Alliance Fame Ltd and Others v. Mak Kam To and Others

LDCS 9000/2015

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LAND COMPULSORY SALE MAIN APPLICATION NO. 9000 OF 2015

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BETWEEN

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J U D G M E N T

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1.This is an application 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 A of Marine Lot No 123 and Section B of Marine Lot No 123 (hereinafter collectively referred to as “the Lot”) on which a building known as Cheung Lok Mansion (“the Building”) is erected with the postal address of Nos 222, 224, 224A, 226, 228A, 228B & 228C Wan Chai Road for the ground floors and No 228 Wan Chai Road, Blocks A, B, C, D, E, F, G, H and I for the upper floors.

2.According to the approved building plans, the Building comprises a 11-storey block with a basement level (“B/F”) abutting On Lok Lane at the rear and a ground floor level (“G/F”) fronting Wan Chai Road in the front and 9 upper floors (“U/F”). The Building is served by two common staircases and from G/F to U/F there are two lifts.

3.The occupation permit of the Building (“OP”) was issued on 15 December 1964 giving permission to occupy the Building for the following purposes:

(a) Basement: Stores for non-domestic use;

(b) Ground Floor: 5 shops and 2 offices for non-domestic use;

(c) 1^st to 9^th Floors (inclusive): 9 tenements per floor for domestic use.

4.According to the Land Registry, there are 92 undivided shares each allotted to a unit of the Building as follows:

(a) 4 units A, B, C and D on B/F;

(b) 7 units on G/F with 5 street shops fronting Wan Chai Road and 2 office units opening to an internal corridor;

(c) 9 domestic units being units A, B, C, D, E, F, G, H and I on each U/F giving a total of 81 domestic units.

5.Mr Mok Yeuk Chi (“Mr Mok”), counsel for the applicants, summarized in his opening submission that at the time of the Application dated 9 October 2015, the applicants altogether owned 89.86% undivided shares of the Lot subject to the remaining shares as follows:

(a) The 1/92 undivided share held by the 1^st respondent (“R1”) allotted to Unit A on 4/F;

(b) The 1/92 undivided share held by the 2^nd respondent (“R2”) allotted to Unit A on 7/F;

(c) The 1/92 undivided share held by the 8^th and 9^th respondents (“R8/9”) as tenants in common and allotted to Unit G on 5/F;

(d) The 1/3^rd share in the 1/92 undivided share allotted to Unit H on 1/F held by Wong Sai (deceased) with the 10^th respondent (“R10”) being sued as his personal representative whereas the other 2/3^rd shares in the 1/92 undivided share have already been held by the 1^st applicant (“A1”);

(e) The 1/92 undivided share held by the 11^th and 12^th respondents (“R11/12”) as joint tenants and allotted to Unit H on 2/F;

(f) The 1/92 undivided share held by the 3^rd respondent (“R3”) allotted to Unit B on 1/F (which was subsequently sold to the applicants);

(g) The 1/92 undivided share held by the 4^th respondent (“R4”) allotted to Unit D on G/F (which was subsequently sold to the applicants);

(h) The 1/92 undivided share held by the 5^th and 6^th respondents (“R5/6”) as joint tenants and allotted to Unit E on 4/F (which was subsequently sold to the applicants);

(i) The 1/92 undivided share held by the 7^th respondent (“R7”) allotted to Unit E on 6/F (which was subsequently sold to the applicants);

(j) The 1/92 undivided share held by the 13^h respondent (“R13”) allotted to Unit B on G/F (which was subsequently sold to the applicants);

6.R1, R2 & R11/12 each filed a Notice of Opposition (“Form 33”) while acting in person. R8/9 also filed a Form 33 by their representative, Ms Loo Kwan Yee (“Ms Loo”) acting in person.

7.Mr Ross M Y Yuen (“Mr Yuen”), instructed by Messrs Humphrey & Associates, is acting for R1 & R2 whereas the other respondents are acting in person.

8.R10 sent a letter dated 24 April 2017 to the Lands Tribunal seeking leave to be excused from attending the hearing.

Whether the Applicants are entitled to make the Application

9.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.

10.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.

11.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 include: “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)”. 

12.As mentioned, the OP for the Building was issued on 15 December 1964 (namely, not less than 50 years before the date of the Application).  The Notice is applicable and the threshold percentage should be 80%.

13.At the time of the filing of the Application, the applicants owned 89.86% 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.

The Issues in the Application

14.It is not disputed that the following issues as summarized by Mr Mok shall be determined according to section 4 of Cap 545:

(a) The Tribunal shall first determine the market value (which is usually termed by the valuation profession as the Existing Use Value or just “EUV”) assessed according to Part 1 of Schedule 1 to Cap 545 of “each property on the lot”, namely each of the units enjoying the right of exclusive use and allotted with part of the 92 undivided shares of the Lot and the Building.  There is no argument that the valuation date is 27 August 2015 (section 4(1)(a)(i)).

(b) The Tribunal shall secondly decide whether to make the compulsory sale order (section 4(1)(b)) which depends on whether the Tribunal is satisfied that:

(i) the redevelopment of the Lot is justified due to the age or state of repair of the existing development, namely, the Building (section 4(2)(a)); and

(ii) the applicants have taken reasonable steps to acquire all the undivided shares in the Lot (section 4(2)(b)).

(c) What the redevelopment value (“RDV”) for the sale of the Lot by auction is.

The Evidence

15.The applicants have filed the following documents in support of the Application:

(a)  the witness statement dated 1 September 2016 from Mr Li Ting (“Mr T Li”), representative of the applicants;

(b)  a Condition Survey Report by Mr Benson Wong Sai Ning (“Mr Benson Wong”) dated 30 August 2016;

(c)  a Structural Assessment Report by Mr So Kin Shing (“Mr K S So”) dated 31 August 2016;

(d)  the following reports by Mr Lau Chun Kong (“Mr C K Lau”) of Jones Lang LaSalle Limited (“JLL”);

(i) the Application Report of 9 October 2015 pursuant to Part 1 of Schedule 1 to the Ordinance;

(ii) the Supplemental Report of 1 September 2016 on both the EUV and RDV; and

(iii) the Rebuttal Report dated 30 September 2016.

16.R1, R2 & R8/9 and R11/12, each filed a witness statement and R1, R2 & R11/12 appointed a joint valuation expert, Mr Wayne W K Lee (“Mr Wayne Lee”)[1] who prepared a Valuation Report dated 31 August 2016 on the Existing Use Value of the various units in the Building and another Valuation Report of the same date on the RDV of the Lot. Mr Wayne Lee then prepared also a Rebuttal Report dated 19 September 2016.

17.Both Mr C K Lau and Mr Wayne Lee prepared a Joint Statement dated 28 October 2016 setting out their agreements and disagreements, following which they prepared an updated Report dated 27 March 2017 and 26 March 2017 respectively. They further prepared a Joint Statement dated 5 April 2017.

18.At the hearing, both Mr C K Lau and Mr Wayne Lee produced their revisions as Exhibit A1 and Exhibit R1 respectively.

19.Although the respondents submit that major maintenance works were carried out in about 2013 and 2014, no condition survey report or structural assessment report was filed by any of the respondents. Mr Benson Wong’s report and Mr K S So’s report remain to be the only condition survey report and the structural assessment relied upon by this Tribunal.

EUV as at 27 August 2015

Assessment of Basement Units

20.In the assessment of the basement units, although the two valuation experts agree that they can be assessed on the basis of two units (namely Blocks A and B as one unit and Blocks C and D as another unit) instead of four, they could not agree their frontages. Mr C K Lau measured the frontages according to the approved building plans whereas Mr Wayne Lee considered the frontages irrelevant as the units are enclosed with existing walls and the existing user of the units do not hinge on frontages.

21.Mr Wayne Lee further considered that the permitted user of the basement units was “stores” as stipulated under the OP and their existing user appeared to be storage. During cross-examination, Mr Wayne Lee conceded that he thought the Ordinance restricted the assessment to existing use only. He therefore valued the basement units in their “existing use” and “existing state” and had not considered the possibility that the Building Department might approve an application for conversion into retail.

22.With respect to Mr Wayne Lee, the term “Existing Use Value” or “EUV” is not found in the Ordinance. Rather it is a term coined by the valuation profession for the purpose of assessing the market value of each existing unit subject to an application pursuant to Part 1 of Schedule 1 to the Ordinance; the adjective “existing use” is adopted to distinguish from the market value derivable from taking into account the redevelopment potential of the property or the lots in question.

23.On the other hand, Mr C K Lau considered the user of the basement units just for non-domestic (including retail), taking into account potential for change in user, like from domestic to shop, as in some previous judgments of this Tribunal. Mr C K Lau made -10% adjustment to account for the storage user stated in OP, which he thought a discount would be needed by buyers for the change in the user to shop use.

24.In Cheer Capital Limited v Unibase Investment Limited & Others, LDCS 5000 & 6000/2013 (unreported, dated 12 June 2015) (“Cheer Capital”), notwithstanding an occupation permit issued in 1955 allowing the premises in question to be occupied and used for domestic purposes, units in the premises had been occupied for retail purposes for a long time. The Tribunal observed that while plans for alterations and additions of building works (commonly known as the A&A plans in the profession) had been approved by the Building Authority for conversion of some of those units to retail use in the 50s or in 1965, owners or occupiers of other units on the same floor did not care to submit similar A&A plans before conversion of their units to retail use. Despite the absence of A&A submissions, although the Building Authority had issued Building Orders requiring the owners of the various premises to carry out extensive repair works, no complaint whatsoever had been received regarding the manifest change of use. The Tribunal accepted therefore the evidence of the valuation expert in that case that approval for alterations and additions of building works was irrelevant on the basis of non-domestic use if structural alteration to the premises was not required. “Market realities should dictate”: see §51 of the judgment.

25.More particularly in Wing Hong Investment Company Limited v Fung Sok Han & Others, HCA 2075/2009 dated 25 September 2015 which is reported as [2016] 1 HKLRD 1 (“Wing Hong”), the defendants there also claimed that the plaintiff in that case had converted the ground floor carport into shops in contravention of the Building Ordinance (“BO”). Chan J found there is no provision in the BO to suggest it is an offence to adopt a user of premises which is materially different from that stated in the occupation permit (at §235).

26.Then in Join Union Investment Limited v China Tree Investment Limited, HCA 1126/2013 dated 5 April 2016 which is reported as [2016] 2 HKLRD 901 (“Join Union”), there was also a subdivision of the ground floor premises into 4 shops. The expert in the case, a registered structural engineer, could not cite any example or authorities where, in similar circumstances, the Government or the Building Authority took enforcement action to require the demolition of the partitioning and reinstatement of the property to its original state. Chow J was of the view that there was no real risk of enforcement by the Government or Building Authority in respect of the alleged unauthorised partitions. See §§97-103 of the judgment.

27.Further, at §107 of the judgment, the learned judge observed that:

“... it is apparent, from the evidence of Mr Lai, Madam Chan and Madam Shiu, that none of them considered the 2010 Building Order, or indeed any unauthorised building works in the Property, to be of any great moment. Prior to the respective purchases of the Property by the defendant (through Madam Chan) and the plaintiff (through Madam Shiu), none of them took the trouble to go inside the Property to inspect its physical conditions, or ascertain whether there might be any unauthorised building works in the Property. Even after her attention had been drawn to the 2010 Building Order, Madam Shiu did not carry out any further investigation prior to entering into a binding contract to purchase the Property, and was prepared to accept a modest sum of HK$20,000 from the defendant as sufficient compensation for the costs of complying with the 2010 Building Order. The existence of unauthorised building works in retail premises, especially in the older districts in Hong Kong, is common place and does not appear to have any significant impact on their market or capital values. These properties change hands frequently like ordinary commercial commodities, as demonstrated in the present case by the fact that the defendant (through Madam Chan) purchased the Property in September 2010 and sold it to the plaintiff (through Madam Shiu) in March 2011 for a handsome profit. It is contrary to market reality to treat the existence of an unauthorised cockloft, even of a substantial size like the present one, as constituting a title defect going to the root of title....” (emphasis added)

28.In the above regard, based on the principle of reality in valuation, we have to take into account the reality of the market place at the valuation date notwithstanding the permitted use in OP. As was said in IRC v Clay [1914] 3 KB 466, one is concerned with “...the expectations of properly qualified persons who have taken pains to inform themselves of all particulars ascertainable about the property, and its capabilities, the demand for it, and the likely buyers...”  In our opinion, therefore, the basement units, despite being permitted for storage purpose only, can be compared and valued as if they were retail spaces insofar as such were the highest and best use in the market.

29.In spite of the difference in opinion between the two valuation experts above, by reference to the following table, Mr C K Lau adopted 3 shop sale comparables, ie B1-B3 and Mr Wayne Lee adopted 2 shop sale comparables, ie EB1 & EB2, out of which one is in common:

* Only Mr C K Lau provided the length of the frontages.

30.Mr C K Lau and Mr Wayne Lee also failed to agree on the adjustment factors except for

(i) time which is by reference to the Private Retail Price Index published by the Rating and Valuation Department (“RVD”),

(ii) quantum which is based on 1% per 10 sq m difference,

(iii) headroom which is based on 2% per 1 m difference, and

(iv) age which is based on 1% per 5 years difference:[2]

	Mr C K Lau	Mr Wayne Lee
Time	RDV index
Location	-   25% to -30%	-10% to -15%
Quantum	1% per 10 sq m difference	1% per 10 sq m difference, lower unitrate for larger size
Layout	-   30% to 0% based on difference in Reduced Zone A (“RZA”), depth and frontage between the Reference Unit and comparables	-   10% to -12% based on professional judgment on the relative proportion between size, width and depth and general configuration of the property including the number and location of columns within property
Headroom	2% per 1m difference
Frontage	1% per 0.5m difference	Not applicable
Accessibility	+2% to comparable which is accessible via a staircase	Not applicable
Frontage Accessibility	Not applicable	-   10% to -15% to reflect the ease of loading and unloading of goods of the property as a storage
Usage/ Permitted User	-   10%	-   30% to -255
Age	1% per 5 years difference

31.The following table shows the adjustments applied by Mr C K Lau (and those by Mr Wayne Lee, if any, are in parentheses):

32.From the above analysis, it is obvious that none of them are good comparables when the adjustments could range from, for instance, -90.3% to -67.0%. This is also explainable when these “comparables” (save from B2/EB2) are ground floor units with street frontages (whereas the basement units in question just front onto a scavenging lane called On Lok Lane).

33.In addition, comparables B1, B3 and EB2 are too small for comparison as they might be catering for a completely different market.

34.The more relevant comparable is perhaps only B2/EB1 which like the reference B/F units is abutting On Lok Lane which, because of the topography of the site, lies at a level lower than Wan Chai Road. In fact, On Lok Lane is at the same level of the district distributor, Hennessy Road, which runs parallel to this section of On Lok Lane through which pedestrians can gain access to Wan Chai Road from Hennessy Road. And because of such locational characteristic, comparable B2/EB1 and its adjoining units at Lee Cheong Building are designed as a shop. Indeed, upon our joint inspection, all the 4 units of Lee Cheong Building (including B2/EB1) are occupied as eateries/restaurants.

35.And perhaps for this reason, Mr C K Lau considers that the subject basement units can be similarly converted to shop/restaurant use.  However, we do not agree as the subject basement units are situated at the inner section of On Lok Lane which in many respects is similar to a scavenging lane behind the buildings (including CNT Tower) fronting onto Hennessy Road. Their potential for shop/restaurant use is minimal.

36.In such regard, we consider the location adjustment applied by Mr C K Lau inadequate. Also, insofar as the basement units has limited retail potential, their layout is relatively unimportant – we agree that Mr C K Lau should have applied a downward adjustment if the basement units are compared with a shop like comparable B2/EB1.

37.On the other hand, we note that Mr C K Lau has referred to RZA in applying his adjustment for layout; we consider the concept of the zoning method is applicable in this case as the means of comparison. The zoning concept is based on the principle that the area closest to the frontage (Zone A) is the most valuable part of a shop, but as the distance from the front of the shop increases the value per unit of area decreases. Thus, 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 analyzed whereby a process, often known as ‘halving back”, is used most extensively.

38.Whereas in the United Kingdom, it has been the usual practice to adopt an analysis scheme of three 6.1 m zones and a remainder. 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.  In the preset case, we visualize this section of On Lok Lane as a shop and are prepared to take full area of B2/EB1 as Zone A and when one walks further inside, the full area of the subject basement units as Zone B. Based on this assumption, all the other adjustments like location, quantum, layout[3], frontage[4], accessibility, frontage accessibility and even usage/ permitted user are otiose and not necessary. That is, our adjustments are:

$270,831/sq m	x 50%	(for halving back)[5]
	x (1+10.6%)	(for time)
	x (1-0.4%)	(for headroom)
	x (1-2.0%)	(for age)
	= $146,187/sq m
say	$146,000/sq m

39.Incidentally, we arrive at a unit rate of $146,000/sq m which is not too far away from Mr C K Lau’s suggestion of $150,300/sq m or a further layout discount of -12% as suggested by Mr Wayne Lee for comparable B2/EB1, ie $170,082/sq m x (1-12%) = $149,672/sq m.[6]

40.Lastly, with respect to Mr Wayne Lee on any view, the unit rate suggested by him at $26,000/sq m is nonsensical; we doubt if it can be adopted to buy any property enclosed in the urban area, not to mention in Wan Chai, a relatively popular commercial cum residential district.

41.Applying this $146,000/sq m therefore, we determine the EUV of Blocks A & B and Blocks C & D on B/F as follows:

	Effective Area	EUV
Blocks A & B	325.92 sq m	$47,584,000
Blocks C & D	358.55 sq m	$52,348,000
	Total:	$99,932,000

Assessment of Shop Units on G/F

42.In the assessment of the EUV of G/F shop units, Mr C K Lau and Mr Wayne Lee have agreed to adopt Block D of the Building as the reference unit (“the Reference Shop Unit”). This unit resembles however a Chinese character “凹” shape with its base, ie frontage of 7.32m onto Wan Chai Road; its maximum depth, excluding the recessed area which is a light well more than 7m away from the frontage, is agreed by the two valuation experts at 12.2m. Despite its “凹” shape, it has been agreed by the parties that this shop unit has been subdivided into 3 smaller shops all abutting Wan Chai Road.

43.Mr C K Lau adopts the following comparables G1. G2, G3, G5, G6, G7, G8 and G9 whereas Mr Wayne Lee only agrees to adopt G1, G6, G7, G8 and G9 (namely, his ES1 to ES5 respectively):

44.Again, Mr C K Lau and Mr Wayne Lee failed to agree on the adjustment factors except for

(i) time which is by reference to the Private Retail Price Index published by RVD,

(ii) headroom which is based on 2% per 1 m difference, and

(iii) age which is based on 1% per 5 years difference:[7]

	Mr C K Lau	Mr Wayne Lee
Time	RDV index
Location	-10% to +20%	Adjustments to reflect the general accessibility of a property
Quantum	1.5% per 10 sq m difference	1% per 5 sq m difference, lower unit rate for larger size
Layout	0% to +15% based on difference in RZA, depth and frontage between Reference Unit and comparables	-5% to 0% based on professional judgment on the relative proportion between size, width and depth and general configuration of the property including the number and location of columns  within property
Headroom	2% per 1m difference
Frontage	1% per 0.5m difference	2% per m on clear frontage basis
Visibility	Tai Yuen Street: +5% Other comparables; 0%	Not applicable
Age	1% per 5 years difference

45.Similarly, the following table shows the adjustments applied by Mr C K Lau (and those by Mr Wayne Lee, if different, are in parentheses):

* Higher adjustment up to -15% was conceded by Mr C K Lau during cross-examination.

Adjustment for Location

46.Although this section of Wan Chai Road at which the Building is situated is traversed by a variety of public transport including various bus routes, it remains a local distributor where shops on both sides cater mainly for the daily necessities of the residents nearby comprising restaurants, fast food shops, groceries and boutiques. The shopping parade off the Building is however interrupted by the basketball court beside Lee Cheong Building adjoining to its west.

47.On the other hand, Lockhart Road at which comparables G1 and G6 are situated is popular for the agglomeration of trades related to the provision of building materials and interior design etc whereby the trade mix and characters are completely different from the area around the Building.  And because of the agglomeration of trades, that G1 is situated away from the Wan Chai MTR station is relatively unimportant. In fact, this comparable G1 is situated, on the other hand, close to the Causeway Bay MTR station. We are hesitant to adopt G1 and G6 as comparables though both Mr C K Lau and Mr Wayne Lee are prepared to apply minimum adjustments for location. We in particular disagree with Mr Wayne Lee on his adjustments of +5%.

48.Similar comment is also applicable to G5 whose location is popular for selling toys, the character of which is very different from that of the area surrounding the Building. If however Mr C K Lau and Mr Wayne Lee agree to adopt G1 and G6 as comparables, we have no reason not to adopt G5 as comparable. In this regard, we agree with Mr Wayne Lee that the -5% adjustment for location proposed by Mr C K Lau is inadequate; we are prepared to adopt -10%. On the other hand, we also agree with Mr C K Lau on his adjustment for visibility at +5% to account for the vending booths stationed in front of the shop.

49.Also, as mentioned in §34 above, Hennessy Road is a major district distributor connecting east-west on Hong Kong island. Despite it running parallel to this section of Wan Chai Road at which the Building is situated, it serves a more variety of trades and significantly heavier pedestrian flow. We are more prepared to discard therefore G8 & G9 as comparables especially when the transactions took place some 18 months earlier than the relevant date. Otherwise, Mr Wayne Lee’s adjustments for location are preferred.

50.Save for the above, we are prepared to adopt the other comparables proposed by Mr C K Lau though we prefer the location adjustment of +10% for G7 as proposed by Mr Wayne Lee.

Adjustment for Quantum

51.The difference in opinion between Mr C K Lau and Mr Wayne Lee on quantum adjustment is not significant: 1.5% per 10 sq m difference vis-à-vis 2% per 10 sq m difference. But in view of the Reference Shop Unit having been subdivided into 3 smaller units in real life, we trust this locality is more sensitive to the change in size of shops. Therefore, Mr Wayne Lee’s 2% per 10 sq m difference is preferred.

Adjustment for Layout

52.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, however, we disagree with Mr Wayne Lee on his adjustment of -5% solely because of the “凹” shape of the Reference Shop Unit. On the one hand, the recessed portion occurs more than 7m away from the frontage and is therefore not within the most valuable zone of the shop. Again the fact that the Reference Shop Unit has been subdivided into 3 smaller units in real life demonstrates that the presence of the recessed portion would have minimal effect on the value of the shop.

53.On the other hand, if G5 and G6 are adopted as comparables, we agree with Mr C K Lau on the +5% adjustment to account for their long depths. As regards G2 and the Reference Shop Unit, we consider they have depths of similar range (10.81m versus 12.2m) and therefore no adjustment for layout is necessary.

Valuation of Block D, G/F -the Reference Shop Unit

54.Whereas other adjustments have been agreed by the two valuation experts, our assessment of the Reference Shop Unit is as follows:

55.In light of our comments above, we are prepared to determine the EUV of the Reference Shop Unit at $668,000 per sq m. Thus, our assessment of the EUV of the various shop units on G/F of the Building is as follows:[8]

Assessment of Office Units on G/F

56.Apart from the 5 shop units above, there are 2 office units at the rear of G/F opening to the lift lobby and internal corridor. It is undisputed that the 2 units were previously occupied as a doctor’s clinic and a dental clinic respectively.

57.For the purpose of assessing the EUV of the office units, Mr C K Lau and Mr Wayne Lee has agreed to adopt Block G, G/F as the reference unit (“the Reference Office Unit”). The table below shows that Mr C K Lau has adopted 6 comparables OG1 to OG6 while Mr Wayne Lee has adopted only 3, ie EO1, EO2 and EO3, the 1^st two which are the same as Mr C K Lau’s OG2 and OG3 respectively:

58.Again, Mr C K Lau and Mr Wayne Lee failed to agree on the adjustment factors except for

(i) time which is by reference to the RVD’s Price Index for Private Office (Grade C),

(ii) headroom which is based on 2% per 1 m difference, and

(iii) age which is based on 1% per 5 years difference:[9]

	Mr C K Lau		Mr Wayne Lee
Time	RDV index
Location	229-231/ 280-282/ 252 Lockhart Road: 98-108 Jaffe Road & 118 Jaffe Road: 161-165 Lockhart Road:	0% -15% -25%	280-282/ 252 Lockhart Road: 10-20 Tai Wo Street:	0% -10%
Quantum	1.5% per 10 sq m difference		1% per 10 sq m difference, lower unit rate for larger size
Headroom	2% per 1m difference
Floor	0% to +5% (for comparables which are accessible by staircases)		0%
View	-10% to 0%		-20% to -15%
Age	1% per 5 years difference

59.Similarly, the following table shows the adjustments applied by Mr C K Lau (and those by Mr Wayne Lee, if different, are in parentheses):

Choice of Comparables and Adjustment for Location

60.In his Rebuttal Report dated 19 September 2016, Mr Wayne Lee commented on the comparables of Mr C K Lau as follows:[10]

“4.12 I do not consider OG4, OG5 and OG6 … suitable comparables since primarily all of them are situated in a different catchment area of office users and visitors. Office premises on lower floors of buildings around this area usually serve as back offices for businesses already operating on street level in the area in order to tap the agglomeration effect of being near to each other and the convenience of being near to the Wan Chai Station which is the nearest MTR station. The subject ground floor office units are no like the comparables. They are stand-alone office premises and the nearest MTR station is the Causeway Bay Station.

4.13 Besides, they are either too large or too small in size as compared to the subject ground floor units.

4.14 Furthermore, for a valuation date of 27 August 2015, OG5 and OG6, being transacted on 16 October 2013 and 26 February 2013, appear to be very outdated.”

61.In respect of the Lockhart Road/ Jaffe Road location, we agree with Mr Wayne Lee. This is particularly the case for comparables OG1 and OG6. However, we find the comparables adopted by Mr Wayne Lee, ie EO1 and EO2, are no different. We would therefore allow -5% for the locational difference for these comparables.

62.As regards size, if Mr Wayne Lee considers OG5 and OG6 too large, his EO3 is even much larger. In any event, we are prepared to discard EO3, OG5 and OG6 (for being too large and outdated) and OG4 (for being too small). In respect of the remaining, we would prefer the 1% per 10 sq m difference proposed by Mr Wayne Lee.

63.And to the extent that we (or the two valuation experts) adopt the other comparables at Lockhart Road, we are prepared to consider an additional comparable as follows:

64.This comparable is indeed proposed by Mr Wayne Lee for assessing the EUV of the domestic units of the Building. However, as conceded by him, the adjoining units of this comparable, ie Units C & D, 1/F, have been occupied for office/commercial use. Owing to competition of the market forces, the price fetched by this comparable should be commensurate with office/commercial uses. Save for location for which we would allow -5%, we consider this transaction the best comparable with the character of the office units in the Building.

Adjustment for Floor & View

65.Remembering that the office units of the Building are situated on ground floor level abutting the building entrance, we agree with the adjustment for floor proposed by Mr C K Lau except for comparable OG3 which is not served by any lifts. We allow +15% for the latter.

66.As the Reference Office Unit is situated at the rear with obstructed view, we therefore also agree with the view adjustments proposed by Mr C K Lau.

67.In view of the above comments, we cannot but consider only the following comparables:

68.Despite the average of $103,104/sq m being arrived, we are prepared to place more weight, ie double weighting on ED1. We determine the EUV of the Reference Office Unit at $110,000 per sq m. Thus, our assessment of the EUV of the various shop units on G/F of the Building is as follows:[11]

Assessment of Domestic Units on U/F

69.In respect of the assessment of the EUV of the upper floor domestic units, Mr C K Lau and Mr Wayne Lee has agreed to adopt Block C, 5/F of the Building as the reference unit (“Reference Domestic Unit”). Mr C K Lau has used up to 17 comparables, ie D1-D17 while Mr Wayne Lee has used only 12, ie ED1-ED12, with 8 in common with Mr C K Lau’s, namely:

70.Further, Mr C K Lau and Mr Wayne Lee also failed to agree on the adjustment factors except for

(i) time which is by reference to the RVD’s Price Index for Private Domestic (Class A, B & C),

(ii) quantum which is based on 1% per 5 sq m difference, and

(iii) floor which is based on 0.5% per 1 level difference:[12]

	Mr C K Lau	Mr Wayne Lee
Time	RDV Private Domestic Price index for Class A, B & C
Location/ Environment	-5% to +5%	-3% to +5%
Quantum	1% per 5 sq m difference	1% per 5 sq m difference, lower unit rate for larger size
Age	0.5% per 1 year difference	0.25% per year difference
Floor	0.5% per 1 level difference
Top Floor	+5% for top floor units	0%
View	Building View: 0% Close Building View: -2% Flyover (above) View: -5%	0% to +3%
Lighting & Ventilation	Non-corner: 0% At the corner to lane: -2% At the corner to road: -5%	-3% to +3%
Noise	0% to +5%	-3% to +5%
Aspect	Not applicable	0% to +3% in favour of southern aspect

71.While we have observed that the difference in adjusted unit rate between Mr C K Lau and Mr Wayne Lee is less than 10%, (As valuation is not an exact science, this is within a range of reasonable opinions of different valuation surveyors), namely Mr C K Lau at $130,300/sq m and Mr Wayne Lee at $143,000/sq m, we regret and are disappointed that they could not manage to compromise on an agreed figure.

72.We have explained above that ED1 should be more properly adopted as comparable for office use instead. This is particularly manifest when its unit rate stands out to be the highest before adjustments.

73.We also agree to discard ED12 which is situated at Lockhart Road which has a different living environment particularly when comparables in the vicinity are abundant in number. For similar reasons, we are prepared to discard all comparables situated at Hennessy Road; they include D4, D6, D8/ED3, D12, D13 and D17/ ED9.

74.In respect of the remainders, the two valuation experts agree that, in terms of location, the most relevant comparables are D1, ie unit at Lee Cheong Building next door to the Building and ED2, ie unit at Fook On Building across the street.

75.In respect of the latter, Mr Wayne Lee conceded during cross-examination that his adjustments failed to take into account of the unit having 2 sets of windows, one facing north and the Building and the other facing south. We agree with Mr C K Lau that the +3% adjustment for the south is no longer justified; instead, a -3% for lighting & ventilation is applicable.

76.And to the extent that D1 is on the 14/F, we find no acceptable explanation to exclude D2 to D3 and D13 for the mere reason that they are on the high floors as suggested by Mr Wayne Lee. However, we accept Mr Wayne Lee’s view to discard D12 as it is only half in size as the Reference Domestic Unit.

77.Similarly, it is also the criticism of Mr C K Lau that of the 4 transactions in Wing Tak Mansion, ie comparables D14/ED7, D2, D3 and D7, Mr Wayne Lee only adopts D14/ED7 which is a unit on 3/F. As stated in the preceding paragraph, we consider that all these comparables should be taken into consideration.

78.As regards the adjustments, we accept all of Mr C K Lau’s view except for the following:

(1) We agree with Mr Wayne Lee that there should be an adjustment for aspect for comparables not facing south. R8/9 had argued that this factor is not a key consideration of market buyer and seller. However, we are satisfied that this is one of the factors of consideration.

(2) We agree with Mr Wayne Lee that there should be a location/ environment adjustment of 3% for units at Top View Mansion, ie comparables D5, D9/ED4 & D11/ED6.

(3) We agree with Mr Wayne Lee that there should be a view adjustment of 2% for comparables D10/ED5 as it fronts onto Top View Mansion.

(4) We agree with Mr Wayne Lee that the location adjustment for comparable D16/ED10 should be -3%.

(5) We agree with Mr Wayne Lee that 0% for ventilation/lighting is applicable to ED11 which, though having 3 sides with windows, has only one side enjoying a clear view; the other 2 sides face directly onto the adjoining building.

79.Based on our observation above, the comparables and the corresponding adjustments are tabulated in the following:

80.Thus, we arrive at the unit price for Reference Domestic Unit at $136,500/sq m save for adjustment for internal conditions.  This is lower than the unadjusted unit price for ED2 or D1which the applicants submit as the ceiling of the assessment.

81.Mr C K Lau and Mr Wayne Lee also failed to agree on the adjustment factors for individual domestic units in the Building except for

(i) floor which is based on 0.5% per 1 level difference and the top floor is further adjusted by -5%,

(ii) quantum which is based on 1% per 5 sq m difference, and

(iii) internal condition as proposed by Mr Wayne Lee.[13]

	Mr C K Lau’s View	Mr Wayne Lee’s View
Floor	0.5% per 1 level difference
Top Floor	-5%
Quantum	1% per 5 sq m
View	Units G, H, I: -3% Units A, F: 0%	Units H, I: -3% Unit G: -2% Unit A, F: +3%
Aspect	Nil	Units G, H, I: -3%
Noise	1-4/F Units A-F: -3% 5-9/F Units A-F: 0% All Units G-I: +2%	1-5/F Units A-F: 0% 6/F Units A-F: +0.5% 7/F Units A-F: +1% 8/F Units A-F: +1.5% 9/F Units A-F: +2% All Units G, H, I: +3%
Lighting & Ventilation	All Units B-E: 0% 1/F Unit A, 1-3/F: 0% 1/F Unit G, H, I: +1.5% 2-9/F Units A, G, H, I: +2% 4-9/F: +2%	All Units A, F, G, H: +2% All Units I: +1.5%
Internal Condition	Mr C K Lau agrees with Mr Wayne Lee: -6% to +6%, based on grading given during internal property inspection

82.Based on our on-site inspection, we are prepared to accept Mr C K Lau’s view save for that for aspect.  Our assessments of the EUV of the domestic units are shown at Appendix A.

83.The total EUV of the Building is as follows:

Address	EUV
Blocks A, B, C & D on B/F	$99,932,000
Blocks A, B, C, D & E on G/F	$220,459,000
Blocks F & G on G/F	$8,432,000
Domestic Portion on U/F	$517,849,000
Total:	$846,672,000

Conclusion on EUV

84.From the above it is our view that the total EUV for the Building is $846,672,000. The corresponding EUV and proportionate share of the sale proceeds of the various respondents pursuant to Part 3 of Schedule 1 to the Ordinance are as follows:

Respondent	EUV	Pro Rata Share of Sale Proceeds
R1	$7,903,000	0.9334%
R2	$8,248,000	0.9742%
R8/9	$5,569,000	0.6578%
R10	1/3 share of $5,298,000	0.2086%
R11/12	$5,687,000	0.6717%

Whether Redevelopment of the Lot is Justified

85.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 the respondents in the present application is whether redevelopment is justified and the applicants are put to strict proof thereof.

86.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 Limited 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.

87.In Top Sail, the Tribunal stated:

“23. ……, we are of the view that when the requirement of “the age” of the Buildings is considered, we should not restricted our consideration to just the physical age of the Buildings.…… we are of the view that the absence of a specific physical age in the Ordinance indicates that the Tribunal has discretion to determine at what stage a building should be redeveloped after considering all the relevant factors concerning the age of the building in question.

24. The physical age of a building is clearly one of the considerations…... The physical conditions of a building and the amount that would be required to maintain the building are other factors that the Tribunal should consider, as they would affect the decision on whether the life of a building should be ended or prolonged. The obsolete design of a building should also be considered as it has an important impact on whether it is too old to serve a modern society.”

88.Such a discretion by the Tribunal was followed in Charmlink:

“30. We areof the view that the Tribunal has discretion to determine at what stage a building should be redeveloped after considering all the relevant factors concerning the age of the building in question. The relevant factors in the present case are that the Building is over 50 years old and it has passed its designed life. It is also obsolescent in design and not economical to maintain. All these factors point to the fact that the Building has come to an end of its physical as well as economical life. Thus, we find that redevelopment is justified on the ground of the age of the Building.

31. …… It is also within the Tribunal’s discretion to determine in what conditions a building should be redeveloped after considering all the relevant factors concerning the state of repair of the building in question. With the clear evidence from the two experts that the Building is in a poor state of repair and in fact untenantable without substantial repair works to be carried out over a long period of time, we have no hesitation in finding that redevelopment is justified by the state of repair of the Building.”

89.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.

90.For the age and state of repair requirements, the applicants adduced the expert evidence of 2 experts: Mr Benson Wong who is an Authorised Person and a building surveyor and of Mr K S So who is a structural engineer. Their expertise is not disputed.

91.As regards the age of the structural frames of the Building, Mr K S So stated in his Structural Assessment Report dated 31 August 2016 as follows:

“14.1 The design and construction of the structural frames of the Building had complied with less stringent requirements in terms of the current standards. The structural frames were designed and constructed more than 51 years ago and the applicable standards were the LCC By-laws. The current standards for the design and construction of r c buildings are those stipulated in the Current Concrete Codes[14]. There are 7 structural design and construction aspects where the Building cannot comply with the current structural engineering design requirements specified in the Current Concrete Codes, especially the requirement on robustness[15]. Therefore, beside other structural engineering deficiencies the Building might not possess adequate robustness to avoid disproportionate collapse due to accidents.”

92.In relation to the state of repair of the structural frames of the Building, Mr K S So identified the following:

(i) Visual inspection revealed defects in 93 number of structural members, both inside the flats/units and in the common areas.

(ii) Covermeter survey revealed that 1 beam sample and 1 slab sample do not have sufficient concrete covers to (a) protect the embedded steel reinforcement bars against corrosion, (b) protect the bars against fire, and (c) provide sufficient depth of concrete for the safe transmission of bond forces.

(iii) Carbonation depth test results revealed that carbonation had penetrated through the concrete cover of 1 out of 12 tested column sample, 7 out of 12 tested beam samples and 9 out of 12 tested slab samples. This means the alkaline environment in many of the concrete covers, at least in all the beams and slabs sampled, which give protection to the reinforcement steel bars in the structural members against corrosion, have been very extensively destroyed. Accordingly some steel bars in these structural members have already started to corrode.

(iv) Compression tests revealed deficiency in the concrete strength in 3 out of 12 columns and 2 out of 12 beams tested.

(v) Cement content tests revealed that 10 out of 12 tested columns, 9 out of 12 tested beams and 10 out of 12 tested slabs do not fulfill the requirement. The durability of the concrete of the Building may have also been impaired.

(vi) Chloride content tests showed an increase risk of corrosion in the embedded steel reinforcement bars.

(vii) Corrosion survey by opening up of the concrete cover to examine the reinforcement steel bars embedded was carried out. The survey revealed columns, beams and slabs were suffering from various degree of rusting.

93.Based on the above findings, Mr K S So concluded that the structural frames of the Building were in need of repair. While the Building was designed and constructed more than 51 years ago, it exhibits signs that its structural frames have deteriorated to the final stages of its designed working life. The deterioration will continue steadily due to extensive carbonation of the concrete.  It is inevitable that new defects will occur and previous defects, though repaired, will recur readily, requiring substantial repairs or even partial demolition and re-construction of some defective structural members in the future.  Repair works need be carried out regularly in future and such repairs will be more and more extensive.  It is his view, although the costs of repair may be relatively modest, such costs will escalate in future as the extent and seriousness of the deterioration of the structural members increases with age.  He recommended that hammer tapping works be carried out to all structural members with a view to finding out the full extent of defects to be repaired as a matter of urgency while any defects such as spalling and cracks discovered be repaired.

94.Mr Benson Wong, in his Condition Survey Report dated 30 August 2016, stated that, in respect of the age of the Building:[16]

(i) it has many features and facilities like essential fire services installations or lighting protection system which would nowadays be expected to be standard provisions in a residential building are missing or though provided, have not been improved to meet the upgraded construction standards and statutory requirements; and

(ii) some of the key building parts, components, and finishes including external wall rendering, waterproof membranes to the roofs and underground drainage system have already passed or are nearing the end of their useful lives.

95.Turning to the state of repair, Mr Benson Wong had, inter alia, the following comments:[17]

(i) The infrared thermographic surveys have detected 81 hollow spots of Severity Index I and 14 hollow spots Severity Index II. The hidden hollow spots in external rendering are potentially dangerous to public safety if the loosened rendering falls off;

(ii) The asbestos materials identified by the asbestos consultant should be removed according to specified procedure in order to safeguard the health of occupants;

(iii) The whole roof areas will need to be recovered in order to repair the water seepages because of the defective waterproof membranes;

(iv) The external walls of the lift machine rooms are noted with cracked rendering and stained paintworks, requiring re-rendering and redecorating the external surfaces;

(v) The staircases and balcony doors in the Building have become unsatisfactory means of fire escape because no improvement had ever been made to the fire resisting construction and fire service installation in the Buildings;

(vi) Generally, the conditions of the internal doors, finishes, bathroom and kitchen in some flats are poor;

(vii) Internal electrical installations inside at least 31 residential units have been haphazardly altered and are in poor condition;

(viii) Closed circuit television surveys carried out to the underground drainage reveal substantial defects in the underground drainage systems;

(ix) Defects in the electricity supply and distribution systems require repair and maintenance;

(x) Fire service systems required to be added in order to bring the Buildings in compliance with the requirements of the Fire Safety (Buildings) Ordinance.

96.Mr Benson Wong remarked that the Building which is more than 51 years old, has suffered from general wear and tear of its structural frames, components, finishes and service installations. Most of the defects found are not superficial in nature which can be repaired effectively and economically. He estimated that the total costs of immediate repair works to restore the Building to tenantable standard came to $32,494,084 which represents about 33.0% of the cost of constructing a new building similar to the Building.  He concluded that the Building had deteriorated to a state which is beyond reasonable economic repair.  As more rapid deterioration would occur in the future, the necessary maintenance and repairs would inevitably be more frequent and extensive making the continued occupation of the Building not economical and even unsafe.  He recommended the owners to redevelop rather than repair given that the Building neither possesses any historical value or architectural merit. 

97.As submitted by the applicants, no one seeks to challenge these expert evidences and the 2 experts were not even cross-examined. More importantly, the respondents have not adduced any evidence, factual or opinion, in relation to the “age” and “state of repair” of the Building. Throughout the hearing, they have not suggested that the Building should be retained.  Having considered the evidence before the Tribunal, we are satisfied that redevelopment of the Building is justified due to the age and state of repair.

Section 4(2)(b) – Whether Applicants have taken reasonable steps

98.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 the respondents under Section 4(2)(b) of the Ordinance.

99.It is not disputed that the applicants have made the following offers to the respondents through their solicitors to acquire the units or interests they own:-

* These offers included the advice letter of JLL setting out the relevant valuation assessments and calculations of the share of the respondents’.

100.Obviously, these offers were significantly higher than the EUV as determined for the respective units. See §84 above. Furthermore, the first 2 offers were all supported by the advice letters of JLL and the offers are higher than the RDV shares as assess in the JLL advice letters.

101.Obviously, the 3^rd round and 4^th round of offers were even higher. In respect of the final round of offers dated 30 March 2017, they were again accompanied by the JLL advice letters and each offer is about 25% higher than the RDV share assessed by JLL.

102.In Intelligent House Ltd v Chan Tung Shing & Others [2008] 4 HKC 421 where the majority owner relied on its valuation expert to formulate some of the offers, the Tribunal ruled at §334(3) that:

“… it is not disputed that Savills is a reputable firm of valuers. In our view, it is also reasonable for Intelligent House to rely on Savills’ expert opinion to formulate the purchase prices offered to the minority owners. There is also no reason for us to believe, nor is there such evidence to suggest, that the advices from Savills were not properly made based on professional valuation of the EUV and RDV of the minority owners’ units.”

The applicants are entitled to rely on their valuation expert which is a reputable valuation firm.

103.We are also informed that the applicants have successfully made offers and acquired the interest of R4, R5/6, R7 and R13 after commencement of the Application.

104.More importantly, the Court of Final Appeal in Capital Well Ltd v Bond Star Development Ltd (2005) 8 HKCFAR 578, [2005] 4 HKLRD 363 (“Capital Well”) has emphasized at §33 that:

“In making that assessment (whether an offer is reasonable) the Tribunal is not conducting a valuation exercise. It does not need to adjudicate upon any disputes about the correct valuation principles to be applied. It does not itself arrive at any conclusion as to what figure represents the correct valuation. It merely needs to be satisfied that, on the evidence available, the offer falls within the range of what may broadly be regarded as fair and reasonable compensation for the interest in question.”[18]

105.As regards R10, he is sued as the personal representative of Wong Sai (deceased) who is the registered owner of 1/3 share in the 1/92 undivided share allotted to Unit H, 1/F while the other 2/3 share has already been acquired by the 1^st applicant.

106.After the 1^st offer was made to the Personal Representative of Wong Sai (deceased), the point was made that as no grant of probate or letters of administration had been issued to administer the estate of the Deceased, no one was in a position to consider or accept any offer from the applicants.

107.By the Order of the Tribunal dated 24 December 2015, Mr Wong Chu Shing was appointed to represent the estate of Wong Sai for the purpose of these proceedings and by the letter of 1 February 2016, Mr Wong Chu Shing informed the applicants through their solicitors that he does not intend to oppose the Application.

108.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, R2, R8/9, R10 and R11/12 on terms that are fair and reasonable.

Disputes on the estimation of the RDV of the Lots

Optimum Hypothetical Development Model

109.At the hearing, no suitable redevelopment site comparables were adduced as evidence for this Tribunal to consider. Both Mr C K Lau for the applicants and Mr Wayne Lee for R1, R2 & R11/12 agreed to resort to the residual valuation method in determining the RDV.  This can be done by deducting development cost (including construction costs, professional fees, finance costs etc) and developer’s profit from the estimated gross development value (“GDV”) of the completed optimum development.

110.By their Joint Statement dated 5 April 2017, the two valuation experts agree that the retail/office model is the optimum hypothetical form of development on the Lot. While their models are identical, they have also agreed the conceptual layout plans for the retail portion. The differences in the comparison of the two models are shown as follows:

111.As can be seen from the above, Mr C K Lau and Mr Wayne Lee have differences in opinion on the assessment of GDV despite they came to terms on the optimum development model.

Assessment of the Value for LG/F

112.As regards the assessment of the LG/F, Mr C K Lau adopted the 3 comparables, LG1, LG2 and LG3 respectively, which are same comparables he used to assess the EUV of the Basement Units. On the other hand, Mr Wayne Lee adopted altogether 14 comparables including all the comparables he used to assess of the EUV of the Basement Units and the G/F Shop Units. After the inspection on 25 April 2017, Mr Wayne Lee only chooses to adopt 3, ie LG7, LG9 and LG11 which are more recent transactions. These comparables are shown in the table below:

113.Mr C K Lau and Mr Wayne Lee also failed to agree on the adjustment factors except for

(i) time which is by reference to the Private Retail Price Index published by the Rating and Valuation Department (“RVD”),

(ii) quantum which is based on 1% per 10 sq m difference,

(iii) frontage which is based on 2% per 1 m difference,

(iv) headroom which is based on 2% per 1 m difference, and

(v) age which is based on 1% per 5 years difference:[19]

	Mr C K Lau	Mr Wayne Lee
Time	RDV index for Private Retail Sector	RDV index for Private Retail Sector with projection based on perceived trend
Location	-30% to -25%	-80% to -30%
Visibility/ Accessibility	-25% to -23%	Not applicable
Layout	-40% to -10%	-18% to +17%
Quantum	1% per 10 sq m difference
Frontage	2% per 1m difference
Headroom	2% per 1m difference
Building Age	1% per 5 years difference
Building Condition	10% for better condition of new development	Not applicable as such merit is taken into account in location adjustment

114.The following table shows the adjustments applied by Mr C K Lau and Mr Wayne Lee:

115.From the above analysis, it is again obvious that none of them are good comparables when they (save from LG2) are ground floor units; even the adjustments for location as much as -45% made by Mr Wayne Lee are arbitrary and appear to be inadequate. On the other hand, comparables LG1 and LG3 are too small for comparison as they might be catering for a completely different market.

116.Once again, we would make use of the comparable LG2 to conduct the ‘halving back” exercise despite this transaction is almost 3 years ago; the RVD indices have shown that the change in market condition between the transaction date and today were within a narrow range.  We accept also Mr C K Lau’s 10% for better condition of new development (ie enhancement of the trading environment), especially when 232 Wan Chai Road at the end of On Lok Lane is undergoing redevelopment as well. That is, our adjustments are:

$270,831/sq m	x 50%	(for halving back)[20]
	x (1+5.6%)	(for time)
	x (1-0.3%)	(for headroom)
	x (1+8.6%)	(for age)
	x (1+10.0%)	(for enhancement in environment)
	= $170,314/sq m
say	$170,000/sq m

Assessment of the Value for G/F

117.As regards the assessment of the G/F, save for comparable G1 below, Mr C K Lau again adopted the same set of comparables that he used to assess the EUV. On the other hand, Mr Wayne Lee prefers to introduce more recent comparables:

118.Here, Mr C K Lau and Mr Wayne Lee had similar agreements /disagreements like that for the LG/F. The following table shows the adjustments applied by Mr C K Lau (and those by Mr Wayne Lee, if any, are in parentheses):

119.Mr C K Lau arrived at an average of $738,000/sq m whereas Mr Wayne Lee arrived at an average of $806,000/sq m.

Choice of Comparables and Adjustment for Location

120.Similar to our assessment of the EUV of the G/F units of the Building, we do not consider transactions of shops at Hennessy Road or Lockhart Road good comparables. This is particularly the case when, here, there are better comparables G8(RE) and G10(RE)[21].

121.This is particularly the case when we find inconsistency between adjustments applied by Mr C K Lau in the assessment of EUV and GDV. For instance, he made -10% and -15% adjustments for comparables G8 & G9[22] in the assessment of EUV for their location at 364-366 and 367 Hennessy Road respectively but nil adjustment for G1(AE) in the assessment of GDV for its location at 385-391 Hennessy Road. To be consistent, at least a similar -10% adjustment should be applicable to the latter though we doubt whether such a quantum of adjustment is adequate. We are astonished however that Mr Wayne Lee applied +10% to this comparable when it is situated at a major distributor favoured by banks, jewellery shops as well as a wide variety of local trades and restaurants etc. It is prudent to discard all these comparables altogether.

Adjustment for Time

122.Instead of following the RDV index for Private Retail Sector, Mr Wayne Lee proposes a projection based on a rising trend. During cross-examination, he could not however explain how he came up with such a projection apart from his gut feeling.

123.By reference to the latest RVD index available however, we find Mr Wayne Lee’s projection not justified. This also serves to demonstrate that it is seldom to make projection on the GDV but rather adopting the market value of the proposed development in the market conditions prevailing at the date of valuation. Any optimism or pessimism of the market would often be reflected in the choice of the developer’s profit reasonably be expected.

124.We would therefore just follow the time adjustment proposed by Mr C K Lau.

125.Nevertheless, the preparation of an index is more or less an averaging exercise and there is no guarantee that the price trend for the subject location or property necessarily follows the index. This is particularly the case for shop premises where a slight variation in location would lead to significant difference in value. Therefore, the larger the extent of the adjustment, the higher probability of error would ensue. And for the similar reason, the longer the time lapses, a higher probability of error would ensue. Thus, we would put more weight on the recent transactions like comparables G8(RE) and G10(RE).

Adjustment for Layout

126.By reference to the conceptual layout plan of the G/F for the hypothetical development proposed by Mr C K Lau and agreed by Mr Wayne Lee[23], the reference shop unit is in a longitudinal shape with a frontage of 3.89m and a depth of 24.22m (or a frontage to depth ratio about 1:6).  In comparison, the comparables adopted by the two valuation experts have better layouts with frontage to depth ratios ranging from 1:1.2 (G10(RE)) or 1:1.6 (G8(AE) ) to 1: 5.3 (G6(AE)).

127.Despite the “L” shape of G2(AE) and the relatively fatted depth at the rear of G8(RE) which has a frontage to depth ratio of 1:3 for most portion, we do not find any justification for any positive adjustment for layout as proposed by Mr Wayne Lee.

128.Accordingly, we are prepared to accept Mr C K Lau’s proposed adjustment for layout from -12% to 0%.

Adjustment for Building Condition

129.As said, Mr C K Lau allows +10% for better condition of new development but Mr Wayne Lee considers the merits of enhancement by the new development have been taken into account in his location adjustments. By reference to the table above, it appears to be the case. Again, like our assessment of the GDV of the LG/F, we accept this 10% for the better improved environment upon completion of the new development.

130.Thus, we present our analysis and assessment as follows:

131.When we discard those comparable situated at Hennessy Road, Lockhart Road and Tai Yuen Street, we obtain an average of $719,147/sq m. When we further discard those dated comparables like G3(AE), G4(AE) and G8(AE) etc which took place some 2 years ago, we obtain an average of $702,232/sq m. As said, we would put more weight on the remaining recent transactions (save for G12 & G13 which are situated in a not comparable location). We are of the opinion that unit price applicable to the hypothetical shop units in the proposed development should be $710,000/sq m.

Assessment of the Value for 1/F (Retail)

132.As regards that for 1/F which is designated for retail/commercial, we accept Mr Wayne Lee’s proposition that it should be 40% of the value for G/F instead of at the same unit price of the office space above. To the extent that we have determined the G/F value at $710,000/sq m, we shall adopt $284,000/sq m for the 1/F.

Assessment of the Value for the Upper Floors (Offices)

133.By their Joint Statement dated 5 April 2017, it is noted that Mr C K Lau and Mr Wayne Lee agree to adopt sales in 3 developments as comparables for the purpose of assessing the value of the office premises for their hypothetical developments. They are Tesbury Centre, CNT Tower and Emperor Group Centre. On the other hand, Mr Wayne Lee tended to adopt sales in 2 additional developments, comprising 8 in AXA Centre and 1 in Pico Tower. More particulars of these developments are as follows:[25]

* The columns shaded were added by Mr Wayne Lee before the hearing.

134.Relying on sales in the 3 developments, Mr C K Lau has arrived at $204,000/sq m excluding 1/F whereas with the addition of sales of AXA Centre and Pico Tower, Mr Wayne Lee came to a unit rate of $270,000/sq m excluding 1/F. At the hearing, Mr Wayne Lee was prepared to apply a further adjustment of -10% to reflect the factor of open and sea view for sales in AXA Centre; his revised unit rate is $259,000/sq m excluding 1/F. However, Mr Wayne Lee conceded during cross-examination that only some of those sales in AXA Centre concerns units enjoying harbor view.

135.We agree with Mr C K Lau that sales in AXA Centre or Pico Tower (which was renovated in the 90s) should be discarded as comparables because these 2 buildings are situated in a much superior office environment along Gloucester Road. Particularly for AXA Centre, its scale of development, carparking facilities and lift provisions etc are also superior.

136.And for similar reasons, we consider sales in Tesbury Centre as suggested by Mr C K Lau, should be discarded as well in view of its proximity to the prominent office environs opposite Three Pacific Place which is an extension of a commercial complex featuring Grade A offices, serviced apartments, three 5-star hotels and upscale stores, shops and boutiques.

137.Just before the hearing, Mr Wayne Lee introduced the comparison columns regarding the number of office floors or total GFA served by a lift in the office comparables. Such a comparison is however illusionary and misleading. Mr C K Lau explained in his evidence how the lift waiting time of the proposed hypothetical development is inferior to that of AXA Centre (with 2 zones each being served by 4-5 lifts). We agree what Mr Wayne Lee introduced is only part of the story because the efficiency of lift loading (usually denoted as ρ in the lift queueing evaluation process) is also determined by lift zoning, speeds of the lifts, appropriate waiting time designed etc[26]. Such information or differentiations between office buildings are important as, generally speaking:

where λ is the passenger arrival rate

μ is each lift’s passenger processing rate, and

c is the number of lifts

138.In any event, we are prepared to discard the transactions of AXA Centre, Pico Tower and Tesbury Centre. Taking Mr C K Lau’s proposed hypothetical office unit on 13/F (with saleable area of 398.12 m²) as reference, we have the following comparables:

Adjustment for Time

139.In spite of the Grade B location of the Lot, Mr Wayne Lee proposes to adopt the Private Offices Grade A index published by RVD. Also, we do not agree with any projection on perceived price trend proposed by Mr Wayne Lee and therefore, the adjustments based on Private Offices Grade B index proposed by Mr C K Lau are adopted.

Adjustment for Location

140.Mr Wayne Lee applies no adjustment for location for these comparables.

141.While we agree that CNT Tower and Emperor Group Centre are comparable to the proposed development in terms of location, we agree with Mr C K Lau that they are better located and his adjustments are adopted.

Adjustment for Quantum

142.All the comparables are in respect of units of smaller size ranging from 56.17 sq m for Unit B or Unit E, 10/F of CNT Tower to 109.74 sq m for Units C & D, 10/F of CNT Tower. The two experts have agreed an adjustment based on 1% per 75 sq m.

Adjustment for Floor

143.The two experts have agreed an adjustment based on 0.5% per floor.

Adjustment for Building Age and Condition

144.Again the two experts have agreed an adjustment based on 0.5% per year. In addition, however, Mr Wayne Lee proposed a further 8% based on building condition and specification. In view of that both the CNT Tower and Emperor Group Centre were built in 1993 and 1994 respectively (ie more than 20 years of age), such a further adjustment is justified but we are prepared to adopt +10% which is consistent with that applied to the shops on G/F.

Adjustment for Headroom

145.Mr C K Lau proposes an adjustment at 1% per 0.5m difference in headroom while Mr Wayne Lee applies nil. While the difference in outcome is nominal, we adopt Mr C K Lau’s proposal.

Adjustment for View

146.Mr C K Lau proposes an adjustment of -10% for Unit 2, 19/F, Emperor Group Centre, suggesting that it enjoys a partial seaview. We were not arranged an inspection of this unit and have no evidence to prove this is indeed the case apart from Mr C K Lau’s postulation based on the orientation of the floor plan. On the other hand, by reference to the adjusted result for another comparable, ie Unit 6, 15/F, Emperor Group Centre, this further adjustment of -10% is not justified.

Conclusion of Office Value

147.It is interesting that the analysis arrives at two sets of adjusted values: those from CNT Tower gives an average about $196,340/sq m (before the additional 2% for Building Age and Condition) while those from Emperor Group Centre gives an average about $251,681/sq m (before the additional 2% for Building Age and Condition), ie a difference as much as 28%. In our judgment, given this large disparity of the 2 sets of figures, it would be inappropriate, in valuation principle, to just merely take an average of the 2 sets of adjusted unit rates. Further, we also note that 4 out of the 5 transactions in CNT Tower are in respect of units on the same floor on close dates. The evidence strongly indicates, and therefore we cannot ignore, that they point to a single or related transactions where a discount was applied and the low transaction prices may have influenced the later transaction in October 2016.

148.On the evidence before this Tribunal and given the analysis above, we are of the view that the transaction of Unit 6, 15/F, Emperor Group Centre, which occurred most recently, should be the most reliable one. After applying the adjustments on this transaction, we are of the view that $265,000/sq m is to be adopted as the unite rate for the office floors of the hypothetical development model.

Construction Cost

149.Mr C K Lau made reference to the building cost data published by by Rider Levett Bucknall Ltd (“RLB”) – office buildings with high to very high quality finishes for the 3^rd quarter of 2016 and arrived at a total cost of $490,000,000 based on the Development Cost Pro-forma promulgated by the Hong Kong Institute of Surveyors.  Mr Wayne Lee also agrees to this estimation.

150.As regards the demolition cost, we note the difference in opinion between the two experts is nominal and we just adopt Mr C K Lau’s $10.9 million.

Development Profit

151.By the Joint Statement dated 5 April 2017, it is noted that Mr C K Lau has revised the development profit from 20% to 15% which has been adopted by Mr Wayne Lee in the first place.

Stamp Duty and Legal Cost

152.While the other parameters in the residual valuation are agreed by the 2 experts, Mr Wayne Lee does not agree to the deduction of stamp duty and legal cost at the end of the valuation as proposed by Mr C K Lau.

153.In para 5.13 of his Rebuttal Report dated 19 September 2016, Mr Wayne Lee stated that:

“Not normally in the market nor conventionally within the valuation profession is purchaser’s acquisition costs such as legal cost and tax being taken into account in the valuation of land. However, both these items as estimated by Mr Lau have been deducted in his residual valuation clearly in contradiction to his general and special valuation assumptions …”

154.In the Joint Statement of 28 October 2016, Mr Wayne Lee repeated his disagreement to such deducting stamp duty and legal cost at the end of residual valuation despite Mr Wayne Lee’s attention was drawn to the draft “HKIS Guidance Notes on Valuation of Development Land”.

155.In the Joint Statement dated 5 April 2017, Mr Wayne Lee maintained that the deduction of stamp duty and legal cost before arriving at the land value was not necessary or appropriate. He further elaborated that his statement was made by reference to Commentary (6) of Valuation Standard 2.0 (Market value basis of valuation) under Valuation Standard 3 – Bases of Valuation of The HKIS Valuation Standards 2012 Edition which states as follows:

“When assessing the market value of a property, any transaction costs or encumbrances such as mortgage, debenture or other charges against it should be disregarded.”

156.With respect to Mr Wayne Lee, he has totally misunderstood the said valuation standard and perhaps the valuation practice. In the real estate market, the recorded transaction prices would not include transaction costs or encumbrances such as mortgage, debenture or other charges but would reflect that the purchasers would have to pay for these in addition. For this reason, in undertaking a valuation exercise, for instance by direct comparison of sale prices in determining the market value, the valuer should follow suit and disregard such costs or charges.

157.From the above simple illustration, it is manifest that the market does not mean that the related costs or charges have no role to play; in fact, the purchasers should have allowed for them before committing to a “market price transaction”.

158.At the hearing, Mr Wayne Lee was drawn attention to Chapter 11: Residual approach or development method of valuation of Modern Methods of Valuation, 11^th Edition by Eric Shapiro, David Mackmin and Gary Sams. Under the section on Surplus for land at p151, it is explained that:

“The land costs comprise three items. First, there is the price to be paid for the land, the very purpose of the valuation. Secondly, there are the professional fees and perhaps stamp duty land tax (SDLT) in relation to the purchase. These fees will generally be for an agent and for legal services in the conveyance …...”

which was followed by an example where “Fees on land purchase” have been deducted before arriving at the value of land.

159.Indeed, as stated earlier, Mr Wayne Lee’s attention had been drawn to the HKIS Guidance Notes on Valuation of Development Land (which was then in draft). At paragraph 3.9 (p180) under the heading of Stamp Duties, there are the following:

“3.9.1 ... The normal market practice is for the buyer to be responsible for the Ad Valorem Stamp Duty and it should be noted that the tax liability will be borne by parties involved in the transaction.

3.9.2 Developers would take into account these stamp duty liabilities in the assessment for purchase price for development land...

3.9.3   It is noted that some market practitioners do not allow stamp duty explicitly in their residual valuations. Where practitioners prefer not to allow the stamp duty explicitly, then a higher developer’s profit should be required in the residual valuation model to reflect relevant stamp duty liability.”

160.It is perhaps for the latter paragraph 3.9.3 that when Mr Wayne Lee gave his evidence, he suddenly changed tack and said he supposed Mr C K Lau’s higher developer’s profit would have included stamp duty and legal cost in the first place and a separate allowance would become double-counting. However, as pointed out by Mr Mok, counsel for the applicants, this has never been Mr Wayne Lee’s argument before and his answer is contradicted by para 5.13 of his Rebuttal Report dated 19 September 2016 as well as his remarks in the Joint Statements dated 28 October 2016 and 5 April 2017.

161.Mr Wayne Lee’s referral to a statement under the section of Development profits at p150 of Modern Methods of Valuation, supra does not assist him either. They are:

“…… The profit is the gross profit to the developer before meeting the developer’s general overheads and tax…”

162.Stamp duty and legal cost that would be incurred for acquiring land are certainly not the developer’s general overheads and tax but would be direct cost related to a particular acquisition. We consider Mr Wayne Lee’s argument is merely his afterthought after being confronted by the professional text or guidance. This is particularly the case when he applies the same developer’s profit of 15% on land and on the other capital outlay whereas those stamp duty and legal cost would only accrue on the land cost (but not on other capital outlay).

163.We agree with Mr C K Lau in this case that the stamp duty and legal cost should be deducted.

Finding on RDV and the Reserve Price

164.Thus, subject to what we have stated above, we shall follow Mr Mr C K Lau’s residual valuation model as contained in Valuation Report dated 27 March 2017[27] on the determination of the RDV which is reproduced at Appendix B to this judgment. We determine the land value of the Lot at $1,620,000,000 (ie accommodation value of $132,934/m²).

165.We shall adopt the estimated RDV of $1,620,000,000 as the Reserve Price for the auction of the Lot.

The RDV Does Not Cover Costs, etc of Sellers

166.In her opening submission filed prior to the hearing and her supplement submission, Ms Loo for R8/9 complained, inter alia, that the calculation of RDV had not taken into account the costs that have been incurred and/or will be incurred by the property seller (owner). Instead, it counts on the costs and profits of the property buyer.

167.In her closing submission dated 12 June 2017, Ms Loo finalized her claims for compensation comprising;

(1)    $3,147,036 as expenses that will be incurred to purchase and set up a replacement flat; and

(2)    $732,602 being expenses/damages that have been incurred or suffered by R8/9 on account of the Application.

168.In respect of the latter, with respect to Ms Loo, her comment was misplaced. The residual method of valuation adopted to determine the RDV is founded on the basis of a classic economic theory which suggests that the value of land as a factor of production depends on the ability of the land to produce revenues in excess of the required payments to all other factors of production. Payments to land are viewed as the residual productivity remaining after all other mobile factors of production have been compensated at their fair market values. It is reasonably expected that developers often use the land residual theory to determine the maximum potential value of a site after subtracting all other non-land costs from the total projected property value. A residual valuation, having established the development potential, can be expressed as a simple equation:

Residual land value (economic rent) =

(Value of completed development) – (development costs + developer’s profit)  

169.Thus, without a reasonable profit to be factored in, it would mean that the developer would be purchasing a piece of land for redevelopment expecting no return. It would hardly be the case in reality because there are always investments available in the market with fixed or guaranteed return over a period of time, e.g. Government or corporate bonds.  In comparison, there are always risks associated with any investment particularly when the capital to be incurred is rather substantial, e.g. a real estate development. A developer undertaking such development will seek to make a reasonable profit out of his investment. The targeted level of profit depends on the nature of investment undertaken and the associated risk, such as market competition, market uncertainties and contingencies that may appear before completion, and the general optimism in relation to venture undertaken. The profit is the gross profit to the developer before meeting the developer’s general overheads and tax.

170.On the other hand, we appreciate that the minority owners compelled to sell should receive fair and reasonable compensation for his interest in the lot. This is indeed stated clearly in Capital Well,the first appeal relating to application under the Ordinance to be considered by the Court of Final Appeal.

171.More recently, in Good Faith Properties Ltd v Cibean Development Co Ltd [2014] 5 HKLRD 534, the Court of Appeal has also decided that the compensation approach on costs should be adopted for cases under the Ordinance. Accordingly, all costs reasonably incurred by the minority owners in opposing the application for a sale order of all undivided shares in the lot, even though the opposition is unsuccessful, should be borne by the applicants unless there are “special reasons” which are subject to stringent scrutiny by the Tribunal.

172.We certainly note that in all the written offers of the applicants, nothing has been mentioned about the selling costs or stamp duty in buying a replacement unit. What have been said was that the stamp duty would be paid by the applicants, and each party do bear its own costs of the conveyance. However, this does not appear to violate compensation principles. In the English Court of Appeal decision of Horn v Sunderland Corporation [1941] 1 All ER 480, the English Court of Appeal then faced with a claim for business disturbance on the top of value for land compulsorily acquired. The land in question was a farm land for horse-breeding and was to be compulsorily acquired for housing purpose. Put very briefly, the question before the English Court of Appeal was whether the claimant was entitled to both the value of land based on housing land user plus disturbance for his horse-breeding business. The gist of the decision is that (by a majority of 2:1 with Goddard LJ dissenting) since the value of the land as building land could only be realized by the removal of the business with the land sold on vacant possession basis, compensation for the disturbance could not be awarded if the claimant was to be compensated on the basis of housing land with its full potential unlocked. At p486 Sir Wilfrid Greene MR had this to say:

“In the present case, the respondent was occupying for farming purposes land which had a value far higher than that of agricultural land. In other words, he was putting the land to a use which, economically speaking, was not its best use, a thing which he was, of course, perfectly entitled to do. The result of the compulsory purchase will be to give him a sum equal to the true economic value of the land as building land, and he thus will realise from the land a sum which never could have been realised on the basis of agricultural user. Now he is claiming that the land from which he is being expropriated is to be treated, for the purpose of valuation, as building land, and, for the purpose of disturbance, as agricultural land, and he says that the sum properly payable to him for the loss of his land is (i) its value as building land, plus (ii) a sum for disturbance of his farming business. It appears to me that, subject to a qualification which I will mention later, these claims are inconsistent with one another.”

173.In fact, Scott LJ expressed similarly on p491:

“Ex hypothesi, the building value is realisable only if and when the land is offered in the market as building land, which necessarily postulates that the selling owner will have given up his farm and cleared the land of all its farm buildings, stock and implements, or at least is ready and willing to do so at his own expense. Conversely, in so far as he chooses to leave that task to be performed by the purchaser, he must submit to the deduction of the cost of it from his price.”

174.Under the statutory regime of the Ordinance, if the Tribunal considers all the statutory criteria laid down in the Ordinance satisfied, it will direct a sale of all the undivided shares subject to a reserve price (if by auction) which will be fixed taking into account of the redevelopment potential of the lots.

175.In other words, with a view to realizing the full redevelopment potential of the land so as to achieve the highest price obtainable in the market for benefit of all owners, the lot in question must be sold, and on vacant possession basis. All owners need be moving out and the building demolished for redevelopment in order that the full potential can be achieved. It is a price that an owner needs to pay in order to realize the redevelopment of the land. The costs as well as attributes for realizing that potential must have already been factored into the sale price. Once the value of the land with the redevelopment potential realized has been converted into a sum of money represented by the sale proceeds, the compensation process has completed. It will be up to minority owner whether to purchase another premises, or invest into other ventures. Anything on the top of the sale proceeds to take care of costs of any post-sale acquisition will be more than what should be required of under the principle of equivalence.[28]

176.Accordingly, we shall not allow for any claims by the respondents for any costs that have been incurred and/or will be incurred by the property seller (owner) in addition to the net proceeds of sale of the lot pursuant to section 11 and Part 3 of Schedule 1 to the Ordinance.

177.Similarly, whether the net proceeds of sale receivable by the respondents would be adequate to buy a replacement unit in Wan Chai are outside the ambit of the Ordinance.

178.To summarize, there is no legal basis for R8/9 to make such claims for compensation outside the ambit of the Ordinance.

Other Incidental Matters

179.The applicants proposes to appoint Mr Andy Ngan and Ms Joey Hung, being partner and senior associate of Messrs F Zimmern & Co, Solicitors & Notaries, as the sale trustees.  Based on the information on their background and experience as set out in their letter dated 28 April 2017, we are satisfied that they are proper persons to be appointed as trustees to discharge the duties imposed on trustees under the Ordinance.  The remuneration package proposed in the said letter appears to be reasonable.

180.The applicants has prepared a set of draft Particulars and Conditions of Sale of the Lots[29].  Subject to any amendment that may become necessary as a result of our ruling on the arrangement of auction above, the particulars and conditions of sale of the Lots by public auction submitted by the applicants are also reasonable.

Order

181.This Tribunal make the following orders:

(1) This Tribunal is satisfied that the redevelopment of the Lot is justified due to the “age” and “state of repair” of the Building and that the applicants have taken reasonable steps to acquire all the undivided shares in the Lot including those of the 1^st, 2^nd, 8^th, 9^th, 10^th, 11^th &12^th respondents;

(2) All the undivided shares in the Lot, the subject of the Application herein, be sold by way of a public auction for the purposes of the redevelopment of the Lot under s.4(1)(b) of the Land (Compulsory Sale for Redevelopment) Ordinance (“the Ordinance”);

(3) Mr. Andy Ngan and Ms Joey Hung of Messrs F Zimmern & Co, Solicitors & Notaries, nominated by the applicants, be appointed trustees (“the Trustees”) to discharge the duties imposed on trustees under the Ordinance in relation to sale of the Lot and the Trustees be authorized to charge such remuneration for their services in accordance with the terms set out in the letter of Messrs F Zimmern & Co, Solicitors & Notaries dated 28 April 2017.

(4) For the purpose of the sale of the Lot by public auction under section 5(1)(a) of the Ordinance:

(i) The sale of the Lot be on the particulars and conditions of sale substantially the same as those in the draft Particulars and Conditions of Sale to be initialed and approved by the Tribunal.

(ii) The reserve price be set at $1,620,000,000.

(iii) Subject to further extensions that the Tribunal may subsequently allow upon the application of the purchaser of the Lot or its successor in title, the redevelopment of the Lot and the Building shall be completed and made fit for occupation within a period of 6 years after the date on which the purchaser of the Lot shall become the owner of the Lot.

(iv) Liberty to the applicants, the 1^st, 2^nd, 8^th, 9^th, 10^th, 11^th &12^th respondents and the Trustees to apply to the Tribunal for further direction(s) under the Ordinance.