Harvest Treasure Ltd and Others v. Cheung Fat Enterprises Ltd and Others
Read the full judgment text of LDCS 8000/2014 on BabelCite. This LDCS judgment was delivered on 31 December 2015.
1. This trial is to hear an application filed on 24 June 2014 for a compulsory sale order under the Land (Compulsory Sale for Redevelopment) Ordinance, Cap 545 (“the Ordinance”) (hereinafter referred to as “the Application”) to sell all the undivided shares of the Remaining Portion of Section B of Inland Lot No. 953 (“the Lot”), also known as Nos. 34, 34A & 34B Belcher's Street and Nos. 1A, 1B & 1C Rock Hill Street, Hong Kong.
Cited by 1 case · Cites 19 cases
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LDCS 8000/2014 IN THE LANDS TRIBUNAL OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION LAND COMPULSORY SALE MAIN APPLICATION NO. 8000 OF 2014 __________________________
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________________ J U D G M E N T ________________ 1.This trial is to hear an application filed on 24 June 2014 for a compulsory sale order under the Land (Compulsory Sale for Redevelopment) Ordinance, Cap 545 (“the Ordinance”) (hereinafter referred to as “the Application”) to sell all the undivided shares of the Remaining Portion of Section B of Inland Lot No. 953 (“the Lot”), also known as Nos. 34, 34A & 34B Belcher's Street and Nos. 1A, 1B & 1C Rock Hill Street, Hong Kong. 2.It is not disputed and is summarized by Mr Mok Yeuk Chi (“Mr Mok”), counsel for the applicants, that, as at the date of hearing, on the Lot, there was a block of 10-storey commercial/residential composite building known as Po Fat Building (“the Building”). 3.The occupation permit of the Building (Permit No. H56/64: “OP”) was issued on 6 March 1964 giving permission to occupy the LG/F for “Two shops & workshops for non-domestic use”. As could be seen from the approved building plans of 11 December 1962, there were:
4.According to the Land Registry, there are 116 undivided shares allotted as follows:
5.A set of alteration and addition (“A&A”) works submission was approved on 29 December 2008, to make alterations to Shop A & Shop B on the LG/F for “Shop / Department Store” use. There is therefore a dispute between the valuation experts on whether Shop A and Shop B should be valued as one shop or two. Whether the Applicants are entitled to make the Application 6.Section 3(1) of the Ordinance requires an applicant to have not less than 90% of the undivided shares in a lot before he can make an application. 7.Section 3(5) of the Ordinance provides that the Chief Executive in Council may, by notice in the Gazette, specify a percentage lower than the percentage mentioned in section 3(1) in respect of a lot belonging to a class of lots specified in the notice. 8.The Land (Compulsory Sale for Redevelopment (Specification of Lower Percentage) Notice was gazetted on 22 January 2010 and came into operation on 1 April 2010 (“the Notice”). Section 3 of the Notice lowered the threshold for compulsory sale in respect of the classes of lots specified in the Notice from 90% to 80%. Those classes of lots includes: “a lot with each of the building erected on the lot issued with an occupation permit at least 50 years before the relevant date (ie the date of the application under the Ordinance)”. 9.As mentioned, the OP for the Building was issued on 6 March 1964 (ie not less than 50 years before the date of the Application). The Notice is applicable and the threshold percentage should be 80%. 10.At the time of the filing of the Application, the applicants owned 81.8966% of the undivided shares of the Lot. We agree therefore that the applicants are entitled to make the Application under section 3(2)(b) of the Ordinance. Live Respondents Remaining 11.The applicants had before trial acquired the units and the corresponding undivided shares owned by the 2nd respondent, 4th respondent, 8th respondent and 9th respondent and therefore discontinued the proceedings against these respondents. It is manifest that when the applicants commenced the present proceedings on 24 June 2014, they owned more than 80% of the undivided shares in each pair of the Lots. At the time of the hearing, the undivided shares held by the applicants have been increased to 96.5517%. 12.On the second day of trial, ie 19 August 2015, the applicants entered into an agreement for sale and purchase with the 3rd respondent, assignment of the property to be completed in September 2015. The 3rd respondent then withdrew the Notice of Opposition and all evidence related thereto. It then ceased to be a live respondent in the Application.[1] 13.The following respondents are the 4 live respondents remaining on record:
14.In the present proceedings, Mr Jonathan Lee (“Mr Lee”) acts for the 1st respondent (ie R1) and Ms Lau Chui Ling, Wendy (“Ms Lau”) acts for the 5th, 6th and 7th respondents (ie R5-7). 15.As can be seen from the table in §13 above, R1 is owner of 2 units in the Building, namely Flat Nos 6 and 7 and the flat roofs adjacent thereto on the UG/F of the Building. Mr Lee said the contention of R1 is that the “age” and/or the “state of repair” of the Building is/are not justified for redevelopment under section 4(2)(a) of the Ordinance. While R1 takes a neutral stance on the issue of valuation, the applicants are put to strict proof on the issue whether reasonable steps had been taken in respect of the acquisition. 16.The arguments put forth by R5-7 were on valuation of the unit held by them in joint name and whether reasonable steps had been taken under section 4(2)(a) of the Ordinance. Further, R5-7 took the issue that the applicants had under-valued the redevelopment value (“RDV”) for sale of the Lot by auction, for instance, by over-estimating the area of the common parts on UG/F and over-valuing the construction cost of the hypothetical development. It is also the position of R5-7 that the provision of the underground car park for the hypothetical development at the expenses of shop space which is obviously of higher value is not justified and unreasonable. The Evidence 17.The applicants have filed the following documents in support of the Application:
18.R1 filed the Notice of Opposition dated 16 July 2014 and a Structural Assessment Report by Ir Dr Sammy Chan (“Dr S Chan”) dated 23 January 2015. There is no other expert report or witness statement from R1. 19.R5-7 filed two Notices of Opposition, a witness statement, an amended witness statement of R5 and a valuation report of Mr Denys Kwan (“Mr D Kwan”) dated 23 January 2015 providing the EUV of only the units of R3 and R5-7 and the shops (but no other units) plus the RDV of the Lot. Mr D Kwan also filed a report dated 24 July 2015 revising the RDV. 20.While there is no condition survey report filed by any of the respondents, Mr B Wong’s report remains to be the only condition survey report. On the other hand, there is a joint statement of the structural engineers of 30 April 2015. 21.The valuation experts filed 2 joint statements:
Admissibility of Evidence of Mr C Chan Applicants’ Expert Witness 22.On 24 August 2015, upon conclusion of a 5-day trial of the Application, this Tribunal gave directions as to written final submissions to be lodged prior to their returning in the afternoons of 15 and 16 September 2015. On 7 September, Messrs Mayer Brown JSM (“MBJSM”), the applicants’ solicitors wrote to the Tribunal and the remaining respondents saying that a charge had been laid against Mr C Chan, expert witness of the applicants on valuation matters, that he “gave opinions in [his] professional capacity as a professional member that were not, to the best of [his] ability, objective, reliable and honest” (“the Charge”). It was further said that such charge was found substantiated by the Disciplinary Board (“DB”) of the Hong Kong Institute of Surveyors (“HKIS”) on 25 March 2015. As a consequence of the said finding, Mr Chan’s membership with HKIS was suspended for 1 year as from 20 August 2015 (“the Decision”). The Tribunal was informed at the same time that Mr C Chan’s membership with the Royal Institution of Chartered Surveyors (“RICS”), another professional valuation body, remained intact. 23.In respect of this information, Mr Lee representing R1 submitted that both the Decision and Mr C Chan's conduct in his non-disclosure or delayed disclosure of the Charge to this Tribunal would render his oral and written evidence in these proceedings ("Evidence" collectively) inadmissible or alternatively, no weight should be given as Mr C Chan is not a credible witness. 24.Mr Lee invited this Tribunal to note the adverse findings in relation to Mr C Chan's conduct in 2009 (see §§44-47of the Decision, they were not set out in this judgment for confidentiality and it was agreed by all parties concerned). He said that the DB found that the presentation adopted by Mr C Chan was misleading and as a result it wrongly gave the impression to readers on the total Market Value and it constituted blatantly, a serious breach. In the circumstances, no weight should be attached to Mr C Chan's Evidence in these proceedings as his credibility from 2009 onwards is highly questionable. 25.It was submitted that if the Tribunal rules in R1’s favour, no order for sale should be granted for the following additional reasons :-
26.R5-7 took the same stance as R1 on this issue. Ms Lau added this to their contention that the applicants had failed to take reasonable steps in the acquisition. Her complaint was mainly that Mr C Chan had concealed the Decision and the membership suspension from the respondents and the Tribunal. Chronology of the Disciplinary Inquiry 27.Mr Lee summarized the events of the disciplinary inquiry against Mr C Chan. Only the most relevant events would be set out hereinunder. 28.In 2009, Mr C Chan signed off a valuation report contained in an initial public offering document ("IPO Report"). On 14 December 2012, a formal charge was drawn up against Mr C Chan in relation to the IPO Report and as amended on 9 June 2014 the Charge eventually faced by Mr C Chan was this:
29.Meanwhile Mr C Chan had prepared the Application Report dated 29 May 2014 which was annexed to the Application as the valuation report pursuant to Part 1 of Schedule 1 to the Ordinance and it contained a declarationrelating to theCode of Conduct in Appendix D of RHC (“Code of Conduct”). There was no mention of the Charge against him. On 18 December 2014, Mr C Chan made the Supplemental Report (containing the economic tests on age/state of repair). In that report, he also made a declaration relating to the Code of Conduct but again he did not mention the Charge. 30.On 5-6 February 2015, Mr C Chan attended the disciplinary hearing. On 25 March 2015, the DB made a unanimous decision that the Charge was established beyond reasonable doubt. 31.On 7 August 2015, the HKIS General Council (“the General Council”) held a special meeting to consider the DB's findings. The General Council then accepted them and decided that Mr C Chan had "failed to observe a high and honourable standard of professional conduct". The General Council reprimanded him by requesting him to undertake to refrain from continuing/repeating the conduct in question and suspended his membership with HKIS for 12 months effective from even date, ie, 20 August 2015 (“the Suspension”). 32.On 19-20 August 2015, Mr C Chan gave oral evidence in the present case. There was no mention of the Charge by Mr C Chan. According to Mr C Chan, on 21 August 2015, ie one day after the General Council made the Suspension, MBJSM and Mr C Chan found out about the Decision. On 24 August 2015 (i.e. last day of oral evidence), all parties attended trial at the Tribunal. On 5 September 2015, the solicitors for the R5-7 (Messrs Tai, Tang & Chong) wrote to MBJSM enquiring about rumours on the Suspension. 33.On 7 September 2015, Mr C Chan wrote to the applicants (c/o MBJSM) informing them of the Decision. On the same day, MBJSM wrote to the Tribunal, R1 and R5-7 (enclosing Mr C Chan's letter and the publicly available IPO Report) and mentioned the Decision without disclosing any documents in relation to the Decision, the Charge and Suspension letter (collectively, the "the Documents"). 34.On 9 September 2015, R1’s solicitors sought the Tribunal's order to direct Mr C Chan to produce the Documents. On the same day, the Tribunal made the order that on condition that R1 undertakes, inter alia, that the Documents be used solely to consider the relevance of the Suspension to the Evidence and that they be kept confidential notwithstanding any of the contents is read to or by the Tribunal in open court. 35.On 10 September 2015, R5-7’s solicitors also sought production of the Documents. On the same day, the Tribunal granted an order on similar terms. Non-Disclosure of Charges and the Decision 36.It was submitted by Mr Lee that Mr C Chan had failed to discharge his paramount duties as an expert to the Tribunal and his Evidence should thus be inadmissible. It was said that in the (first) formal charge dated 14 December 2012, it had reminded Mr C Chan of the possible sanctions of reprimand, undertaking, suspension and expulsion. So, Mr C Chan knew the possible severe consequences of the Charge as early as 2012. Yet, he did not mention the Charge in any of the reports compiled by him. 37.Mr Lee submitted that Mr C Chan was not in full compliance of his overriding duty to the Tribunal. Since the Charge restricts his expert qualifications or is a relevant matter which would affect the validity of his opinion, it ought to be disclosed in the reports or to the Tribunal. Late Disclosure of Decision 38.Mr Lee submitted that as from 21 August 2015, Mr C Chan knew of the Decision. This was just one day after he concluded oral evidence in this case. Instead of informing the Tribunal right away (in writing or otherwise), he stayed silent for the next 2 weeks until 7 September 2015 when he made a reply to queries raised by R5-7. The irresistible inference is that he was not forthcoming in readily sharing this information with the Tribunal. Non-Disclosure of Full Effect of Decision 39.In §§4 and 12-13 of MBJSM's letter dated 7 September 2015, MBJSM said that it sought further clarifications from Mr C Chan regarding the Decision and clarified he is currently still a Registered Professional Surveyor (“RPS”) under the Surveyors Registration Ordinance (Cap.417; “SRO”) and hence his “expert status” stands good. It was submitted that Mr C Chan did not mention the possibility/ eventuality of being struck off the RPS register under the SRO in his letter dated 7 September 2015 and apparently did not explain it sufficiently clear to MBJSM. Duty to Disclose the Charge 40.There are different views on whether Mr C Chan had a duty of disclosing the Charge and/or the Decision among the parties. It was submitted by Mr Lee that an expert witness owes a paramount duty to assist the Tribunal, not the party who instructed him. An expert report and oral expert evidence is inadmissible unless there is a declaration that the expert has read the Code of Conduct and agrees to be bound by it, understands his duty to the Tribunal and has complied with and will continue to comply with that duty. 41.§§8(a) and 9 of the Code of Conduct state that an expert report must specify the “person's qualifications as an expert" and "If an expert witness who prepares a report believes that it may be incomplete or inaccurate without some qualification, that qualification must be stated in the report”. 42.Mr Lee referred the Tribunal to the decision in Maysun Engineering Company Limited v International Education and Academic Exchanges Foundation Company Limited (DCCJ 27/2006, 22 September 2010) (“Maysun”) in which, HH Judge Mimmie Chan (now Chan J) visited various authorities on expert's duty at§§28-36. In particular, the following statements by the Lam J, as he then was, in Hong Kong Air Cargo Terminals Limited v Commissioner of Rating and Valuation [2004] 2HKLRD 702 (“Hong Kong Air Cargo Terminals Ltd”) and the then Rogers VP in Tang Ping Choi & Another v Secretary for Transport [2004] 2 HKLRD 284 should be noted:-
43.Mr Lee submitted that in the present case, the burden is on the applicants to show that Mr C Chan's evidence “should be admitted as the reliable, impartial and independent evidence of an expert of the Court who is aware of and able to discharge fully his duties to the Court”. If the burden is not discharged, grave doubt will be cast on the probative value of Mr C Chan's evidence. (See: Maysun at §57 and §§22-27) 44.Mr Lee also referred this Tribunal to a Court of Final Appeal (“the CFA”) case in which duty of disclosure has been discussed. It was said by Mr Lee that in the context of criminal cases, the CFA in HKSAR v Lee Ming Tee and Securities and Futures Commission (2003) 6 HKCFAR 336 (“Lee Ming Tee”) stated that:-
45.In reply, Mr Mok submitted that:
46.Mr Mok contended that in the CFA judgment of Lee Ming Tee the following can be observed:
Discussion on Duty of Disclosure 47.Both parties relied on Lee Ming Tee. Their arguments have been quoted in detail above. We notice that it was a criminal case in which the duty of the prosecution witness was discussed. The background of the discussion has been stated in §140:
48.We are of the view that the propositions in Lee Ming Tee regarding duty of an expert witness to disclose disciplinary inquiry must be understood against its background. We agree with Mr Mok that the passages on duty to disclose concerned mainly with witnesses in a criminal case. R v. Brown (Winston) [1998] AC 367 was also discussed at §§145-146 :
49.Further, after deliberation, it was concluded that the duty is imposed only on the prosecution but not the witness (see §160). It was said that there are powerful reasons for confining to the prosecution the duty of disclosure. 50.Having considered the authorities, we are of the view that Lee Ming Tee is not an authority in support of the respondents’ propositions that an expert witness in civil litigations does owe a duty in disclosing a disciplinary inquiry to the court or the other parties. As to the scope of the prosecution’s duty of disclosure which may include a witness being subject of disciplinary inquiry, the CFA commented that every case must be judged according to its own particular circumstances. But that was said in the context of a criminal trial. 51.Mr Lee also relied on Order 38 RHC. §8(a) and 9 of the Code of Conduct which state that an expert report must specify the “person's qualifications as an expert” and “If an expert witness who prepares a report believes that it may be incomplete or inaccurate without some qualification, that qualification must be stated in the report”. 52.No doubt, an expert is required by §8 of the Code of Conduct to specify his professional qualifications to establish at the outset he is qualified to give opinion evidence. The circumstances of the Application however do not require Mr C Chan to disclose the Charge on 29 May 2014 when he completed the Application Report. As at that date, he was still a member of HKIS. The Suspension took effect on 20 August 2015. Same applies to his Supplemental Report completed in December 2014. We are of the view that §8 does not require an expert to disclose before he could say there is change in the qualifications he has set out in the report. 53.Mr Lee is of the view that §9 when read together with §8 requires Mr Chan to disclose the Charge. It was submitted that the Charge is something that might affect his professional qualifications and therefore should be stated in the Report. 54.We do not accept this argument. The word “qualification” as used in §9 refers to limitation or more particularly “限定性說明” in Chinese translation. It did not apply as at the date on which the Application Report was prepared as the Charge itself was not a “qualification” to the professional qualifications of Mr C Chan. 55.We are of the view that as far as the professional qualifications are concerned, Mr C Chan is required to set out those qualifications he was entitled to profess as at the date of the Application Report. 56.It was Mr C Chan’s explanation in his letter that he discovered about the Decision and the Suspension one day after he finished his evidence before the Tribunal. There was no evidence to contradict such saying and there was no application made by any of the respondents to cross-examine Mr C Chan on this. We accept that he was not aware of them when he was in the witness box. We are of the view that he should be presumed innocent up to the time of “conviction”. The possible consequence of a Breach 57.Mr Mok contended that when there is no direct duty on the part of Mr C Chan to disclose the Charge, the question of admissibility and/or weight does not arise. It was submitted by Mr Mok that any possible impact that can be legitimately taken into consideration in a balancing exercise to determine either the admissibility or weight of the flowing from the Charge and Suspension is either nil or very limited bearing in mind the following points:
58.According to Mr Mok, the Application is a situation which is drastically different from the situation faced by Maysun or Hong Kong Air Cargo Terminals Ltd, where the breach of duty on the parts of the expert witnesses affected the evidence they presented to the courts. R1 and R5-7 are unable to identify any piece of disputed or undisputed evidence of Mr C Chan which may be affected by the Charge or the Suspension. Credibility/Weight 59.Mr Mok further submitted that the valuation judgment made by Mr C Chan which was found to be misleading by the DB (with no specific finding of dishonesty) does not affect the general credibility of Mr C Chan as a valuation expert and in particular does not affect the general credibility of Mr C Chan’s valuation evidence given in the present proceedings:
60.It was the submission of Mr Mok that the findings made in the Decision does not adversely affect (a) the credibility and reliability of Mr C Chan in general and (b) the credibility and reliability of Mr C Chan’s valuation evidence given in the Application, in particular in relation to the items of his evidence which were challenged and disputed by R1 and/or R5-7. 61.In Mr C Chan's letter dated 7 September 2015 (i.e. before the disclosure of the Documents to the Tribunal), he said “the decision of the Disciplinary Board does not contain any specific finding that the undersigned was not honest”. This was followed up by Mr Mok in his submission. To sum up, the main argument of Mr Mok was that what was alleged and found by the DB was that some presentation in the valuation report was gravely misleading. Mr Mok drew our attention to certain paragraphs in the Decision in support of Mr C Chan’s assertion and his submission but we think those passages are not relevant for the purpose of deciding the admissibility of Mr C Chan’s evidence, suffice to say that they did not contradict Mr Mok’s submission. 62.In reply Mr Lee relied on the conclusion of the DB set out in §§54 and 55 of the Decision and said that :
63.On this particular point, we think it suffice for us to see whether when Mr C Chan said that there was no specific finding on him for being dishonest he was making a misrepresentation to this Tribunal. After reading the Decision carefully we find it correct that throughout the Decision, there was no saying that Mr C Chan was dishonest except in its conclusion. The language used was “grossly and wholly misleading and untrue” in §46; and “constituted blatantly, a serious breach of VS 3.1” in §47. We are not saying that the DB was not entitled to reach the conclusion as it did, but enough to say for the present purpose that Mr C Chan does have a ground to say that there was no specific finding on him for being dishonest. We would not go so far as to say whether such ground had merit or not as this is beyond our jurisdiction. We agree with the parties that the Tribunal should not assess the merits of the Decision as it has not heard the evidence and submissions at the disciplinary hearing. In any event, the present case is not a re-opening of that hearing (and certainly not an appeal). Decision on Admissibility of Mr C Chan’s Evidence 64.We say at the outset that we are aware of the jurisdiction of this Tribunal in the sense that we are not to revisit the merit of the Decision nor the appropriateness of the Suspension. Having read the Documents, we are of the view that the finding of the DB was made on the basis of one specific report. What gave rise to the complaint and concern of the HKIS was the way of presentation. We are of the view that there was no evidence or suggestion that the same way of presentation had been adopted in the present case. On the other hand, part of Mr C Chan’s evidence had been agreed by the experts of R5-7 and Mr C Chan had been thoroughly cross-examined on those areas where experts could not agree. Prior to disclosure of the Charge and/or the Decision, reliability and honesty of Mr C Chan had never been raised as an issue in the present case. The argument is mainly on valuation methodology, choice of comparables, adjustments, hypothetical development appropriate for determining the RDV etc and interpretation of test result. Most of Mr C Chan’s statements and opinion in his reports were either agreed by Mr D Kwan for R5-7 or supported by examples or comparables that were not challenged. We are not persuaded that Mr C Chan’s evidence should be made inadmissible because of the finding of the DB. 65.As to the issue on whether Mr C Chan is still qualified to be an expert in valuation after his being suspended as from 20 August 2015, Mr Mok submitted that R1 has never dealt with the effect of the Suspension according to Article 6.4.3 of the Bye-Laws of HKIS (as stated in §11 of the MBJSM letter). According to that Article, the Suspension only prevents Mr C Chan to cast any vote at meetings or to hold any office in HKIS or to have or exercise any of the other rights or privileges of membership during the period of his suspension. More particularly, “he shall be entitled to receive the publications of the Institute and use the appropriate abbreviated designation after his name”. 66.R1’s complaint also never addressed the fact that Mr C Chan remains a member of RICS, the membership of which is recognized as an alternative qualification for registration as a RPS. That is, Mr C Chan still holds his valuation qualifications of FRICS and FHKIS. There was also no evidence that his name would be automatically struck out from registration as a registered professional surveyor under section 19 of SRO. 67.We agree with Mr Mok’s submissions above that Mr C Chan still possesses the qualification to act as a valuation expert. Less Weight to be given 68.We do not agree that less weight should be given to Mr C Chan’s evidence just because of the finding of the DB. We adopt the same reasons set out in the above. We are of the view that the reasons given by Mr C Chan in support of his assessment are most important for determination of issues. As we have stated at §188 of Cheer Capital Limited v Unibase Investment Limited, LDCS 5000 & 6000/2013 (unreported, dated 12 June 2015) (“Cheer Capital”)the Lands Tribunal is not bound to accept the submission of any party and may rely upon its own experience in determining the dispute under section 4(1)(a) of the Ordinance. 69.We shall evaluate the strength of Mr C Chan’s evidence by examining the methodology adopted and reasons given by him taking also into consideration criticism of other experts and decide whether to accept assessment proposed by him and how much weight is to be attached. The Issues in the Application 70.It is not disputed that the following issues as summarized by Mr Mok shall be determined according to s.4 of Cap 545:
EUV as at 29 May 2014 71.R1 took a neutral stance on the valuation of the EUV. The challenge came from R5-7. In the Application Report of 29 May 2014, Mr C Chan explained the method of valuation and the process of his assessment to arrive at the EUV of the different types of units and set out the EUV of each unit of the Building in 2 tables in paragraph 10[2]. 72.In his Supplemental Report of 18 December 2014, Mr C Chan said that he had:
73.In the review of the EUV as at 29 May 2014, Mr C Chan repeated the exercise he did in the Application Report with the new information and set out the EUV of each unit of the Lot in the 2 tables of paragraph B3.5[3]. The 2 tables, among other documents, are required to be updated again to take into account of the agreements reached between the valuation experts as set out in the 1st Joint Statement. He provided the new EUV tables in paragraph B1.3 of the Updated RDV Report. 74.Mr D Kwan, expert of R5-7, had filed two reports to provide the EUV of the R3’s unit and R5-7’s unit (both being residential) and all the 6 shop units. The reports did not provide any EUV of the other residential units. 75.In the 1st Joint Statement of the Valuation Experts:
76.The two experts cannot agree on the EUV for Shop A, Shop B and Shop C fronting Belcher’s Street. Particularly Mr D Kwan assessed Shop A and Shop B as one unit whereas Mr C Chan assessed the two shops individually. Mr D Kwan originally assessed Shops A & B as one unit at $92,560,000 and after the 1st Joint Statement he revised it to $96,600,000, whereas Mr C Chan originally assessed Shop A at $47,190,000 (which was revised to $45,890,000) and Shop B at $113,280,000 (which was revised to $111,470,000). Mr D Kwan originally assessed Shop C at $30,940,000 (which was revised to $35,840,000), whereas Mr C Chan originally assessed it at $37,100,000 (which was revised to $36,760,000). 77.They nevertheless agreed the areas of the three shops as well as the five retail comparables to be adopted as follows:
78.They also failed to agree on all the adjustment factors except for time which is by reference to the Private Retail Price Index published by the Rating and Valuation Department (“RVD”):
79.While the two experts agree that the zoning method is applicable for valuing Shop A and Shop B, the details of the application depart as follows:
That is, Mr C Chan only divides Shop B into two zones, the front portion being the area from the entrance of the shop at Belcher’s Street to a depth of 14.3 m; and the rear portion being the area beyond. Mr D Kwan divides the main saleable area of Shop A & B on LG/F into three zones, the front portion being the same as that of Mr C Chan, the rear portion being the area beyond the depth of 14.3 m save for the rear store portion and lavatory at the most inner part of the shop which is valued as a further zone at the same rate as the yards. 80.They agreed to adopt the normal direct comparison method for valuing Shop C for which an effective area of 50.7 sq m was adopted. 81.Using the two different valuation methods, the EUVs of the Shops are as follows:-
The Single or 2-Shop Issue 82.The dispute on whether the valuation of a property should be assessed on a 2-shop basis and/or on a 1-shop basis arose in Mingo Properties Limited v the Director of Lands, LDLR 6 of 2005 (unreported, 26 February 2007) and Data Key Limited v Director of Lands, LDLR 6 of 2009 (unreported, 5 August, 2011). It was recently reconsidered also in Eltron Development Limited v Director of Lands, LDLR 4 of 2013 (unreported, 21 August, 2015) (“Eltron”). In the latter case, it was resolved that unless the market evidence shows otherwise, when the summation of the values of the two portions would give rise to a higher value, the 2-shop basis should be preferred to the value of the two portions as a single unit in determining the market value of the two portions; this accords with the principle of determining the “the highest and best use” of properties. 83.In the Application, which is an application pursuant to section 3 of the Ordinance, we are further persuaded by Mr C Chan’s explanation for valuing Shop A and Shop B as two individual units when Part 1 of Schedule 1 to the Ordinance requires the Application Report to include the EUV of each property of the Lot. Shop A and Shop B are indeed two individual units as identified in the Land Registry although they were purported to be converted to single use in 2008. Therefore, Mr C Chan’s assessment of EUV for Shop A and Shop B as two individual units should be adopted. The Zoning Issue 84.Zoning is not a method of valuation but a means of comparing one shop with another for analysis and valuation. This is based on the principle that the area closest to the frontage (Zone A) is the most valuable part of a shop, as it provides the most prominent selling space, and the value per unit of area decreases as the distance from the front of the shop increases. 85.When a value per square metre is arrived at Zone A by reference to sales or lettings of comparables, rates for the other zones in the rear will be derived formulaically and from that the value for the shop is calculated. A process, often known as ‘halving back”, is used most extensively but usually there will be a limit where further reduction would not be sensible. 86.In the United Kingdom, it has been the usual practice to adopt an analysis scheme of three 6.1 m zones and a remainder. However, this is not a hard and fast rule and sometimes, natural zones to take into account the actual configuration of the shop to be valued or the common depth of comparables are adopted. For instance, the highest value zone, Zone A, will be the depth of the shallowest shops in the subject. 87.In the Application, the two valuation experts have agreed the depth of Zone A be 14.3 m which appears to be the total depth for Shop A and also the depth beyond which the remainder of Shop B opens onto the remainder areas in the rear, the former loading and working space. Their main difference in opinion is that Mr D Kwan allows a further halving back for the rear store portion and lavatory at the most inner part of the shop for it to be valued at the same rate as the yards. Even on the face of it, this further halving back is untenable if the unit rate has become the same as that of the open yard which is supposed to be uncovered. 88.Even in the United Kingdom where the zoning method originates, it is generally accepted that zoning is not appropriate for valuing a department store or a large shop. For such a large space user where storage or lavatories are needed anyway, it has a liberty of assigning different areas of the floor space for their use. We find no reason to distinguish the rear store portion and lavatory from the common floor space in the rear portion. The further halving back by Mr D Kwan has become arbitrary and has to be disapproved particularly in the case of Shop B; it has been agreed by the experts that the partition wall thereof can be readily demolished; there is indeed no difference between the rear store portion and lavatory and the common floor space in the rear portion. For these reasons, the modified zoning method proposed by Mr C Chan is to be adopted. Adjustment for Time 89.The two experts agree that adjustment for time should be made by reference to the in Private Retail Price Index published by RVD. Adjustment for Location 90.As regards the adjustment for location, we appreciate that all the five comparables are situated on Belcher’s Street but the adjustments applied for location differ between the two valuation experts; furthermore, Mr D Kwan applies additional adjustments for pedestrian flow and visibility. The table below shows the adjustments applied by Mr D Kwan. Mr C Chan only applies an adjustment of -5% (in parenthesis) to AA2/BB4 for location and nothing else for pedestrian flow or visibility:
91.Mr D Kwan explains that his application for adjustment for location meant for allowance for the trading environment in general and his additional adjustment for visibility would take into account specific features like landing of footbridges, bus stops with shelter that may block off the frontage of a shop; his additional allowance for pedestrian flow would account for the presence of pedestrian crossing, position of footbridge, construction site, road diversion etc. 92.We have earlier mentioned to that all these five comparables are situated in the same locality. Any locational difference between the comparables should be attributable to the special features suggested by Mr D Kwan; in any event, pedestrian flow should follow a route and be attracted to a particular feature and would not just pop up from nowhere. In this regard, the further refinement suggested by Mr D Kwan may amount to double-counting. Indeed, in Shapiro, Mackmin and Sams, Modern Methods of Valuation, 11th edition, p 322, the location factor is explained as follows:
Thus, we consider that further refinement or breaking down the location factor into two sub-factors like pedestrian flow and visibility is not necessary in the present case. Neither can Mr D Kwan explain the reason for the particular adjustments he applied to AA2/BB4, AA3/BB3, AA4/BB2, etc. 93.Notwithstanding the above comments, we find from our joint inspection that the location adjustment (alone) proposed by Mr D Kwan appears to be appropriate. Adjustment for Size 94.In Eltron, supra,the Tribunal was facing two competing proposals for size adjustment: 1% per 1 sq m difference vis-a-vis 1% per 2 sq m difference. In that case, 1% per 2 sq m difference was preferred when the size of the comparable property was not significantly small. And in Tai Ping Restaurant Limited v Director of Lands, LDLR 1/2013 (unreported, dated 8 December 2014) (“Tai Ping Restaurant”), the Tribunal adopted an adjustment rate for size at 1% per 4 sq m in preference to 1% per 10 sq m. 95.In the present case, the difference in opinion between the two experts is 1% per 10 sq m difference and 1% per 5 sq m difference. We hold that the 1% per 5 sq m difference proposed by Mr D Kwan is preferred. Adjustment for Frontage 96.Also the zoning approach is designed to allow for depth in a shop but makes no allowance for a shop having an excessive frontage and therefore excessive Zone A in relation to depth. On the other hand, as explained by the Tribunal in Tai Ping Restaurant at §48 of its judgment, there shall not be any adjustment for frontage unless the frontage in consideration is clearly superior or inferior to the norm that the benefits or disabilities which the frontage produces are clearly evident. In the present case, the difference between the two experts is between 2% for every 1 metre difference by Mr C Chan and 1% per 1 metre difference by Mr D Kwan. 97.In Tai Ping Restaurant, the Tribunal preferred 2% for every 1 metre difference to 4% for every 1 metre difference but in Eltron, the experts agreed 4% per 1 m difference. While the Tribunal is hesitant to commit to applying any mechanical formula which was criticised in Supergoal Investment Limited v Five F Ming House Limited & Others, LDCS 46000/2011 [2014] 1 HKLRD 286[4] (“Supergoal Investment”), we consider 2% for every 1 meter difference is applicable in the present case. Adjustment for Layout 98.The shape or layout of a shop will substantially affect the value of shop and therefore adjustments are usually applied when there exists an irregular shape, masked areas, split levels etc. In the present case, we agree with the experts when valuing Shop C (and Shop A individually), no such adjustment is required. However, in valuing Shop B, an adjustment of -10% appears to be appropriate because of its elongated front portion and awkward shape. Adjustment for Headroom 99.In Tai Ping Restaurant and Eltron, the corresponding experts agreed the adjustment of 2% for every 1 meter difference in headroom. This is actually the same as 1% for 0.5 metre suggested by Mr D Kwan. We consider the same is more agreeable when the difference is not significant but when the difference in headroom is large as between the subject and AA3/BB3 (ie 1.25 m), then the 2% for every 0.5 metre difference proposed by Mr C Chan appears to be more appropriate. Adjustment for Age 100.The age of a shop is not usually important when compared with residential premises. Here, we note Mr D Kwan allow 1% for every 3 years difference in age which we consider excessive. Instead, we prefer the grouping proposed by Mr C Chan. Adjustment by Multiplication or by Summation 101.Again the issue on adjustment by multiplication or by summation arose in Cheer Capital, supra,in which the Tribunal explained in §§91-94 its preference to the former which is theoretically and mathematically more correct. We find no reason to differ from that view in the present case. Valuation of Shop C 102.Subject to the above, we follow the approach of Mr C Chan in adopting Shop C on LG/F as the reference unit and reproduce the table of analysis and valuation as at 29 May 2014 as follows:[5]
103.Thus, based on the agreed area for Shop C at 50.7 sq m, its EUV as at 29 May 2014 is assessed at:
Valuation of Shop A 104.The effective area for Shop A has also been agreed at 64.2 sq m. When the formula of 1% per 5 sq m is adopted for the size difference, the applicable unit value for Shop A adjusted for -2.7% becomes $692,776/sq m, which is rounded to $693,000/sq m. 105.Thus the EUV for Shop A as at 29 May 2014 is assessed at:
Valuation of Shop B 106.The effective area for Shop B has been calculated at 181.1 sq m following the modified zoning method adopted by Mr C Chan[6]. Then applying the adjustment for size (-26.1%), frontage (-2.4%) and layout (-10%), the adjusted unit rate becomes $712,000/sq m x 73.9% x 97.6% x 90% = $462,186/sq m, which is rounded to $462,000/sq m. 107.Thus the EUV for Shop B as at 29 May 2014 is assessed at:
108.Thus, our assessments of the EUV of the respective units on LG/F are as follows:
* These figures have been agreed by the two experts as per B1/6, B3/560 and B4/564-565. Conclusion on EUV 109.From the above it is our view that the total EUV for the Building is $526,537,000. The R1 units - assessed at $3,470,000 (Flat 6, UG/F) and $3,520,000 (Flat 7, UG/F) – altogether represent 1.3275% of the total EUV of all units. And the R5-7 unit (ie Flat 12, 7/F) – assessed at $3,490,000 - represents 0.6628% of the total EUV of all units. Whether Redevelopment of the Lot is Justified 110.Section 4(2) of the Ordinance provides that the Tribunal shall not make an order for sale unless it is satisfied that the "age or state of repair" of the Building is justified and that the applicants have taken "reasonable steps" to acquire all undivided shares of the Lot.The only challenge raised by R1 in the present application is whether redevelopment is justified. 111.The applicants referred to the guidelines laid down in Top Sail International Limited v Cheng Kai Ming, LDCS 18000/2010 (unreported, dated 15 November 2011 (“Top Sail”) and Charmlink v Lee Tong Hing & Others, LDCS 16000/2010 (unreported, dated 29 November 2011) (“Charmlink”) on the factors that the Tribunal should consider whether redevelopment is justified due to age and state of repair. 112.In Top Sail, the Tribunal stated:
113.Such a discretion by the Tribunal was followed in Charmlink:
114.There is no argument on the principles set out in Top Sail and Charmlink. It is agreed that they are guidelines guiding the Tribunal in the exercise of its discretion. We adopt the same approach taken by HH Judge Yu, as he then was, and Temporary Member Kwok in Fairtex Development Limited and Tso Pee Hong and Others LDCS 20000/2011 (unreported, dated 12 September 2012) (“Fairtex”) that “age” and “state of repair” are two separate grounds that should be considered separately. Further we are also of the view that no general test for age and state of repair would need to be formulated but would focus on analyzing the evidence before us to determine whether redevelopment of the Lot is justified. 115.The building is 50 years old at the time the Application was taken out. We are of the opinion that age is one of the factors to be taken on board. The age of a 50 years old building by itself does not point to any direction but it has to be weighed amongst other factors, for instance, the design and design working life of the Building. 116.Mr Lee for R1 submitted that the Building is in good structural condition and all structural defects found would only cost very little to remedy. Mr Lee interpreted the expert report of Mr K S So to mean that the Building can last at least another 15 years. 117.In relation to “State of Repair”, Mr Leecited the passageinCharmlink in which the Tribunal held that it has discretion to determine in what conditions a building should be redeveloped after considering all the relevant factors. He said that the required repair works are relevant. 118.Mr Lee also relied on the holding of the Tribunal in Good Trader at §§43- 45 :-
119.In reply, Mr Mok submitted that logically, disrepair that can put an end to the economic life of a building can be different from those putting an end to the physical life and such disrepair can be of any kind and should not be confined only to structural disrepair. 120.Mr Mok also submitted that in so far as §44 of Good Trader is concerned, the applicants in the present case had not put forward evidence in the nature of those put forward in Good Trader for the purpose of showing that redevelopment "would increase the value of the land and also improve the environment of Tung Cho Street" (near the end of §40 in Good Trader). 121.In respect of §45 of Good Trader, Mr Mok submitted that if non-structural disrepair mentioned above can be taken into account under ‘age’, it should also suffice under ‘the state of repair’ limb. There is no reason why such disrepair (to end the economic life as contrast to the physical life) will have to be structural and/or to pose immediate danger. Issues on “Age” and “State of Repair” 122.From the above, the issues on “age” and “state of repair” to be determined by this Tribunal on whether redevelopment is justified are as follows:
123.Indeed, expert evidence was relied on by the applicants and R1 to deal with the issues identified above. The applicants relied on expert reports of Mr B Wong, a building surveyor and Authorised Person on building conditions, Mr K S So, a structural engineer and Mr C Chan while R1 relied on the expert evidence of Dr S Chan, also a structural engineer. 124.In addition, a Joint Statement on Structural Assessment dated 28 April 2015 was prepared by Mr K S So and Dr S Chan to refine their areas or issues in agreement or otherwise. Obsolete Design under “Age” limb 125.Relying on Mr B Wong, the applicants’ case is that the Building is aged as many features and facilities which would nowadays be expected to be standard provisions in a residential/commercial composite building are missing or although provided, have not been improved to meet the upgradedconstruction standards and statutory requirements. For example:
126.Mr B Wong is of the opinion that the Building is also aged as some features and facilities which were originally provided have now become obsolete or outdated. For example:
127.Mr K S So was engaged by Mr B Wong for making a structural assessment on the structural frames of the Building. The analysis of Mr K S So formed part of Mr B Wong’s opinion and conclusion. We shall therefore first deal with the analysis of Mr K S So on the structural frames. 128.In §14.1 of his report, Mr K S So concluded that the design and construction of the structural frames were based on an obsolete design:
129.Mr K S So’s expert evidence was severely criticized by Mr Lee who said that there is no evidence to confirm that the Building was built without taking robustness into account as suggested. Mr Lee further submitted that the applicants had failed to provide sufficient evidence to show that the Building is prone to disproportionate collapse and of obsolete design. 130.As to Mr K S So’s expert evidence that the LCC Bye-Laws are "superseded" by the more stringent Current Concrete Codes, Mr Lee pointed out that §4 of Practice Note APP-117 on Structural Requirements for Alteration and Addition ("A&A") Works in Existing Buildings issued by the Buildings Department in December 2000 ("Practice Note") states:
131.Mr Lee also submitted that the then prevailing codes referred to in the Practice Note signify the relevance of LCC Bye-Laws. The Practice Note lists out 3 specific requirements which should be checked based on current codes, namely wind calculations, imposed loads in storage areas and shear flat slabs. Both Mr K S So and Dr S Chan in their oral evidence explained that other than these 3 requirements, all requirements on structural adequacy of an existing building or part thereof (for A&A submissions) should be checked according to the LCC Bye-Laws. 132.Hence, in the eyes of the Buildings Department as at today, the LCC Bye-Laws are still relevant (or used as standards) to assess the structural adequacy of the Building. It cannot be said that the Building is of obsolete design. 133.With respect to Mr Lee, we are of the view that the fact that LCC Bye-Laws are still relevant and could be adopted in certain situations to assess the structural adequacy could not answer the question raised by obsolete design in relation to “age” in the present application. From the Practice Note the relevance of the then prevailing codes was in relation to assessing the structural adequacy of an existing building as may be affected by the proposed A & A works, which is not the case here. We also accept Mr K S So’s comment that Dr S Chan’s definition of design working life does not match with that of the Buildings Department. Wind intensity is dealt with in another code, namely “the Code of Practice on Wind Effects in Hong Kong 2004”. It was based on wind intensity for a return period of 50 years. The observatory took wind intensity and collected data within a period 50 years, the highest wind speed would be taken to be transferred into wind pressure and to be written into the code. That set of requirement would guide the use of wind resistance element in a building. 134.Further we accept Mr K S So’s explanation that his comparison between the structural design of the Building and the structural requirements of the current Concrete Codes (which were introduced after the construction of the Building for the purpose of making new buildings more safe and better structurally) where he identified 7 deficiencies for the purpose of providing assistance to the Tribunal in the Application. We are of the view that when we have to determine whether the design was obsolete, we have to make reference to modern construction requirements. The question is whether the obsolescence could be updated and the expected cost for such exercise. While Mr Lee or Dr S Chan suggested there is no evidence on the lack of robustness, we have to accept the evidence that robustness is a modern concept not addressed by LCC Bye-Laws at all. 135.Upon our accepting Mr K S So’s opinion on structural adequacy mentioned above, we agree with Mr B Wong, the Building Structure Surveyor, that it is also the design of the Building which had become obsolete by modern standard under the current construction conduct, such as the inadequacy or lack of fire safety equipment and installation, having no-lift or channel for the disabled etc. These factors in our view have also brought the Building into obsolescence in terms of design. We echo the view of the Tribunal in Top Sail, supra, that the Tribunal should not refuse the granting of a compulsory sale order for buildings that are perfectly maintained if they are really “aged”. 136.To elaborate on this point, Mr B Wong was of the opinion that the Building is aged also because some of the key building parts, components, and finishes have already passed or are approaching the end of their useful lives:
Designed Working Life 137.It is not disputed that the concept of “design working life” ("DWL") was discussed for the first time in theCode of Practice for Structural Use of Concrete 2004 (“Concrete Code 2004”). 138.In his report, Mr K S So relied on Prof Albert K H Kwan's (“Prof Kwan”) handbook, which explains Concrete Code 2004. This handbook provides the following definition of DWL:-
139.Mr K S So considers that the Building had reached the final stages of its DWL of 50 years and the Building has exhibited signs that its structural frames have deteriorated extensively. 140.Mr K S So’s evidence was attacked by Mr Lee in reliance on the report of Dr S Chan. Dr S Chan said that DWL is only a “theoretical value”. He further emphasized that the Current Concrete Codes are silent on what happens when the age of a reinforced concrete building is beyond its DWL. 141.Mr Lee commented that in the Joint Statement on Structural Assessment and Mr K S So’ s report, although he said the Building was "designed for" a DWL of 50 years, he was unsure when being cross-examined whether the LCC Bye-Laws specify such a period and precisely how it came about. He merely explained that the Current Concrete Codes[8] state such a figure and it is the material taught at college. Yet, the Building was not designed according to the Current Concrete Codes. At §7.3 of his report and during cross-examination, Mr K S So merely stated that the DWL for a reinforced concrete building (like the Building) is “normally” 50 years. 142.We pause here to deal with Mr Lee’s interpretation of the definition of DWL and its application. Mr Lee submitted that Mr K S So adopted this definition but admitted that he did not assess whether the Building has "undergone normal maintenance". Hence, his reliance on this definition to say that the Building needs repair or major repair is flawed. In any event, the above definition of DWL does not deal with the Building's actual life span but rather the likelihood of requiring major repairs. 143.We are of the view that it is immaterial whether the Building has undergone normal maintenance. The fact that it had undergone normal maintenance would not affect the DLW. Rather if it had undergone normal maintenance, no major repair would be required within that period. The observation of Mr K S So is that major repair is needed. 144.Mr Lee also said that upon cross-examination, Mr K S So again agreed with Prof Kwan that:-
145.On the other hand, Mr Lee drew our attention to what Dr. S Chan had said in the Joint Statement on Structural Assessment. Dr S Chan said that the "service life" of the Building should be "able to last a long time functioning safely as a residential building." During examination-in-chief, he clarified that service life means the actual life span of the Building and he adopted the definition in Prof Kwan's handbook to support his such saying:
146.While we have no quarrel with this definition, we have difficulties in seeing that this could apply to the Building on evidence before us and we shall elaborate below. 147.Mr Mok pointed out that some of Dr S Chan's positions as set out in the Joint Statement on Structural Assessment contained a tilt towards not presenting the complete picture. Examples can be found as follows:
148.Further, we believe that when criticising Mr K S So, Mr Lee has ignored the fact that there had been investigations and tests carried out by Mr K S So. From such investigation, Mr K S So found that there were inadequacies in 7 aspects including robustness[9]. Even if we accept that insufficiency of robustness has not been proved; his findings on other 6 aspects supported his conclusion that the Building has reached the end of its DWL. The poor state of repair in the steel bars and the concrete rendering in columns, beams and slabs which will be set out in §§159-161 below supported his such saying. Here, we consider the concept of design working life relevant as a benchmark though of “a nominal value” to check against the age of the Building under section 4(2)(a)(i) of the Ordinance. 149.We find that the opinion of Dr S Chan that “a long time” could be several hundred years has no application in the present case taking into account the defects found by Mr K S So although we notice that the cost of repair suggested by Mr K S So on the structural frame is not high. It was not the case of R1 that the Building will last for several hundred years. Its case is that the Building might have an actual life span of 65 years. 150.We cannot agree with Mr Lee that the actual life span is the proper test to determine whether redevelopment is justified. This is inconsistent with the policy of urban renewal. The Ordinance does not require that unless the actual life span is expired or about to expire, redevelopment is justified. In any event, there was no evidence before us to tell the actual life span for sure. We may only be able to do so when the building is collapsed or declared dangerous by the Building Authority. 151.We accept that passing its so-called DWL of 50 years does not mean the Building will collapse. We however cannot accept the interpretation of Mr K S So’s opinion by Mr Lee that Mr K S So had envisaged that the Building could last at least 65 years. What Mr K S So has said was that the Building would need more frequent repair and maintenance at 5-year intervals after the expiry of it DWL. 152.Even if we accept that the actual life span is 65, the age of the Building is now towards the end of its actual life span when frequent repair is needed to maintain its functionality and safety. State of Repair 153.The applicants also relied on the expert evidence of Mr B Wong who had examined the components of the Building and identified the defects in the state of repair to formulate the necessary repairs with the assistance of Building Diagnostic Consultant Limited. The latter had carried out an infrared thermographic survey which subsequently detected 128 hollow spots in the external rendering. Mr B Wong is of the opinion that such circumstances are potentially dangerous to public safety in the event that loosened rendering falls off from the external wall. Complete replacement of the external rendering is required. 154.Mr B Wong is also of the opinion that the unauthorized additions of air-conditioners support frames and drying racks to the external walls require checking as maintenance of these in the past has been neglected. Further, the asbestos materials as identified by the asbestos consultant should be removed according to the procedure specified in the Air Pollution Control Ordinance in order to safeguardthe health of occupants. 155.The original waterproofing membrane to the roof of the Building is defective.But application of a new waterproof coating on the roof covering surfaces to rectify previous leaks is not durable as without surface protection, the new waterproof coating would deteriorate rapidly. 156.The staircases and corridors are unsatisfactory means of fire escape for the upper floors due to the unauthorized building works and/or deficiencies in the form of the following:
157.Mr Mok submitted that the items which, according to Mr B Wong, needed repair apart from what have been set out above included (a) the building elevations, (b) the main roofs, (c) the front entrance passage, staircases and corridors, (d) the flats and shops internally, (e) the aboveground plumbing, (f) the aboveground drainage, (g) the underground drainage, (h) the electrical installations and (i) the fire services installations. 158.Further, based on the structural assessment of Mr K S So, Mr B Wong concluded that:
159.Again we shall look at the opinion of Mr K S So because his evidence is disputed by R1. Mr K S So is of the opinion that the structural frames of the Building are in need of repair as they have reached the final stages of their DWL of 50 years. The Building has exhibited signs that its structural frames have deteriorated extensively, in that
160.According to the current condition of the structural frames, Mr K S So is of the opinion that deterioration will continue steadily due to extensive carbonation of the structural members. Repair work will need to be carried out regularly in the future and such repairs will be more and more extensive as the structural frames becomes older. Although the present cost of repair may be relatively modest ($81,600), such cost will escalate in the future as the extent and seriousness of the deterioration of the structural members increase with age. 161.Mr K S So also suggested that all the structural members should be hammer tapped in accordance with the method recommended in the Building Safety Inspection Scheme (BSIS) Guidelines in order to find out the full extent of structural defects. An estimation of the cost of carrying out hammer tapping amounts to $118,400. 162.On the basis of Mr K S So’s opinion and his own assessment, Mr B Wong assessed the total cost of immediate repair works at $28,887,483. He further noted that the cost of repair is about 35% of the cost of constructing a new superstructure similar to the Building and made the following points as far as state of repair is concerned:
163.Mr B Wong eventually arrived at the conclusions that:
164.R1 relied on evidence of Dr S Chan in rebuttal. Dr S Chan’s evidence was criticized by Mr Mok who submitted that his evidence suffers from several major flaws. For example, in 2 tests directly related to corrosion, Dr S Chan drew conclusions on the average of the values obtained from test samples and it was submitted by Mr Mok that by averaging out the readings, he failed to give the full picture of what the result of the test samples reveals. 165.Based on the average percentage of chloride contents (0.21%) in the samples of the tested concrete elements being lower than the specified limit (0.35%), Dr S Chan concluded that “(t)herefore, risk of corrosion induced by chloride ion is low”. Mr Mok commented that first Dr S Chan had failed to mention the specified limit of 0.35%. If the specified limit is used to compare the 18 tested samples, 4 of them are above the specified limit. In cross-examination, Dr S Chan accepted the fact that the chloride contents in the other test samples are low cannot change the fact that the risk of chloride induced corrosion is high in the 4 unsatisfactory test samples. 166.Mr Mok highlighted the high percentage of unsatisfactory test samples as shown in the result of Dr S Chan to this Tribunal including 4 unsatisfactory test sample results out of 18 indicated that 22.2% of the structural elements in the Building may have chloride contents above the specified limit and high risk of suffering chloride ion induced corrosion. Further, as Dr S Chan had confirmed that the 4 unsatisfactory test samples were slab samples out of 6 indicates that 66.7% of the slabs in the Building have high risk of chloride ion induced corrosion. 167.Mr Mok further submitted that one has to bear in mind that a frame structure is as strong as its weakest point. He said Dr S Chan had tried but could not give any reasonable explanation why the risk of chloride ion induced corrosion of the unsatisfactory samples should be gauged by the average value of the result of all the test samples. 168.According to Mr Mok, the same fundamental flaw is also found with Mr S Chan’s analysis of the cement contents test results in respect of which §6.7 of Dr S Chan’s report stated that "...the average percentage of cement contents (15.8%) of tested concrete elements is higher than that of the design mix (14.3%) which provide a durable protective environment for the steel reinforcement and adequate structural capability" . 169.Mr Mok further complained that in his analysis, Dr S Chan did not specify the design mix of 14.3% and did not point out the fact that 7 out of 18 test samples (38.9%) showed cement contents below the designed 14.3% nor did he analyse the possible implications flowing from such results. Further out of the 18 tested samples, 6 were slabs; cement contents of 5 out of the 6 slab samples, representing 83%, were weaker than designed. Dr S Chan had accepted no matter how high the cement contents of the other test samples are, they would not change the fact that in the 7 unsatisfactory samples the cement contents are low. 170.Again, Mr Mok said Dr S Chan tried but could not really explained why the effects of the low cement contents in the 7 unsatisfactory samples out of 18, and the implications flowing from such results, should be gauged by the average value of the result of all the test samples. 171.Mr Mok further said that another test directly related to the risk of corrosion is the carbonation test. The significance of concrete carbonation is that once carbonation depth exceeds the concrete cover “corrosion of the steel reinforcement will start with sufficient moisture and oxygen. Corroded steel reinforcement would result in cracking / spalling concrete”. In cross-examination Dr S Chan confirmed that the humidity in the air would cause concrete carbonation and would supply sufficient moisture and oxygen to feed the corrosion of the steel reinforcement. 172.In his conclusion, Dr S Chan stated that: “The results of carbonation test indicated that the passivation layer which protects the reinforcing bars from corrosion was existed in most of the test concrete elements”. Mr Mok said that there is no analysis on the implications that flow from the unsatisfactory result from 6 test samples which represented 50% of the sample. 173.Mr Mok referred us to the Joint Statement on Structural Assessment wherein Dr S Chan said that: “Structural investigation and necessary maintenance repair are normally recommended for buildings reaching 50 years of age”. He said this statement is also shown to be incomplete by the introduction of the Mandatory Building Inspection Scheme (“MBIS”) to all buildings aged 30 years or above under section 30B of the Buildings Ordinance and the inclusion of structural elements as part of the inspection and repair regime under the MBIS. 174.Dr S Chan considered Infrared Thermographic Survey (“ITS”) being necessary for the overall structural condition assessment. During evidence-in-chief, Mr K S So gave reasons to show that ITS cannot be relevant to an assessment of the structural condition of the Building: (a) the external wall cannot be regarded as part of the structural frame and (b) ITS can only read the surface temperatures of the external face of the external rendering which is on top of the external wall and accordingly cannot tell the condition of the reinforced concrete frame forming part of the external wall. In reply, Dr S Chan said in his evidence-in-chief that “on the concrete structures of external walls” should be understood to mean “on top of the concrete structures of external walls.” 175.It was also submitted by Mr Mok that none of Dr S Chan’s explanations on why he maintained in the Joint Statement on Structural Assessment that he considered ITS "necessary for the overall structural condition assessment” can be considered satisfactory. Moreover, Dr S Chan agreed that the ITS commissioned by him was conducted in winter and could detect less voids as compared to the one commissioned by Mr B Wong, which was conducted in summer time. Further, he agreed he had not scanned the external walls of the light wells of the Building when Mr B Wong did so in his investigation. 176.In addition to the common areas, Dr S Chan inspected internally only 2 units which belong to R1 while Mr K S So had inspected 95 units. Mr Mok submitted that as stated by Mr K S So in evidence, a more comprehensive inspection would yield a more representative picture of the condition of the Building. 177.Mr Mok further pointed out that as Dr S Chan had explained in cross-examination, the focus of his report is to study the structural condition of the Building in terms of integrity and safety. Naturally, his report did not deal with matters such as what repairs were required to remedy the defects of the structural elements and when similar structural defects may re-occur and he did not consider the 7 new structural design and construction aspects identified by Mr K S So as relevant to his study. In other words, he is doing a study in the nature of ascertaining whether the Building is dangerous or liable to be dangerous and not a study of the structural condition which is to form part of the picture for ascertaining whether redevelopment of the Building is justified due to age or state of repair of the Building, bearing in mind always the guidelines obtained from the judgments related to application for compulsory sale under the Ordinance. 178.Having considered the evidence and submissions before us, we agree with Mr Mok that the Tribunal should accept Mr K S So's findings that (a) The design and construction of the structural frames were based on an obsolete design, (b) The structural frames have reached the final stages of their DWL of 50 years and have deteriorated extensively and (c) The deterioration of the structural frames will continue steadily due to extensive carbonation of the concrete and it is inevitable that new defects will occur, previous defects though repaired will recur readily and repair work will be more and more extensive as the structural frames become older. 179.We also agree with Mr B Wong that the present design could not meet the requirements set down by different Government authorities namely the Fire Services Department and the Electrical and Mechanical Department. Such requirements have been set out in the Electrical Code, FSI Code 1994, MOE Code 1996 and FRC Code 1996. Cost of Repair 180.Mr B Wong also made an estimate on repair costs based on his condition survey findings and Mr. K. S. So's structural assessment results, he is of the view that the Building is in a poor state of repair. The defective rendering as well as the unauthorized balcony and canopy structures found on the external elevations of the Building have imposed threats to public safety and made the Building liable to become dangerous. To summarize, all the defects and deficiencies found in the structural frames, components, finishes and service installations are of the nature and magnitude that cannot be easily rectified by simple and piecemeal repairs. Substantial repairs are required to be carried out in order to restore the Building to tenantable standard. 181.The immediate repair works and their estimated cost provided in the Schedule of Repair Works are summarized below:
182.As mentioned in §162 above, Mr B Wong further concluded that the cost of repair in the sum of $28,887,483 which is about 35% of the cost of constructing a new superstructure similar to the Building. 183.Apart from what has been set out in §162 above, the following excerpt from Mr B Wong’s report at §6.4.3 and §7.2.24 are relevant:
184.There was no repair cost proposed by the expert of R1. Mr Lee cross-examined Mr B Wong in this area. The line of cross-examination was mainly that since Mr B Wong came to the conclusion that it is not justified to repair the Building because the repair cost amounted to 35% of the redevelopment cost for a similar building, the redevelopment cost should include costs on piling and foundation which would more truly reflect the real life situation. In such a situation, the redevelopment cost would be much higher and that would bring the percentage of repair cost down. Further it was suggested by Mr Lee that in real life, the rebuilt building would not be similar to the existing one. While Mr B Wong agreed that in real life a rebuilt building might not be similar to the existing one in many aspects, he did not agree with the approach of comparison suggested by the Mr Lee. He said that he would compare the building cost of a similar building only without taking into account cost of the piling and founding work. He further said that such approach was widely adopted in the profession: to compare like with like. 185.Mr Lee also suggested that, the approach in Good Trader should be adopted, i.e. to divide the cost of repair by the EUV of the Building. (See again: Good Trader at §43). The EUV represents a more realistic benchmark as it estimates the actual market value of the Building. Adopting this formula and the applicants' estimation of EUV[10] yields the following percentages:-
186.Mr Lee said that according to the recent decisions of the Tribunal, the 2 percentages above would not justify redevelopment. A percentage of around 30-40% would normally be required before the Tribunal would exercise its discretion in the applicants' favour:-
187.Mr Lee did not dispute the repair costs of 81,600 as suggested by Mr K S So. Mr Lee’s criticism is basically on Mr K S So’s opinion that “such costs will escalate in the future as the extent and seriousness of the deterioration of the structural members increase with age.” Upon cross-examination, Mr K S So admitted that he did not estimate the amount of such future cost and at what rate they would escalate. Mr Lee submitted that thus there is no evidence on how the cost of repair will escalate in the future and the “extent and seriousness of the deterioration” of structural members. He said that according to Mr K S So, the cost of rectifying existing defects is $81,600 (or $200,000 including the tap hammering test). It is a reasonable cost to be incurred for that purpose. Redevelopment of the Building is not justified. 188.We could not agree with the criticism of Mr Lee as cost of repair will escalate in the future for an aged building is natural. As admitted by Mr B Wong that he is not an expert in valuation matters, we find nothing wrong for Mr B Wong to compare the cost of repair with the cost of replacement of the Building which is an important element in case where the contractor’s method (or cost approach) of valuation has to be adopted. To the extent that the cost of repair has to be compared with the EUV of the Building which we find at $525,123,000 (instead of $556,150,000 as found by Mr C Chan), the ratio is 5.5% which represents a higher percentage when compared with that in the case of Good Trader. In any event, the Tribunal did not lay down the minimum ratio required before the Tribunal would be in the position to order the sale pursuant to the Ordinance. Each case has to be decided on its own merits. Conclusion on Whether Redevelopment Justified 189.It is our conclusion for reasons set out above that we are satisfied redevelopment is justified on the issue of age and state of repair which covers the cost of repair. Economic Tests of Mr C Chan 190.In his Supplemental Report of 18 December 2014, Mr C Chan had conducted two economic tests, one being “repair test” and the other being “age test”. 191.For the repair test, Mr C Chan adopted the findings of Mr B Wong that the total estimated cost to restore the Buildings to tenantable standard is $28,887,483. If the unauthorized building works related items are excluded, the net repair cost for the remedial works is about $25,229,419. His assessment of the EUV of the domestic units as at date of report was $331,730,000. He took the view that even if the repairs proposed by Mr B Wong were carried out, they were remedial in nature and would not, in his view, enhance the value of the unit substantially. Based on his research findings, he considered such work would only bring about 3% enhancement to the domestic portion. Only nominal enhancement will be made to the ground floor as retail shops are less sensitive to building conditions as compared to residential flats. The enhancement by the repairs (the difference between the post- and pre-repair EUV) is $9,951,900. He considered obviously, putting good money of $25,229,419 to bring about an increase in value of only $9,951,900would not make any economical sense at all. 192.For the age test, Mr C Chan assessed the total EUV of $563,990,000 could be enhanced to $573,941,900 if a net repair cost of $25,229,419 were effected. He further assessed the RDVof the Lot at $731,000,000 as at the same valuation date. Given the RDV is even higher than the enhanced EUV, Mr C Chan was of the view that repair is not economically viable and the redevelopment of the Lot is justified. 193.Mr Lee also criticized Mr C Chan’ evidence. It was submitted that both tests, namely the repair test and economic tests, should be rejected as they take the irrelevant factor of increase in land value into account. As Mr C Chan had accepted during cross-examination that EUV includes the value of the Building and land, Mr Lee submitted that his findings in both tests are thus unreliable as the increase in land value which is irrelevant has been taken into account:-
194.With respect to Mr Lee, we find that Mr C Chan’s proposed test is conceptually different from that of “to increase the value of the land” as in Good Trader. The value of the land referred to by Mr C Chan is a benchmark for comparison. Mr Lee’s suggestion that EUV includes the value of the Building and land is a misconception: the EUV or a market value of a flat/unit includes both the building (improvement) element and land element but so long as the Building stands or a property is developed and has its ownership particularly subdivided as in the case in Hong Kong, the two elements have been combined and become inseparable because of the owners’ inextricable rights to the common parts. Nobody in Hong Kong when selling a flat/unit in a multi-owned development in Hong Kong would sell at a particular value for the land and another value for the improvement. 195.We have reviewed the judgment of Gilmerton and found the Tribunal in that case did not accept that a unit in the superstructure there with all defects remedied will only have a 5% appreciation in open market value when compared with the same unit in the same superstructure with all defects present. We have no further information as to why the Tribunal came to the view that in deciding whether to make the order for sale, it did not need to weigh and consider the reliability and reasonableness of the valuation of enhancement of value. We are not provided with particulars of the tests submitted by Mr C Chan in that case. They might not be the same as those presented in the present proceedings due to the comments of the Court of Appeal in obiter in Fineway Properties Limited v Sin Ho Yuen Victor, CACV 95/2009 (dated 28 May 2010 and reported as [2010] 4 HKLRD 1) and in Intelligent House Ltd v Chan Tung Shing & Ors, LDCS 11000/2006 (unreported, dated 23 June 2008) (“Intelligent House”). While Gilmerton was decided earlier in January 2005 and is not binding on us, we consider Mr C Chan’s repair test in the present application does accord with Mr Lee’ suggestion that the cost of repair has to be compared with the EUV of the Building. In this regard, we agree with Mr Mok that Mr C Chan's expert evidence has not been challenged. 196.We agree with Mr Mok’s submission that based on the above analysis, it is really a matter of common sense (and without any need to go into any of the economic theories and/or the two tests of Intelligent House) to reach the following conclusion: when the substantially higher RDV can be obtained by redeveloping the aged Building (which is suffering from various forms of obsolescence and failing to meet current end-users' requirements and expectations) and when the very substantial repair cost is higher than the resulting enhancement of the EUV (of the domestic portion), a reasonable owner (if he were to make a decision on money considerations alone) would reject doing the repairs on the ground that the repair cost is unreasonable and would go for redevelopment. 197.When this conclusion is reached, we are satisfied that redevelopment is justified due to age and/or state of repair of the Building. Section 4(2)(b) – Whether Applicants have taken reasonable steps 198.The applicants are under an obligation to take reasonable steps to negotiate on terms that are fair and reasonable for the purchase of the interest of R1 and R5-7 under Section 4(2)(b) of the Ordinance. 199.It is not disputed that the applicants have made the following offers to the respondents through their solicitors to acquire the units they own:-
* There were mediations taking place between the 2nd and 3rd rounds of offers but of no avail. 200.Obviously, these offers were higher than the EUV as determined for the respective units. See §109 above. 201.We are also satisfied from the evidence before us that each of the above offers made to the respondents was accompanied by the advice letter of Mr C Chan setting out the relevant valuation assessments and calculations of the share of the respondents’ unit(s) of the RDV apportioned according to the statutory formula and each offer was in excess of the share of the respondents’ unit(s). 202.The first and second rounds of offers were made when there was no valuation evidence from any of the remaining owners. The third offers were about 20% above Mr C Chan’s assessments of the share of the respondents’ unit(s). The fourth offers were about 40% above Mr C Chan’s assessments of the share of the respondents’ unit(s). 203.None of the offers were accepted by the respondents. 204.While R1 made no submission that the offers by the applicants were not reasonable, it came to light that R5-7 refused to accept because they felt Mr C Chan ignored “the need to consider the irregularities in the layout of the Shop A & B, according to them, resulting in wrong assessment of the market value of the Shop A & B to a much higher market value or, vice versa, resulting in a much lower percentage of share in the EUV of their units by 0.0782%[12]. 205.As manifested from §§82-88 above, such attack on Mr C Chan was misconceived or ill-founded. 206.Mr Mok for the applicants also submitted that such attack is wrong in principle, citing the following remarks from the CFA in Capital Well Limited v Bond Star Development Limited(2005) 8 HKCFAR 578, supra, at §33:
207.On the other hand, there is no evidence before this Tribunal to demonstrate that the preliminary assessments by Mr C Chan can in any way be faulted. More particularly, as demonstrated by the assessment of Mr D Kwan of the R5-7 unit in the sum of $6,962,298, the fourth offer by the applicants in the sum of $6,800,000 only shows a marginal difference of $162,298 or less than 2.5% . 208.Also, in Good Faith Properties Limited and Others v Cibean Development Company Limited, LDCS 42000/2011 (unreported, dated 31 May 2013) (“Good Faith”), the Tribunal had at §40 of the judgment confirmed that the time for it to be satisfied with the steps taken being reasonable was at trial and not before. 209.Bearing in mind the above, we are satisfied that on the evidence available and in the circumstances of the Application, the applicants have taken reasonable steps to acquire all the undivided shares in the Lot including negotiating for the purchase of such of those shares as are owned by R1 and R5-7 on terms that are fair and reasonable. Disputes on the estimation of the RDV of the Lots Optimum hypothetical development model 210.Both Mr C Chan for the applicant and Mr D Kwan for R5-7 resort to the residual valuation method in determining the RDV as at 23 July 2015. This is done by deducting development cost (including construction costs, professional fees, finance costs etc) and developer’s profit from the estimated gross development value of the completed optimum development. 211.However, they cannot agree to the form of optimal development. Their respective forms of optimal development are tabulated in the following:
212.From the above, it is manifest that the difference in opinion between the two valuation experts is on whether there should be shops fronting Rock Hill Street. Mr C Chan gave evidence that his proposed form of development is by reference to two adjoining developments, namely Belcher’s Hill and Lexington Hill which were completed in January 2011 and completed in March 2014 respectively where no shop space are provided on the side abutting Rock Hill Street. 213.Mr D Kwan, on the other hand, points to the presence of shops in the Building existing on site and particularly the opening of the MTR station in December 2014 which has an exit close to the junction of Rock Hill Street and North Street; this might increase the pedestrian flow along Rock Hill Street and attraction of retail activities there. In response to the latter, Mr C Chan explains that the MTR station was first gazetted on 23 October 2007 while the general building plans for Lexington Hill, for instance, were submitted to the Building Authority in March 2008 whereby the presence of the MTR station should have been taken into account and reflected. The Building is situated further away and separated from Lexington Hill and Belcher’s Hill by an industrial building with no ground floor retail activities. Rock Hill Street up to the present, after the opening of the West Island Line, is still a quiet street with little pedestrian flow. 214.Mr C Chan also points out that, in order to make use of the higher value space fronting onto Belcher’s Street, the entrance of the new development should, like Belcher’s Hill and Lexington Hill, be located at the rear, ie Rock Hill Street. This, together with the plant room as planned will take up much space abutting Rock Hill Street, leaving retail frontage of about 7.3 metres onto Rock Hill Street[14]. The frontage of the Lot onto Rock Hill Street is even smaller than those for Belcher’s Hill or Lexington Hill. 215.Mr D Kwan has adopted the following three comparables for the assessment of shops fronting onto Rock Hill Street[15] by reference to his report dated 23 July 2015,:
216.Mr C Chan comments that the locations of these comparables are superior to the proposed shops by Mr D Kwan in his hypothetical development model and therefore negative instead of positive adjustments for location have to be applied. When we apply the adjustments as shown below, the adjusted unit rate becomes $469,000/sq m.
* Mr D Kwan’s proposed adjustments are included in parenthesis for comparison. 217.Mr D Kwan has made further adjustments for size and frontage[16] so that the adjusted unit rate of these comparables would be even lower and become closer to the agreed unit rates for the EUV of the existing shops, ie Shop 10, Shop 11 and Shop 12 around $350,000/sq m (when adjusted for age by 15%). 218.More particularly, Mr C Chan comments that the depth of the proposed shops on UG/F, ie facing Rock Hill Street in Mr D Kwan’s hypothetical development would be a lot longer than these comparables (which are merely 10.4 m to 15.4 m). In this regard, we note that Mr D Kwan’s proposed area for this UG/F is 371.6 sq m and if a Zone A depth of 14.3 is likewise adopted and the remaining area is valued at ¼ of Zone A, the value of the UG/F would be:
219.When this is compared with the $204,000/sq m proposed by Mr C Chan[17] but without the frontage to Rock Hill Street, such frontage to Rock Hill Street appears not necessary and unimportant. We agree then with Mr C Chan that it is better to utilize the space for the development of 18 carparking spaces so as to enhance the image of the hypothetical development to be compatible with Belcher’s Hill and Lexington Hill nextdoor which in any case have been adopted as comparables. 220.Therefore, we agree with Mr C Chan that his proposed form of development is the optimal one for Lot. 221.As regards the dispute on the area of the common parts on the upper floors, we agree that the 40 sq m provision allowed by Mr D Kwan satisfies the minimum requirement of the Building (Planning) Regulations etc but as pointed out by Mr B Wong and Mr C Chan[18], it would not be large enough to satisfy the criteria for the green features concession under Joint Practice Note No 1: “only the width of such common corridor being continuous and uninterrupted along its whole length between 1,200 mm and 2,200 mm and the width of such lift lobby being continuous and uninterrupted along its whole length between 1,650 mm and 2,500 mm may be exempted”. We are surprised by Mr D Kwan’s argument that the application for the green features exemption would be left to the architect when he is the one now proposing the optimal form of development to this Tribunal for the purpose of the Application. 222.We also agree with Mr C Chan that to the extent of the comparables relied upon, all of them are enjoying similar wide common corridors and lift lobbies so as to achieve a level of values. For the purpose of comparing like with like, the proposed hypothetical development should accommodate similar features; otherwise the unit value derived from these comparables have to be discounted. 223.We therefore agree the common area on each upper floor should be 45 sq m as proposed by Mr C Chan. Assessment of the value for G/F 224.In assessing the value for the hypothetical development at G/F, ie abutting Belcher’s Street, the two valuation experts agree a set of comparables similar to that for the assessment of EUV save that AA5/BB1 is excluded and a new one AB1 in respect of G/F, 85 Belcher’s Street, a corner shop at the junction of Belcher’s Street and North Street, is added in replacement:
* The value of yard has been agreed at 1/8th of that for the saleable area of the floor. 225.Similarly, they fail also to agree on many adjustment factors but this time they, apart from agreeing on the time adjustments, agree to the frontage adjustment and the total adjustment by multiplication[19]:
226.While we have discussed most of the factors in §§94-101 above, we note that the agreed adjustment for size by the two valuation experts is 1% per 10 sq m difference (save for AB1) which is different from the 1% per 5 sq m difference adopted by us in the assessment of EUV. We consider this acceptable when the hypothetical shop used is larger in size, as much as 86.7 sq m. While this is the case, we agree that the applicable adjustment to AB1 should be 1% per 5 sq m difference as proposed by Mr C Chan. 227.As the parties have agreed to a lower adjustment for size, we consider further adjustments for layout by Mr C Chan justified. 228.Having conducted the joint inspection of the premises, we also agree with the proposed adjustment by Mr C Chan as regards the return frontage for AB1. 229.We present our analysis and assessment as follows:
230.We consider this result of $779,000/sq m closer to Mr C Chan’s proposal of $817,000/sq m than to Mr D Kwan’s proposal of $861,000/sq m in their Joint Statement. And for the purpose of determining the RDV or the reserve price for the Lot, we adopt Mr C Chan’s $817,000/sq m which appears to be more consistent with our finding on EUV for Shop C at $706,000/sq m above adjusted for age (ie +15%). Assessment of the value for UG/F 231.In light of §§218-220 above, we accept the $204,000/sq m proposed by Mr C Chan as the value for UG/F. Assessment of the value for Carparking Spaces 232.Having reviewed Mr C Chan’s comparable and analysis at his Supplemental Valuation Report dated 23 July 2015[20], we accept the $2,100,000 per carparking space proposed by Mr C Chan. Assessment of the value for the upper floors 233.By the Joint Statement dated 10 August 2015, the two experts agree to adopt comparable sales in the following 4 developments for the purpose of assessing the value of the domestic premises for their hypothetical developments:
234.Mr D Kwan however suggests that all relevant transactions in these 4 developments should be adopted while Mr C Chan says for units sold on pre-sale terms, only those with cash payment terms should be used. We agree with Mr C Chan. Indeed, the Tribunal in Good Faith, supra,also remarked that:
235.Apart from that, the two valuation experts have the following agreements and disagreements:
236.From the above, the two valuation experts disagree on whether:
237.Having heard evidence from the experts and reviewed the floor plans and specification and appliances provision of the corresponding developments, we accept the proposed adjustments for these factors (ie view, scale & facilities and headroom) but nil for time for uncompleted development. 238.We note also the floor-to-floor height for units above 16/F in Imperial Kennedy is 3.5 m which is relatively high when compared with the others at about 3.15 m. 239.In respect of time adjustment dispute, for instance, Mr C Chan stated at para 6.3.2 of his rebuttal report of 13 February 2015 as follows;
240.Thus we agree with the average unit rate of the hypothetical development at $235,000/sq m proposed by Mr C Chan. Construction cost 241.The two valuation experts agree on the other elements in the residual valuation save for the construction cost. Mr C Chan made reference to the building cost data published by by Rider Levett Bucknall Ltd (“RLB”) – apartment buildings with high to very high quality finishes for the 1st quarter of 2015 and arrived at $46,282/sq m; Mr D Kwan refers to the same source of data but for apartment buildings with high quality finishes and arrives at about $35,300/sq m instead. 242.At para 6.4 of his Rebuttal Report dated 13 February 2015, Mr C Chan stated that he had researched on the construction cost of some new residential developments under construction in Kennedy Town. He also referred to the specification and appliances provision of the comparable developments. As sale prices of these comparable development should be commensurate with the quality of construction and finishes as reflected in the construction cost, he considered Mr D Kwan’s proposed figure too low and his figure for high to very high quality finishes should be adopted. We agree with Mr C Chan. Finding on RDV and the Reserve Price 243.Thus, subject to what we have stated above, we shall follow Mr C Chan’s residual valuation model at Exhibit A2 on the determination of the RDV which is reproduced at Appendix 1 to this judgment. We determine the land value of the Lot at $750,494,545 (ie accommodation value of $110,075/m2)which we round off to $750,000,000. 244.We shall adopt the estimated RDV of $750,000,000 as the Reserve Price for the auction of the Lot. Order 245.Our order is as follows:-
246.We make a costs order nisi that:
Unless any of the parties apply by summons to vary, the costs order nisi shall be made absolute upon expiry of 14 days.
Mr Mok Yeuk Chi, instructed by Messrs. Mayer Brown JSM, for the 1st to 4th Applicants Mr Jonathan Lee, instructed by Messrs. Hampton, Winter & Glynn, for the 1st Respondent Ms Lau Chui Ling Wendy, instructed by Messrs. Tai, Tang & Chong, for the 5th to 7th Respondents Appendix 1
[1] The applicants have discontinued the proceedings against the 3rd respondent on 8 October 2015. [2] See A3/5/680. [3] See B1/5-6. [4] See §94 of the judgment. [5] See bundle B4/581 [6] See Bundle B4/583. [7] Code of Practice for Structural Use of Concrete 2013 published by the Buildings Department. [8] During examination-in-chief, Dr S Chan explained that the figure/period of 50 years in the Concrete Code 2004 came from the Wind Code, which states that buildings are required to sustain a wind intensity of 50 years return period. However, he was also unsure how the actual figure came about. During Mr K S So’s examination-in-chief, he stated he was not an expert in wind and did not rely on the Wind Code in his report to explain DWL. [9] The 7 aspects are: 1. Concrete cover for slabs; 2. Concrete cover for beams; 3. Concrete cover for bathrooms and kitchens; 4. Cantilevered structures exposed to weathering; 5.limitation on alkaline-aggregate reaction in concrete; 6.wind pressure and 7.robustness. [10] The Applicants' estimation of EUV of $556,150,000 in the Supplemental Report dated 18 December 2014 by Mr Charles Chan [B1/6/§B3.5]. [11] This unreported judgment (from the HK Judiciary website) contains tracked changes and the hard copy provided herein is printed as is. [12] See paragraph 32 of the Opening of R5-7. [13] The Court of Final Appeal stated further at §36 of the judgment that: “What the Tribunal must do is to consider whether, in the circumstances of each case, the offer falls within a band of what represents a fair and reasonable assessment of the value of the minority owner’s interest reflecting a proportionate share of the redevelopment value of the whole site.” [14] See Mr C Chan’s illustration diagram at B4/674. [15] In his expert valuation report of 23 January 2015, Mr D Kwan had relied on a different set of comparables, CR1 to CR4. The adjustments applied to this set of comparables were adversely commented by Mr C Chan in his rebuttal report dated 13 February 2015, para 4.3.2 to 4.3.3. To the extent that Mr D Kwan has adopted a new set of comparables in his latest report of 23 July 2015, we do not consider this previous set of comparables is still relevant for consideration, bearing in mind in particular the adverse comments by Mr C Chan. [16] See exhibit R1(3). [17] See B4/662. [18] See particularly Exhibit A3 provided by Mr C Chan for illustration. [19] See their Joint Statement dated 10 August 2015 at B4/662. [20] See B4/604. [21] B4/1/564-565 [22] A5/77/984-985 [23] The draft Particulars and Conditions is found at A5/89. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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