tribunal the Judicial Committee would not be justified in interfering with the tribunal's decision that no compensation was payable for injury to the goodwill of the business (post, pp. 420F, 421A–B).
(4) That although section 17(3A) of the Ordinance gave the Lands Tribunal a discretion as to the rate of interest on the compensation awarded, the rate should be the lowest time deposit rate as specified in that subsection unless there were good reasons for fixing a different rate; that the fact that a claimant financed his business with borrowed money would not of itself be a good reason for fixing a higher rate; and that, therefore, the Court of Appeal had correctly decided that the tribunal had misdirected itself in fixing the rate of interest at prime lending rate plus 1 per cent. and, in all the circumstances, the court had properly exercised its discretion in fixing the rate at the seven-day call rate plus 2 per cent. (post, p. 425C–D, F, G–H).
(5) Allowing the cross-appeal in relation to the claim for loss of profits before resumption (Lord Mustill and Lord Slynn of Hadley dissenting), that resumption in section 10(1) of the Ordinance was not a process but a specific event which took place when the land reverted to the Crown, but losses sustained after the inception of the scheme and before resumption were “due to” the resumption of the land within section 10(1) and qualified for compensation if the same conditions as those applicable to post-resumption losses were fulfilled; that the concept of causal connection would be given an extended meaning so that losses incurred in anticipation of resumption and because of the threat presented by resumption constituted losses caused by the resumption, and so the claimant was entitled to compensation for all the pre-resumption losses claimed; and that, accordingly, $18.173m. would be awarded in respect of that claim and, except in relation to that matter and the rate of interest payable on the compensation, the tribunal's order would be restored (post, pp. 422G, 423G–424A, 427A–B).
Per curiam. When a tribunal is determining the amount of the loss sustained by a claimant such as the claimant company, the market perception of the risks attached to the type of business is likely to be of assistance in arriving at an appropriate discount rate, but that must not lead the tribunal into the error of equating the amount of a claimant's loss with the price he could obtain if he sought to sell the future profit stream to an outside commercial investor (post, p. 420G–H).
The following cases are referred to in the judgment of their Lordships:
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