Director of Buildings and Lands v Shun Fung Ironworks Ltd
| Jurisdiction | UK Non-devolved |
| Judge | Lord Nicholls of Birkenhead,Lord Mustill,Lord Slynn of Hadley |
| Judgment Date | 20 February 1995 |
| Judgment citation (vLex) | [1995] UKPC J0220-2 |
| Docket Number | Appeal No. 42 of 1994 |
| Court | Privy Council |
| Date | 20 February 1995 |
[1995] UKPC J0220-2
Privy Council
Present at the hearing:-
Lord Keith of Kinkel
Lord Mustill
Lord Slynn of Hadley
Lord Lloyd of Berwick
Lord Nicholls of Birkenhead
and Cross-appeal
[Delivered by Lord Nicholls of Birkenhead]
In the 1970s and for some years earlier Shun Fung Ironworks Limited carried on a mini-mill business at Junk Bay in Hong Kong. The company acquired scrap metal, partly from its own shipbreaking operations. The scrap was melted and cast into ingots or billets, which were then cut and rolled into steel reinforcement bars of different sizes. The reinforcement bars, or rebars, were sold to the construction industry and used in making reinforced concrete. The main components of the mill were electric arc furnaces for melting the metal, a continuing casting machine, and rolling mills.
In November 1981 Shun Fung received a letter from a government official notifying the company that the government intended to develop Junk Bay as a new town and that it would be necessary for the company to give up its site. The formal steps were taken, but only after a protracted period of years. On 15th October 1985 the Governor made an order under section 3 of the Crown Lands Resumption Ordinance that Shun Fung's Junk Bay site was required for a public purpose, and fixed 30th July 1986 as the date of resumption. Shun Fung was unable to obtain another suitable site before that day arrived, and so it had to close down its business. It finally quit Junk Bay in January 1987.
Shun Fung's claim for compensation came before the Lands Tribunal in October 1988. In 1987 the company had found a green field site, with a suitable river frontage, at Shunde in China. It lodged a claim for losses and expenses including the cost of setting up a new plant at Shunde and continuing its mini-mill business there. With ongoing items the total amount of this "relocation" claim was more than HK$1 billion. The Crown contended that Shun Fung was entitled to less than $100 million.
The hearing turned into an extraordinarily mammoth exercise. The Lands Tribunal (Rhind J. and Mr. M.W. Phillips) heard evidence and submissions over 263 days, the transcript exceeded 17,000 pages, and the 38 volumes of written submissions were amplified by oral argument lasting 95 days. The judgment of the tribunal covered 900 pages. In round figures the tribunal awarded Shun Fung $131 million. On appeal the Court of Appeal (Power V.-P., and Nazareth and Litton JJ.A.) increased the award to $519 million.
The business loss
The principal dispute concerns the basis on which compensation should be paid for the loss sustained by Shun Fung in respect of its business. On resumption Shun Fung lost its land and buildings at Junk Bay. Shun Fung also lost its plant and machinery. These items had to be left behind because Shun Fung had nowhere to move them, and they were later sold by the government. The land, buildings, plant and machinery were valued at $109.75 million.
In addition Shun Fung had to close down its business. Shun Fung lost the profits which the business could have been expected to produce. The Lands Tribunal awarded nothing in respect of this head of claim, for this reason. The lost future profits had to be valued, as at the date of resumption, by applying appropriate discount rates to the expected profits over a period of years. The period used in this case was thirteen years, from 1st July 1986 to 30th June 1999. Capitalising the profit figures as found by the Lands Tribunal at the discount rates fixed by the tribunal produced a value of a little under $79 million. However, to earn these profits Shun Fung would have had to retain and use its land and plant at Junk Bay. So, on this footing, the value of these items at the date of resumption in 1986 was their expected value in 1999 discounted back to 1986, namely about $2.5 million. These two amounts together fell far short of the present value, almost $110 million, of the site with its buildings and equipment. Hence a claim assessed in this way, which carried with it the consequence that the Junk Bay site had to be valued on a discounted basis, was much less valuable to Shun Fung than a claim simply for the present value of the site.
Shun Fung disputed this valuation of its business as a going concern. But its primary claim at all stages of the proceedings has been that its business loss is not to be measured simply by valuing the business as at the date of resumption in 1986, the so-called "extinguishment" basis for assessing compensation. That is not the fair or true measure of the damage it sustained by the resumption. The proper measure is the costs it would incur in moving to Shunde and resuming its interrupted business there, the so-called "relocation" basis. These costs would include the cost of adapting the new site, loss of profits while the new site was equipped and production started, together with the amount of unproductive overheads and professional fees. All these items would have to be adjusted for inflation.
The Lands Tribunal held that the extinguishment basis was the correct basis. It also made findings regarding the ingredients comprised in the relocation claim. Had compensation fallen to be assessed on the relocation basis, the tribunal's award would have been of the order of $408 million, inclusive of the $109.75 million for the Junk Bay site. This is to be compared with the tribunal's award of $131 million. The Court of Appeal, reversing this decision, held that compensation ought to be assessed on the relocation basis and, as already mentioned, increased the award to $519 million.
The statutory provisions
The Crown submitted that as a matter of law Shun Fung could not be awarded a larger sum on a relocation basis than its maximum entitlement on an extinguishment basis. This submission makes it necessary to turn to the statutory provisions regulating the payment of compensation on the resumption of land. Section 10 of the Crown Lands Resumption Ordinance provides for the amount of compensation to be determined by the Lands Tribunal if the claimant and the acquiring authority are unable to agree, in these terms:-
"(1) The Tribunal shall determine the amount of compensation (if any) payable in respect of a claim submitted to it … 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 –
(a) the value of the land resumed and any buildings erected thereon at the date of resumption; …
(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; …"
In general, the value of the land resumed is taken to be the amount which the land if sold by a willing seller in the open market might be expected to realise (section 12(d)).
The legislative code in England relating to compensation for compulsory acquisition contains no express provision corresponding to section 10(2) (d). Despite this difference, in all respects relevant in the present case the principles applicable under the two codes are the same. The Lands Clauses Consolidation Act 1845 provided that regard should be had to the value of the land taken and to the damage sustained by severance (section 63). The Act contained no express provision for disturbance losses, either regarding businesses or generally. However, by judicial interpretation the value of the land was taken to mean the value of the land to the claimant and, hence, to embrace such personal losses (see the classic exposition of Scott L.J. in Horn v. Sunderland Corporation [1941] 2 K.B. 26, (43-49). The Acquisition of Land (Assessment of Compensation) Act 1919 set out rules for the assessment of compensation. In section 2, rule (2) provided, in short, that the value of the land should be its market value, but rule (6) stated that this should "not affect the assessment of compensation for disturbance or any other matter not directly based on the value of land". These provisions are now reproduced in the Land Compensation Act 1961, sections 5(2) and (6), and the Compulsory Purchase Act 1965, section 7.
In Hong Kong the legislative history is slightly different but the end result is the same. Section 8 of the Crown Lands Resumption Ordinance (No. 23 of 1889) corresponded to section 63 of the Act of 1845. In 1921 this section, reproduced in section 10 of the Crown Lands Resumption Ordinance 1900, was amended by adding a provision that the value of land resumed should be taken to be the price it would fetch in the open market. The entitlement to compensation for damage to a business was preserved not, as in the United Kingdom, by a saving proviso to that effect, but by adding into section 10 an express provision for the payment of such compensation. In 1974 the task of determining the amount of compensation was transferred from the compensation board to the Lands Tribunal, and section 10 was redrafted in its present form.
Fair compensation
The purpose of these provisions, in Hong Kong and England, is to provide fair compensation for a claimant whose land has been compulsorily taken from him. This is sometimes described as the principle of equivalence. No allowance is to be made because the resumption or acquisition was compulsory; and land is to be valued at the price it might be expected to realise if sold by a willing seller, not an unwilling seller.
But subject to these qualifications, a claimant is entitled to be compensated fairly and fully...
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