SIN HO YUEN v. FINEWAY PROPERTIES LTD

bjbj FACV No. 13 of 2010 IN THE COURT OF FINAL APPEAL OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION FINAL APPEAL NO. 13 OF 2010 (CIVIL) (ON APPEAL FROM CACV NO. 95 OF 2009) _____________________ Between: SIN HO YUEN the administrator of the Estate of SIN YAT, deceased Appellant - and - FINEWAY PROPERTIES LIMITED Respondent _____________________ Court : Mr Justice Bokhary PJ, Mr Justice Chan PJ, Mr Justice Ribeiro PJ, Mr Justice Litton NPJ and Lord Millett NPJ Date of Hearing : 13 May 2011 Date of Judgment : 24 May 2011 J U D G M E N T Mr Justice Bokhary PJ : On 13 May 2011, the day fixed for the hearing of this appeal, the Court was informed by counsel that the parties had achieved a settlement, the terms of which they wished to keep confidential. On those terms and by consent, they invited us to dismiss the appeal with no order as to the costs of the appeal. One of the matters which had caused us concern was the order which the Lands Tribunal made as to the costs of the proceedings before it. We expressed that concern, and were assured that the settlement catered for it. With that assurance, we acceded to the parties invitation to dismiss the appeal with no order as to the costs of the appeal. We said that we would nevertheless hand down our reasons for acceding to that invitation because there were a number of things which ought not to be left unsaid. As the issues had been framed by the parties, two points of law arose in this appeal. Both concerned the position when a would-be redeveloper applies to the Lands Tribunal for an order under s.4(1)(b) of the Land (Compulsory Sale for Redevelopment) Ordinance, Cap.545, that a property be sold by public auction. The first question was whether, and if so under what circumstances, an agreement between the parties as to the reserve price for the Lands Tribunal to approve can be re-opened at the instance of one party and despite the objection of the other party. As for the second question, it was whether an appellate court can accord the objecting party a remedy if such an agreement is wrongly re-opened and the property is sold at a price less favourable to that party than the reserve price originally agreed. Those questions arose in this way. The case concerned the property known as 44-46 Haven Street in Causeway Bay. It consists of an eight-storey block with two units on each floor. The 1st to 8th floor units are residential while the ground floor units are commercial, being shops. One equal undivided share in the property representing 6.25% of it and carrying exclusive possession of the shop on the ground floor of No.44 belonged to the estate of Sin Yat, deceased, of which estate Mr Victor Sin is the administrator. The rest of the property belonged to Fineway Properties Ltd. In order to redevelop the property, Fineway sought an order under s.4(1)(b) for its sale by public auction. On 20 March 2009 it obtained such an order from the Lands Tribunal (Deputy Judge F Yiu and Mr K Lo). Shortly after the Lands Tribunal hearing began in June 2008, Fineway and the estate informed the Lands Tribunal that they had agreed on a reserve price of $122 million. Then the matter was adjourned part-heard. It resumed in December 2008. Fineway sought to re-open the reserve price on two grounds. The first was that the agreement on a $122 million reserve price had been made on a false premise. And the second was that there had been, between June hearing and the December hearing, an unimaginable drastic market drop due to the occurrence often referred to as the Financial Tsunami . The Lands Tribunal rejected the first ground but accepted the second and permitted the re-opening of the reserve price. By its order dated 20 March 2009, the Lands Tribunal set the reserve price at $70.5 million. The Lands Tribunal attributed 12.0368% of the property to the estate s share in it. At $122 million, the estate would be entitled to $14.68 million. But at $70.5 million, it would be entitled to only $8.48 million. The difference is approximately $6.2 million. No stay was sought, and the auction proceeded. At the auction, Fineway was the only bidder, and it acquired the property at the reserve price of $70.5 million. As to the costs of the proceedings before it, the Lands Tribunal ordered that the estate bear 90% of Fineway s costs, to be taxed on the High Court scale and with a certificate for counsel. Why? Because, the Lands Tribunal said : In relation to the costs of the application, Mr Liu emphasizes that the Applicant shall bear the statutory burden to satisfy the Tribunal that the requirements laid down in the Ordinance have to be met no matter whether there comes any opposition. He further says that the Respondent merely challenges the valuation in his unit and no more and therefore no order shall be made as to costs. However, the fact is, voluminous expert reports have been filed by the Respondent and it was not until in the course of the trial that the Respondent preferred not to call their experts nor adduce their reports. It is true that some trial dates have been saved, but rebuttal reports have since been filed and the Respondent is not simply taking a neutral stance. Whether the tests of age or state of repair have been satisfied were still under protest, not to mention the disputes in various valuation aspects. On valuation, eventually this Tribunal also prefers most figures adopted by the Applicant s expert. Thus, the extra effort and costs incurred by the Applicant to deal with all the contentions submitted by the Respondent is obvious and it is completely different from the manner of going on a simple and straight forward proof of case. The problem is that, for no good reason that anyone has even attempted to offer, the hearing before the Lands Tribunal took as long as 18 days. One of the objectives of the Land (Compulsory Sale for Redevelopment) Ordinance is, as Mr Justice Ribeiro PJ said in Capital Well Ltd v. Bond Star Development Ltd (2005) 8 HKCFAR 578 at para.21, to ensure that the minority owner receives fair and reasonable compensation for his interests in the lot . That 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. It is the Lands Tribunal s duty, under the statutory scheme and as a component of the judiciary, to take resolute steps to prevent that. The proceedings before the Lands Tribunal appear to have spun expensively out of control, and neither party seems more to blame than the other for that. Those are, briefly and mildly stated, the reasons why we regarded the order as to costs made by the Lands Tribunal as cause for concern. On appeal by the estate, the Court of Appeal (Le Pichon and Cheung JJA and Lam J) held (i) that the agreed reserve price should not have been re-opened but (ii) that there was no jurisdiction to accede to the estate s argument that Fineway should be ordered to pay it the $6.2 million difference. So they dismissed the estate s appeal. They granted the estate leave to appeal to the Court of Final Appeal on the question of law limb of s.22(1)(b) of the Court s statute. Such leave was granted on the question of whether there is a remedy available to a minority owner after an auction has taken place when it has been held the reserve price at the auction was the wrong price . The estate having been granted that leave, Fineway then asked the Court of Appeal for leave to appeal to the Court of Final Appeal against the Court of Appeal s decision that the agreed reserve price should not have been re-opened. The Court of Appeal refused such leave. And Fineway then asked the Appeal Committee for such leave. As was said in Thanakharn Kasikorn Thai Chamkat (Mahachon) v. Akai Holdings Ltd (No.1) (2010) 13 HKCFAR 283 at para.3, [a] respondent to a civil appeal to the Court of Final Appeal who seeks to defend a result on further or other grounds does not need leave to advance such grounds. It may do so simply by including such grounds in its printed case. The Court of Appeal, on the basis that the estate had succeeded in showing that the Lands Tribunal had erred in re-opening the agreed reserve price, made an order nisi leaving each party to bear its own costs. But Fineway did not want to disturb that, and merely wanted to hold the result on an additional ground. So the Appeal Committee told Fineway that it may rely on its additional ground simply by including that ground in a supplemental printed case. And that is what Fineway did. Why the Court of Appeal were of the view that the question of the reserve price should not have been re-opened is to be found in Le Pichon s judgment, with which Cheung JA simply agreed and with which Lam J agreed without adding anything on this part of the case. Mrs Justice Le Pichon JA, after agreeing with the Lands Tribunal s rejection of Fineway false premise ground, said: That leaves the economic crisis that occurred in the autumn of 2008. In W H and Z, (unreported) CACV 127 of 2008, 12 May 2009, this court rejected an attempt to reopen an order for ancillary relief on the basis that the assets retained by the husband had diminished in value in a way that had not been anticipated because of the economic turmoil of 2008 that ensued following compliance with the order. If the diminution in value of assets through the natural processes of price fluctuation, however dramatic, normally does not warrant the variation of orders made, by parity of reasoning, it can have no impact on a concluded agreement and does not constitute a valid reason for reopening it. It is for the Lands Tribunal to set a reserve price. But if there is a consensus between the parties on the reserve price to be set, then it is open to the Lands Tribunal to set the reserve price in accordance with such consensus unless there appears to be good reason not to do so. Indeed, it is only to be expected that the Lands Tribunal would normally proceed on the basis of any such consensus. Suppose a significant fall in property prices occurs after a reserve price has been set (whether by consensus or upon evidence). Strictly speaking, there would be no need to ask the Lands Tribunal to re open the agreed reserve price and set a lower one, for neither the would-be redeveloper nor anyone else would bid up to the reserve price. The Lands Tribunal would then have to exercise its statutory power to set a new and lower reserve price for a fresh auction. There is, however, no need to go through the pointless exercise of holding an unsuccessful auction. The parties could simply return to the Lands Tribunal and ask it to set a new reserve price. If the Lands Tribunal is satisfied that an auction at the existing reserve price would be unsuccessful, the proper course for it to take would be to set a new reserve price. Now suppose instead that a significant rise in property prices occurs after a reserve price has been set (whether by consensus or upon evidence). Then the proper course to take depends on whether or not other bidders are likely. If they are, there may be no need to increase the reserve price, since bidders will bid beyond the existing reserve price. Where, as in the present case, other bidders are unlikely, not re opening the reserve price would enable the would-be redeveloper to acquire the property at a price which would result in something less than fair and reasonable compensation for the minority owner. In such a case it is to be observed that there will have been no error of law in fixing the reserve price (whether by consensus or upon evidence). So it would not be a matter of the minority owner appealing and seeking a stay pending appeal. He should simply apply to the Lands Tribunal, under the implied liberty to apply, to reset the reserve price on evidence of a material change of circumstance. It is immaterial whether the reserve price was fixed by consensus or upon evidence, since in either case the reserve price is fixed by reference to the value of the land (found or agreed) as at the date of the order, and is subject to a subsequent change of circumstance. As for the point on which the Court of Appeal granted leave to appeal to this Court, all that can usefully be said is this. Suppose there arises a situation of the following nature. A consensus is reached on a reserve price. One party later asks the Lands Tribunal to set a different reserve price while the other party opposes that course. The Lands Tribunal sets a different reserve price. It is subsequently held on appeal that the Lands Tribunal was wrong in the circumstances to do so. Unfortunately the auction had gone ahead because no stay pending appeal was sought or because such a stay was refused. And it appears that the party who had justifiably but unsuccessfully opposed the re opening of the reserve price would have been materially better off financially if it had not been re-opened. Can there ever be a remedy for the party who opposed departure from the earlier consensus? Never is a word sparingly to be employed in the law. And this is not an occasion on which to employ it. As to the settlement itself, sufficient was made known of its nature to indicate that it was appropriate to make the consent order sought. Mr Justice Chan PJ : I agree with the judgment of Mr Justice Bokhary PJ. Mr Justice Ribeiro PJ : I agree with the judgments of Mr Justice Bokhary PJ and Mr Justice Litton NPJ. Mr Justice Litton NPJ : I agree entirely with Mr Justice Bokhary PJ s judgment. As the proper functioning of the Lands Tribunal is a crucial process in the scheme of the Land (Compulsory Sale of Redevelopment) Ordinance, Cap. 545, I would add some words of my own, focussed on the question of costs. The Scheme of the Ordinance The Ordinance is still in its infancy. It came into force barely a decade ago. It forms part of a larger government programme for the renewal and redevelopment of the older parts of Hong Kong s urban environment, by facilitating the private sector s participation in such redevelopment. Under the statutory scheme, the Lands Tribunal plays a key role. The object of the statute could only be achieved if the tribunal discharged its function in an effective and efficient manner. As the title of the Ordinance states, it provides mechanism for the compulsory sale of land for redevelopment, by giving to the tribunal the power to order the sale of a property in multiple ownership, over the objections of a minority owner. In order that the entrenched right of private ownership of property in Articles 6 and 105 of the Basic Law be not infringed, the protection of minority interest under the Ordinance becomes therefore a key factor. In turn, 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. The Application to the Lands Tribunal Here we are concerned with an 8-storey building in Causeway Bay, completed in 1958. The application for compulsory sale was first made in July 2007. The respondent to that application was the owner of a ground floor shop (No. 44 Haven Street) comprising 1/16 share. The application stated simply this: The redevelopment of the lot was justified because of the age of the building and the lack of repair; the applicant, notwithstanding having taken reasonable steps, had failed to acquire all the undivided shares in the lot; hence the application for compulsory sale. Full stop. On its face a seemingly simple case. The matter went first before the Lands Tribunal nearly a year later, on 2 June 2008. The hearing went on for seven days in that month and was then adjourned to December 2008, when it went on for another seven days. It resumed in February 2009 when it went on for another four days: A total of 18 hearing days, attended by counsel and solicitors. In March 2009, in a written judgment of 52 pages (including seven appendices) the tribunal made an order for compulsory sale. The Proceedings We do not have a transcript of the proceedings before the tribunal and do not therefore know precisely why the hearing took 18 days spread over nine months. But this much we know. Shortly after the hearings began the parties had agreed a redevelopment value for the site at $122 million. And because the issue of age and state of repair of the building was adjourned on 11 June 2008 to be dealt with in December 2008, it would seem that the only matter left during those seven June hearing days was this: To determine the existing use value ( ) of the respondent s shop as compared to the EUV of the building as a whole. This was necessary in order to establish the respondent s pro rata share of the proceeds of sale in the event of a sale by auction: Part 3 Schedule 1 of the Ordinance. Eventually the tribunal determined the EUV of all the units in the building at $38.05 million and the EUV of the respondent s ground floor shop at $4.58 million. This yielded therefore the figure of 12.04% which constituted the respondent s pro rata entitlement to the proceeds of sale, in the event of an order for sale. In the tribunal s judgment this exercise covered 55 paragraphs and 4 appendices. Valuation is at best an inexact science. No two experts can be expected to agree 100% on the matter, however well-intentioned. It is based on a comparison with other transactions within the locality , not too distant in time and not too dissimilar in size from the subject property. Adjustments of a more or less arbitrary nature have therefore to be made to render those transactions comparable : which by definition they are not, if 100% perfection is sought. It would therefore be an unwise tribunal which allows counsel to cross examine the experts too closely and lengthily on such matters. We do not know if this is what occurred in this case to account for the extraordinary length of time taken to resolve this one issue. The Outcome of the Delay The outcome of the delay is unfortunate. Between the first hearing dates and the adjourned dates, the global financial crisis intervened. This resulted in the tribunal re-opening the issue of the redevelopment value of the site which the parties had previously agreed at $122 million. We are told that it took four days of argument for the tribunal to resolve if it should take such a course. This seems an extravagant use of time. The tribunal, in paras 56-75 of its judgment, dealt with this issue. In para.59, the tribunal said that the respondent s expert Mr Wong was cross examined at length by counsel for the applicant. It is not clear if this was expressed as a matter of disapproval. Nor is it clear what steps, if any, the president took to abridge cross examination. The redevelopment value was ultimately assessed as $70.5 million, which became the reserve price for the sale by auction. Eventually the majority owner bought the property at that price. The respondent s share (on paper) was therefore $8.48 million: in fact, a sum exceeding the last offer made by the applicant before the application was lodged, which had been $8 million. (There was in fact a later offer of $11.715 million, made in April 2008, long after experts on both sides had been engaged, and considerable costs incurred). Conclusion In the tribunal s judgment, the respondent was ordered not only to bear his own costs of engaging counsel, solicitors and experts, but also to pay 90% of the applicant s costs, to be taxed on the High Court scale, with certificate for counsel. How much of the apportioned proceeds of sale the respondent would have ultimately received for the compulsory sale of his property, had that order stood, is problematic. The legal process itself might well have deprived him of a large proportion of his entitlement under the Ordinance: even though, as things turned out, he was perfectly justified in refusing the majority owner s last offer of $8 million to buy his shop and to resist the application: see para.32 above. By the time the offer of $11.715 million was made, shortly before the hearing, the cost of engaging a team of experts had obviously been incurred. At that time the property market was still extremely robust. Nothing suggests that the respondent was acting unreasonably at that time to reject the offer. When the wheels grind slow, grind small, justice itself can be crushed in the process. Looking Ahead The proceedings before the tribunal ended on 12 February 2009, the very day as it happened when the President of the Lands Tribunal Johnson Lam J issued directions, incorporating the High Court Civil Justice Reform rules into the practices of the Lands Tribunal. This means that cost effectiveness expedition proportionality and procedural economy are now underlying objectives of all proceedings under the Ordinance. In reality, these were always the underlying objectives of the Ordinance, having regard to its scheme as outlined in 23 to 25 above. The practice direction issued by the President on 12 February 2009 has now made this crystal clear. I make therefore the following suggestions: (1) When dates have been fixed for a case, it means that it will conclude on the last day, if not before. (2) To ensure this is achieved, the parties legal representatives might, for instance, be asked beforehand to apportion the dates between them for the different stages of the proceedings: A time table to be devised by the president if the parties fail to agree. (3) In a suitable case, the valuation exercise might be curtailed. For example, of the 12 comparables put forward by the applicant s expert in this case, 8 were ultimately eliminated. There is no reason why this could not have been done as a matter of case management before the hearing, thus saving much time at the hearing. It may be too much to expect legal practitioners, brought up in the culture of adversarial proceedings, to take readily to the new regime. The responsibility for ensuring the effectiveness and efficiency of proceedings, under the new rules, will fall mainly on the shoulders of the presiding judges of the Lands Tribunal. It is to be hoped that they will be equal to the task. Lord Millett NPJ : I agree with the judgment of Mr Justice Bokhary PJ. Mr Justice Bokhary PJ : As already indicated, the appeal was disposed of pursuant to a settlement. (Kemal Bokhary) (Patrick Chan) (RAV Ribeiro) Permanent Judge Permanent Judge Permanent Judge (Henry Litton) Non-Permanent Judge (Lord Millett) Non-Permanent Judge Mr Russell Coleman SC (who did not appear in the Lands Tribunal) and Mr Chin Yu (instructed by Messrs Wong Poon Chan Law & Co.) for the appellant Mr Mok Yeuk Chi (instructed by Messrs Lo, Wong & Tsui) for the respondent First gazetted on 7 June 1999. s.4(1)(b), Cap. 454. Article 6: The Hong Kong Special Administrative Region shall protect the right of private ownership of property in accordance with law. The respondent was the administrator of the estate of the owner. Ord. 1A r.1 High Court Rules: Underlying Objectives. 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