Sun Crystal Ltd and Others v. Cheng Siu Kau and Others
Read the full judgment text of LDCS 6000/2015 on BabelCite. This LDCS judgment was delivered on 31 August 2017.
1. This is an application for compulsory sale of all the undivided shares of and in Sub-section 1 of Section B of Inland Lot No 120 and Sub-section 1 of Section B of Inland Lot No 122 (“the Lots”), together with the building erected thereon known as Feng Fong Building, Nos 73 – 73E Caine Road, Hong Kong (“the Building”) for the purposes of redevelopment under the Land (Compulsory Sale for Redevelopment) Ordinance, Cap 545 (“the Ordinance”).
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LDCS 6000/2015 IN THE LANDS TRIBUNAL OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION LAND COMPULSORY SALE MAIN APPLICATION NO. 6000 OF 2015 __________________________
________________ J U D G M E N T ________________ Background 1.This is an application for compulsory sale of all the undivided shares of and in Sub-section 1 of Section B of Inland Lot No 120 and Sub-section 1 of Section B of Inland Lot No 122 (“the Lots”), together with the building erected thereon known as Feng Fong Building, Nos 73 – 73E Caine Road, Hong Kong (“the Building”) for the purposes of redevelopment under the Land (Compulsory Sale for Redevelopment) Ordinance, Cap 545 (“the Ordinance”). 2.The 7-storey Building is served by 2 common staircases. An occupation permit No 291 dated 22 September 1956 was issued for the Building granting permission to occupy and use the Building for domestic purposes. According to the approved building plans of the Building, there are 4 units planned on Mezzanine Floor (“M/F”) and 6 units planned on Basement (“B/F”), Ground Floor (“G/F”), 1st Floor (“1/F”), 2nd Floor (2/F”), 3rd Floor (“3/F”) and 4th Floor (“4/F”), and each of G/F No 73 Caine Road and G/F No 73A Caine Road is attached with a cockloft. According to the Deed of Covenant dated 17 September 1956, each of G/F No 73 Caine Road and G/F No 73A Caine Road together with their respective cockloft was further divided into 2 sub-divided units (i.e. Western Portion and Eastern Portion). 3.The Lots together with the Building was allocated 43 undivided shares. Each of the units or sub-divided units and the Roof was given 1 undivided share, making up a total of 43 undivided shares. 4.The applicants filed the Notice of Application (“the NOA”) on 4 August 2015. It was subsequently amended on 26 October 2015, 8 January 2016, 4 March 2016 and 12 April 2017. At the time of filing of the NOA, the Building was over 50 years old, and the applicants owned 35 out of the total 43 undivided shares (i.e. 81.39%), more than the threshold of 80% undivided shares of the Lots required for building aged 50 years or above. 5.Section 3(1) of the Ordinance prescribes that the minimum percentage of undivided shares that an applicant or applicants should possess before making an application under the Ordinance is 90%. Section 3(5) of the Ordinance provides that the Chief Executive in Council may, by notice in the Gazette, specify a lower percentage in respect of a lot belonging to a class of lots specified in that notice. The Land (Compulsory Sale for Redevelopment) (Specification of Lower Percentage) Notice made under section 3(5) of the Ordinance (“the Notice”) was gazetted on 22 January 2010 and tabled at the Legislative Council meeting on 27 January 2010. It came into operation on 1 April 2010. Section 3 of the Notice lowered the threshold for compulsory sale, insofar as it is applicable, from 90% to 80%. Section 4(1)(b) of the Notice specified one of the classes for the purposes of Section 3 being “a lot with each of the building erected on the lot being issued with an occupation permit at least 50 years before the date of the application. Since the occupation permit of the Building was issued on 22 September 1956, i.e. more than 50 years before the date of application (i.e. 4 August 2015), the applicable percentage is therefore 80%. Respondents Remaining 6.At the time of application, there were 8 respondents. The applicants have subsequently discontinued the proceedings against the 2nd respondent (“R2”) and the 2nd named 5th respondent (“R5(2)”) following the acquisition of their respective units in the Building. An amended NOA was filed to reflect the situation. At the time of filing of the re-re-re-amended NOA, the applicants owned 36½ out of the total 43 undivided shares (i.e. 84.88%) of the Lots. At the time of trial, there are 7 respondents whose units and undivided shares have not yet been acquired by the applicants. 7.The following are the 7 remaining respondents whose units have not yet been acquired by the applicants:-
8.All the respondents entered appearance and are legally represented in the application. R1, R3, R6, R7 and R8 were represented by Mr Tang. R4 was represented by Mr Cheng and R5(1) was represented by Mr Ng. Issues for Determination by the Tribunal 9.At the beginning of the trial, Mr Tang and Mr Cheng submitted that they would not take issue on age and repair of the Building and reasonableness of the steps taken by the applicants in acquiring all the undivided shares in the Lots. They confirmed that they had no objection to the grant of an order for sale, but would dispute on the assessments of the existing use value (“EUV”) and the redevelopment value (“RDV”) of the Lots. Whilst Mr Ng would take issue on the assessment of RDV only, and put the applicants to strict proof that redevelopment of the Lots was justified due to the age or state of repair of the Building, and the applicants had taken reasonable steps to acquire all the undivided shares in the Lots. In any event, in the closing submissions of Mr Ng, he submitted that R5(1) had then no objection to the grant of an order for sale too. 10.None of the respondents had filed any expert evidence on structural condition and building condition of the Building. Pursuant to an order of the Tribunal, the respondents had jointly appointed a single valuation expert Mr Liu King Tong (“Mr Liu”) of K T Liu Surveyors Limited to prepare expert opinion on valuation, but they had different positions on valuation at trial. In summary, in the closing submissions, their respective disputes on valuation are as follows:-
11.Above all, the Tribunal is required to determine the following issues under the Ordinance:-
Whether the Conditions for Making an Application Under S.3(1) of the Ordinance are Satisfied by the Applicants 12.Section 3(1) of the Ordinance requires an applicant to possess not less than 90% of the undivided shares in a lot before it can make an application. As mentioned above, the Building was over 50 years’ old when the application was made. The applicable threshold is 80%. We are satisfied that as at the date of application, the applicants had already owned more than 80% of the undivided shares in the Lots. The application was also accompanied by a valuation report, prepared by Mr Charles CK Chan (“Mr Chan”) of Savills Valuation and Professional Services Limited, assessing the EUV of each and every units of the Building on vacant possession basis without taking into account of the redevelopment potential of the Lots as at 19 June 2015, which was within 3 months of the application. 13.We agree that the applicants were entitled to make the application under section 3(1) of the Ordinance. Whether Development of the Lot is Justified Due to “Age” and/or “State of Repair” of the Building 14.In determining the application, section 4(2) of the Ordinance empowers the tribunal to make an order for sale if it is satisfied that:-
15.For the age and state of repair requirements, the applicants adduced expert evidence of Mr Wong Chi Ming (“Mr CM Wong”) of CM Wong & Associates Limited, a structural engineer and Mr Benson Wong Sai Ning (“Mr Benson Wong”) of Benson Wong & Associates Limited, a building surveyor. None of the respondents had adduced any expert evidence in this connection. There is no dispute between the parties on the question whether redevelopment of the Lots is justified due to the age or state of repair of the Building. 16.Mr CM Wong conducted a structural assessment and prepared one report dated 30 August 2016. He identified the following defects in the Building:-
17.Mr CM Wong concluded that the structural elements of the Building were in a very poor condition. He considered that corrosion of the reinforcement bars had been initiated and was likely to have entered the propagation phase. The cracks, spalling and corroded steel bars were indications that this process had already begun. He anticipated that more defects would develop and therefore extensive maintenance and repair works would be required in the near future. 18.In addition, since the conditions in respect of the durability of the structural elements were inferior to the requirements stipulated in the Code, Mr CM Wong considered that the design life of the Building should be shorter than the normal design life of 50 years. As the Building was then 60 years old when he prepared the report, he was of the view that the Building had passed the end of its design life. On the other hand, since ductility and robustness were not considered in those days when the Building was designed, he reckoned that the structure of the Building could not meet the current safety standards too. 19.Mr Benson Wong prepared one condition survey report dated 26 August 2016. In terms of age of the Building, he found that many features and facilities which would nowadays be expected to be standard provisions in a residential building were missing in the Building, or though provided had not been improved to meet the upgraded construction standards and statutory requirements. He considered that the Building was then aged as some features and facilities which were originally provided had become obsolete or outdated, and some of the key building parts, components, and finishes had already passed or were nearing the end of their useful lives. The Building was also aged in the sense that there had not been sufficient repair or renovation works over the years to maintain its structural frames, its components, its finishes and its service installations in a tenantable condition. 20.In respect of the state of repair of the Building, Mr Benson Wong made the following comments:-
21.Mr Benson Wong assessed the cost of essential repairs at $16,073,076 (including the repair cost for the structural frames in the sum of $778,711 estimated by Mr CM Wong), which was about 34% of the cost for the construction of a new building and was disproportionately high. Mr Benson Wong considered that even after the essential repair works had been implemented, the Building would remain an old building with its design and construction outdated and below market expectations and constitute a continuing repair liability to the owners. 22.Based on his aforesaid observations and calculations, Mr Benson Wong concluded that the age and the state of repair of the Building, each on its own, justified redevelopment of the Building because it had become obsolete and was in a poor state of repair. 23.Having considered the evidence Mr CM Wong and Mr Benson Wong, we are of the view their reports are reliable and acceptable. We are satisfied that redevelopment of the Building is justified due to its poor state of repair and the disproportionate costs of repair and maintenance. Although regular repair could extend the life of the Building, such repair costs will increase with time. Further, we opine that such maintenance can only bring about a modest improvement to the existing condition, and the Building would remain a sub-standard one. We are also satisfied that redevelopment of the Building is justified due to the age of the Building. This 60-year old Building is in a poor condition and has in fact come to the end of its design life. Its design has become obsolete over time in many aspects both physically and functionally and has failed to conform to modern standards and requirements in many material respects. Determination of the EUV of all Units in the Building 24.Under section 4(1)(a)(i) of the Ordinance, if there is a dispute between the parties on the EUV of the units in the Building on the Lots, the Tribunal has to determine the values. Section 4(1)(a)(ii) further provides that, in the case of any minority owner of the Lots who cannot be found, the majority owner of the Lots is required to satisfy the Tribunal that the value of the minority owner’s property as assessed in the application is:-
25.Mr Chan explained his valuation method and assessment process to arrive at the EUV of each unit in the Building in his valuation report dated 3 July 2015. In undertaking the assessment, Mr Chan adopted the Direct Comparison Method. He firstly identified reference units for both shop and domestic portions of the Building and compared them with the actual transactions in the market. The remaining shop units and domestic units in the Building were then compared with the respective reference units. 26.Mr Liu explained his EUV valuation in his valuation report dated 30 September 2016. Both valuation experts had subsequently prepared supplemental valuation reports and/or rebuttal report. They had also met and agreed on some issues, and then submitted joint statements to the Tribunal. They finally agreed on the selection of both shop reference unit (i.e. Eastern Portion of G/F and Cockloft, No 73 Caine Road) and domestic reference units (i.e. 1/F No 73A Caine Road), effective saleable area of all units and adjustments between all units in the Building. At trial, they had disagreements on selection of and adjustments to both shop and domestic comparables. The adjusted unit rates of shop and domestic reference units as derived by Mr Chan were $567,000/m² and $156,000/m² respectively, whilst those derived by Mr Liu were $769,614/m² and $133,529/m² respectively. Selection of and Adjustments to Shop Comparables 27.There was no dispute between both valuation experts that the 4 sub-divided units on ground floor of Nos 73 and 73A with cockloft and frontage onto Caine Road should be valued as shop units. In the direct comparison, Mr Chan adopted 7 shop comparables, whilst 4 of them (i.e. Comparables A2, A3, A5 and A8) were also adopted by Mr Liu. 28.Mr Liu disregarded Comparables A1, A4 and A6. He considered that they were not suitable for comparison because Comparable A1 comprised of a substantial area at the basement floor and therefore its transaction price might be distorted; Comparable A4 was very large in size and had a dead corner at the rear with poor layout, and its transaction price was on the low side; and Comparable A6 had a wide frontage and very narrow in width at the rear, and its shape is peculiar. Mr Cheng submitted that Comparable A1 should be disregarded due to out of tone and the portion for basement could also be distorted by the existence of partition wall. 29.We agree that Comparables A1, A4 and A6 are not the best comparables and each of them has its special features that are different from the shop reference unit. However, similar to the common comparables adopted by both valuation experts, the differences if any could be reconciled by appropriate adjustments. Given that there are no shop comparables that would command minimal adjustments only, we accept Comparables A1, A4 and A6 in the valuation, but we shall further review their relative weighting. Further, since there is no evidence to prove that Comparable A1 is an irregular transaction, we accept it in the valuation. Unless there are enough numbers of good comparables that would command minimal adjustments only for valuation, we prefer not to exclude comparables simply because their transaction prices are on the high or low sides. In addition, from market perspective, we accept Mr Chan’s opinion that the existence of partition wall if any in Comparable A1 would not affect its market value and its transaction price would generally have reflected the highest value. 30.Both valuation experts agreed on the conversion factors for ancillary areas and the adjustments for time, level, age and frontage, but disagreed on some adjustments for location, size, return frontage, layout and headroom. 31.In the adjustment for location, the agreed adjustment rate for A1, A3 and A4 was +35%, whereas Mr Chan’s negative adjustments to Comparables A2, A5, A6 and A8 that were located along Staunton Street were more than those adopted by Mr Liu. Having examined the arguments of both valuation experts, we agree with Mr Chan that the location of Comparable A2 that is close to the Mid-level Escalator is relatively better, and the location of Comparable A5 that is close to PMQ is relatively better than the location of Comparables A6 and A8. We also agree to the adjustment rates adopted by Mr Chan. We consider that shops along Staunton Street that has cluster of eateries are better than shops along the subject section of Caine Road that serves mainly the local community only, and therefore would justify a greater negative adjustment rate for location. 32.In the adjustment for size, Mr Chan adopted an adjustment rate of 1% per 10m², whilst Mr Liu’s adjustment rate was 1% per 15% difference. But the actual adjustment rates adopted by Mr Liu did not accord with his adjustment formula. Generally, Mr Liu had made more adjustments for size in the valuation. We consider that the subject section of Caine Road is sensitive to size and hence would justify relatively more adjustments for size. Further, we prefer the straightforward adjustment method adopted by Mr Chan. For the adjustment rate, we consider the rate at 1% per 6m² more appropriate. 33.Since Comparables A4, A5 and A8 had return frontages on another street or lane, Mr Chan made adjustments to them at -5%, -15% and -5% respectively, whilst Mr Liu adopted an adjustment at -5% to Comparable A5 only. Having the benefit of inspection to the shop comparables and the reference shop unit together with the parties and both valuation experts, we agree with Mr Chan that the return frontages of Comparables A4 and A8 could increase their transaction prices and therefore justify an adjustment rate of -5%, and the return frontage of Comparable A5 onto Aberdeen Street is relatively better and justifies an adjustment rate of -15%. 34.In the adjustment for layout, Mr Chan adopted adjustment rates of -10% and nil % to Comparables A5 and A6 respectively, whilst Mr Liu adopted adjustment rates of -5% and +10% respectively. We agree with Mr Chan that Comparable A5 which has much shorter depth would command an adjustment rate of -10%, but we consider that the irregular shape of Comparable A6, though it has much more areas in its front portion, would justify an adjustment rate of +5%. 35.Except for Comparable A8, both valuation experts agreed on the respective adjustment rates for headroom to the shop comparables. Given that Mr Liu’s adjustments to Comparables A6 and A8, which had similar full headroom and headroom under cockloft, were not consistent, we prefer Mr Chan’s adjustment for headroom at +0.8% to Comparable A8. 36.Following the above discussions, the EUV valuation of shop units is listed in Appendix I of the judgment. The average adjusted unit rate of all 7 shop comparables is $587,733/m². If the highest (i.e. Comparable A8) and the lowest (i.e. Comparable A1, for which there are arguments on its inclusion in the valuation) adjusted unit rates are excluded, the average adjusted unit rate would then be $586,375/m². We consider that the adjusted unit rate of the reference shop unit should be $587,000/m². The total EUV of the 4 shop units is $77,570,000. Selection of and Adjustments to Domestic Comparables 37.While Mr Chan adopted 11 domestic comparables, Mr Liu adopted 9 domestic comparables, and 7 of them are common. Mr Liu disregarded Comparables B6, B7, B8 and B10, which were located in low-rise tenement blocks. He considered that they might be subject to site acquisition by developers and therefore their transaction prices might have included a premium reflecting the potential for redevelopment. However, he had included Comparable B1 that was also located in a low-rise tenement block and was close to Comparable B8 in his valuation. Since there was no objective evidence to prove that the transaction prices of Comparables B6, B7, B8 and B10 had reflected redevelopment value, and Mr Liu was inconsistent in selecting the domestic comparables, we agree with Mr Chan to include them in the valuation. 38.Mr Chan considered that the transaction prices of Comparables B5 and B13 were out of tone and therefore disregarded them in his valuation. We agree to exclude Comparable B13 only, which is far from the Building. We consider that Comparable B5, which is close to the Building, is a relevant comparable, but we shall further review its relative weighting after adjustments. 39.Except for the roof area of Comparable B4, both valuation experts agreed on the conversion factors for ancillary areas of the comparables. They also agreed on the adjustments for time, size, age, floor, top floor and lighting & ventilation, but disagreed on some adjustments for location & environment, view, noise, and physical condition / building management. 40.Mr Chan adopted 10% to convert the roof of Comparable B4, whilst Mr Liu’s conversion rate was 15%. Mr Liu said that he adopted a higher conversion rate in this instance because he noted there was a structure on the roof of this comparable. Considering that the structure on the roof of Comparable B4 would likely be unauthorized and subject to enforcement action, we agree with Mr Chan to adopt a conversion rate of 10% only. 41.Mr Chan considered that the location & environment of Comparables B2, B3, B9 and B11 that were located along Shelley Street were worse than that of the domestic reference unit, and he made +2% adjustment to these 4 comparables. Whilst Mr Liu made -5% adjustment to Comparables B2, B9 and B11 and nil adjustment to Comparable B3. We, with the benefit of inspection, consider that the escalator along Shelley Street would adversely affect the living environment and agree with the adjustments adopted by Mr Chan. 42.Whilst Mr Chan made -3% adjustment for view to Comparable B2, Mr Liu made an adjustment of -5%. We consider that the view of Comparable B2 is similar to that of Comparables B9 and B11. Considering that both valuation experts had made an adjustment of -5% for view to Comparables B9 and B11, we agree with Mr Liu to adjust the view of Comparable B2 at -5%. 43.Except for Comparables B5, Mr Chan and Mr Liu disagreed on all adjustments for noise. In comparing the adjustments adopted by Mr Liu, Mr Chan made lesser negative adjustments to Comparables B1, B2, B9, B11 and B8; nil adjustment instead of negative adjustment to Comparable B4; and positive adjustment instead of nil or negative adjustment to Comparables B3, B12, B6, B7 and B10. We consider that the arguments of both valuation experts are not persuasive; there was no great difference in noise among the comparables and the reference domestic unit; and the effects of noise if any would have partly been reflected in the adjustment for location and environment. Hence, no adjustment for noise is required in the valuation. 44.Mr Liu made -5% adjustment for physical condition / building management to Comparables B2, B9 and B11, whilst Mr Chan made nil adjustment. On the condition that the experts had already made adjustment for age and upon inspection there was no great difference in external appearance of Comparables B2, B9 and B11 from other comparables, we agree with Mr Chan not to made adjustment to these 3 comparables. 45.Following the above discussions, the EUV valuation of domestic units is listed in Appendix II and Appendix III of the judgment. The average adjusted unit rate of all 12 comparables is $152,187/m². If only the common comparables are taken into consideration, the average adjusted unit rate is $150,325/m². If the two highest (i.e. Comparables B9 and B8) and the two lowest (i.e. Comparables B4 and B5) adjusted unit rates are excluded, the average adjusted unit rate would then be $153,311/m². We consider that the adjusted unit rate of the reference domestic unit should be $152,000/m². The total EUV of the 38 domestic units and the Roof is $363,210,000. EUV Valuation 46.The EUV of all units in the Building as at the relevant date of valuation, i.e. 19 June 2015, are appended below:-
The total EUV of the Building is $440,780,000 ($77,570,000 + $363,210,000). Whether the Applicants Have Taken Reasonable Steps 47.The applicants are under an obligation to take reasonable steps to negotiate on terms that are fair and reasonable for the purchase of all the undivided shares of the Lots under section 4(2)(b) of the Ordinance. 48.Before the commencement of the present proceedings, the applicants made the 1st batch of offers to the respondents on 17 July 2015. After the commencement of the present proceedings, the applicants made the 2nd, 3rd and 4th batches of offers to the respondents on 5 September 2016, 30 March 2017 and 25 April 2017 respectively. 49.Ms Ngai, counsel for the applicants, submitted that the offers made by the applicants to the respondents were all fair and reasonable. All the offers had reflected the respondents’ proportionate share in the redevelopment potential and RDV of the Lots, and hence were higher than the respective EUVs of the respondents’ units assessed by Mr Chan or Mr Liu. Ms Ngai further submitted that all the offers were made by reference to Mr Chan’s then opinion on EUVs and RDV, and a premium was added to the apportioned RDV in the 2nd, 3rd and 4th batches of offers. 50.In assessing the reasonableness of the offers, there is the following guidance from Ribeiro PJ of CFA in Capital Well at [33] and [36]:-
51.There is no evidence before this Tribunal that Mr Chan’s assessments were faulted. We consider that the applicants’ offers, which were based on professional valuation, do fall within a range of what may broadly be regarded as fair and reasonable. We have determined the EUVs in the above paragraphs, which are relatively close to Mr Chan’s assessments. Although the offers were not as high as the apportioned GDV when the GDV assessed by Mr Liu (i.e. $1,185,500,000) is adopted for comparison, we determine in the below paragraphs that the GDV should be $1,049,250,000 only. In any event, all the counsel for the respondents submitted in their closing submissions that they had then no objection to granting an order for sale. We are satisfied that the applicants have taken reasonable steps to acquire all the undivided shares of the Lots. Order for Sale 52.We are satisfied that redevelopment of the Lots is justified in terms of age and state of repair of the Building. We are also satisfied that the applicants had taken reasonable steps to acquire all the undivided shares of the Lots and had negotiated for the purchase of the respondents’ shares in their respective units on terms that are fair and reasonable. In the circumstances, we agree that an order for sale should be granted in favour of the applicants. Reserve Price for the Auction 53.After the without prejudice meetings between Mr Chan and Mr Liu, they agreed the RDVs in 4 scenarios, but they had different opinions on whether the “Caine Road Area” within the lot boundary and/or the “Proposed Lane Area” should be included into the site area for calculation of plot ratio and site coverage. Mr Chan considered that both should be excluded (i.e. Scenario 1), whilst Mr Liu considered that both should be included (i.e. Scenario 3). They had also prepared and agreed another scenario that the “Caine Road Area” was excluded but the “Proposed Lane Area” was included (i.e. Scenario 2). Further, since R5(1) took an alternative position that at least part of the “Proposed Lane Area” should be included in the calculation, the Tribunal directed the valuation experts to prepare an additional scenario of valuation (i.e. Scenario 4; excluded the “Caine Road Area” but included part of the “Proposed Lane Area”). Mr Ng submitted that the portion of service lane that had not been used as a passage should be included in the calculation. 54.In summary, the 4 scenarios for calculation of plot ratio and site coverage and the agreed RDVs are as follows:-
55.Both valuation experts adopted residual method to assess the RDV of the Lots. Although they opined that the optimum redevelopment on the Lots comprised a commercial / residential composite development, they had different opinions on the design of the hypothetical development, gross development value, development costs and some development parameters. In any event, they agreed to the RDV in each scenario. 56.Having studied the RDV valuations of both valuation experts, we accept their agreed RDVs in the 4 scenarios. The remaining issue is the determination of the site area for calculation of plot ratio and site coverage. Ms Ngai submitted that the RDV should base on Scenario 3 that both “Caine Road Area” and “Proposed Lane Area” should be excluded in the calculation of site area. Mr Tang and Mr Cheng submitted at trial that they would not argue whether the “Caine Road Area” should be included in the RDV valuation and invited the Tribunal to accept Scenario 2. Mr Ng submitted that both “Caine Road Area” and “Proposed Lane Area” should be included in the RDV valuation or alternatively only part of the “Proposed Lane Area” could be excluded. “Caine Road Area” 57.The “Caine Road Area” is an area within the Lots but lies on the existing Caine Road. Mr Ng contended that the “Caine Road Area” should be included in the RDV valuation because (i) there was no documentary evidence whatsoever to show that it had been surrendered to either the government or the public; (ii) there had never been any enforcement action taken by government department(s) to require setback of it to be used as a street; (iii) no third party was entitled to assert or previously asserted rights over it; and (iv) the government leases of the Lots were silent as to the need for provision of it for public passage or for creation of any public easement. 58.Mr Ng submitted that there was no previous dedication of the “Caine Road Area” to the public, and all that was said in the approved building plans of the Building was that the “Caine Road Area” was intended to be surrendered to the government. He said that the applicants’ argument that a public easement had been created over the “Caine Road Area” was misconceived because there had in fact been no surrender, or dedication, of it by the owners of the Building, even if there were at best an intention to do so only. Therefore it did not comply with the principles in relation to the establishment of right of way by dedication in Kong Sau Ching v Kong Pak Yan[1]. He further said that the applicants’ argument on lost modern grant should be rejected too because the Incorporated Owners of the Building had been formed for less than 20 years, and the owners of the Building did not have the collective capacity to make the grant of easement prior to the formation of Incorporated Owners. The Incorporated Owners would not have any powers to surrender the common area of the site to the public without the unanimous consent of the owners, and it was also impossible for all of the owners to have collectively dedicated the area to public use for a period of 20 years. 59.We consider that Mr Ng’s arguments are misconceived and bound to fail. Dedication needs not be formal. It is usually inferred from long user by the public, so that user is thus effective to prove dedication and acceptance[2]. Given that the government has been taking control over the “Caine Road Area” for many years, which is in fact a pavement in front of the Building and part of a carriageway, beyond doubt the “Caine Road Area” has already been surrendered or dedicated to the government and the government has already consented to its dedication. 60.We accept Ms Ngai’s submission that upon the approval of the building plans by the Building Authority, or alternatively upon completion of the Building at the latest, the developer or former owner(s) of the Lots had dedicated the “Caine Road Area” to the public for use as passage. Further, or in the alternative, even if there was no dedication by the time when the Building was completed, we agree with Ms Ngai that all co-owners of the Lots collectively were capable of dedicating the “Caine Road Area” to the public for use as passage. We consider the above will be sufficient to deal with the issue. “Proposed Lane Area” 61.Mr Ngai submitted that the “Proposed Lane Area” should be excluded in the RDV valuation. She contended that Building (Planning) Regulation (“B(P)R”) 28 was applicable to a composite building, instead of domestic building only, and therefore it was mandatory to allow the “Proposed Lane Area” for use as service lane upon redevelopment of the Lots into a composite building. She submitted that on balance of probability, the respondents failed to prove that exemption from B(P)R 28 and/or B(P)R 23(2)(a) would be granted, or a modification of the said regulations would be permitted by the Building Authority. The respondents had the onus of proving the exemptions and/or modification if any but the respondents failed to discharge their onus of proof. She further said that according to Mr Chan’s opinion, the chance in obtaining the Building Authority’s exemption in the present case was remote and Mr Liu was unable to comment on the likelihood of granting an exemption since he was not the authority. 62.With reference to the approved building plans of the adjacent building Honor Villa, Ms Ngai submitted that it was necessary to provide a service lane at the rear of a composite building with a width of not less than 1.5 meters between the building and the center line of the service lane; it did not matter whether such service lane area was accessible to the public or could be used for passage, or whether it was free from any obstruction and whether it could actually be used as a passageway; and it also did not matter whether such service lane area was situated at the same level or not in its entirety. 63.Mr Cheng submitted that B(P)R 28 applied to domestic buildings only. Therefore, since the hypothetical development in the case was a composite building, B(P)R 28 did not apply and accordingly no service lane was required for the proposed development. In addition, pursuant to Practice Note APP-73 issued by the Building Department, the Building Authority will give favourable consideration to include any private lane that is not specifically required for any purpose under the Building Ordinance Cap 123 in site coverage and plot ratio calculations. He said that Honor Villa was an example that no service lane had been provided in a composite building and no deduction had been made for the calculation of its plot ratio and site coverage. Alternatively, Honor Villa was evidence of exemption under B(P)R 28(1)(c) that the Building Authority did not require Honor Villa to demolish its retaining wall so as to provide a service lane. Whist Mr Ng put forward similar arguments, Mr Tang adopted the submissions of Mr Cheng. 64.With respect to counsel for the respondents, we consider that B(P)R 28 is applicable to a composite building. We agree with Ms Ngai’s submissions that Mayloy Development Ltd v Director of Lands[3] had indeed held that a lane was required to be provided for development of a composite building under B(P)R 28. The quoted statement at page 11 of the case that “since the building to be erected on the joint site is a composite building, Regulation 28 does not apply” was taken out of context. In the same paragraph, it was held that Regulation 28 was satisfied. Sonnix v Kaifull Investment Ltd[4] had just decided B(P)R 28 did not apply to a wholly non-domestic building and no ruling was made that B(P)R 28 did not apply to a composite building. Section 2 of the Building Ordinance does not say a “domestic building” is a building constructed or intended to be used completely or entirely or solely or only for habitation. We agree with Ms Ngai’s submissions that a composite building is a “domestic building” for the purposes of Building Ordinance and B(P)R so long as the composite building consists of a part/parts which is/are for habitation. 65.We also agree with Ms Ngai’s submissions that, with reference to the approved building plans of Honor Villa, a service lane had in fact been provided, though the service lane might not be assessable to the public, used for passage, free from any obstruction and/or at the same level in its entirety. 66.However, on balance of probability, we consider that the RDV valuation should include the “Proposed Lane Area” for calculation of plot ratio and site coverage. The applicants have not been arguing that as a matter of law the “Proposed Lane Area” must not be included in the RDV valuation. At least, there are possibilities that exemption and/or permission would be granted by the Building Authority. Although we agree with Ms Ngai that the opinion of Mr Liu in this regard was not certain, we consider that Honor Villa is the best objective evidence in the case. Given that both valuation experts agreed that the physical parameters of Honor Villa and the Lots were in fact similar, we do not accept Mr Chan’s view that exemption might not be granted because the Building Authority would be more cautious due to the present political climate. Political climate changes now and then. One can easily argue differently that the climate should be more relaxed to allow more units to be built. Even though section 42 of the Building Ordinance states that the Building Authority shall not be required to take into account any exemption previously granted and shall determine an application for an exemption or modification on its own merits, we accept that Honor Villa and the Lots that have similar physical parameters would have similar merits for consideration by the Building Authority. The fact that they are very close in vicinity, on balance of probability, the “Proposed Lane Area” should be included in the calculation of plot ratio and site coverage. By referring to the example of Honor Villa, we consider that the respondents have discharged the onus to prove that on the balance the “Proposed Lane Area” should be included. 67.Since we decide that the “Proposed Lane Area” should be included in the calculation of plot ratio and site coverage, we do not need to consider the alternative position of Mr Ng that only part of the “Proposed Lane Area” should be included in the assessment. In any event, we consider that the service lane of Honor Villa is similar to the “Proposed Lane Area”. The service lane of Honor Villa also comprises a small portion that appears to be used as a passage. All its service lane area was included in the calculation of plot ratio and site coverage. 68.In accordance with the above discussions, we accept that the market value of the Lots reflecting the redevelopment potential on its own, i.e. the RDV of the Lots, as at 19 April 2017 is $1,049,250,000 (i.e. Scenario 2), which should be the reserve price for auction of the Lots. Order 69.By reason of the above, this Tribunal comes to the following decisions:-
Costs 70.We make a costs order nisi that the applicants do pay costs of these proceedings to the respondents on High Court scale, with certificate for counsel, including any reserved costs, to be taxed if not agreed. Unless any parties apply by summons to vary, the costs order nisi shall be made absolute upon expiry of 14 days from today.
Ms Nancy Ngai, instructed by Zhong Lun Law Firm, for the 1st, 2nd and 3rd applicants Mr Ronald Tang, instructed by Edmund Cheung & Co., for the 1st, 3rd, 6th, 7th and 8th respondents Mr Bosco Cheng, instructed by Lui & Law Solicitors, for the 4th respondent Mr Felix Ng, instructed by Hastings & Co., for the 1st named 5th respondent
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Cases cited in this judgment