Asia Charming Ltd v. Kar Shing Capital Resources Ltd and Others
Read the full judgment text of LDCS 5000/2016 on BabelCite. This LDCS judgment was delivered on 13 June 2018.
1. These are 4 applications for compulsory sale of all the undivided shares of and in the Remaining Portion of subsection 2 of section A of Hung Hom Marine Lot No 1 (“Lot 1”); section E and section F of subsection 2 of section A of Hung Hom Marine Lot No 1 (“1st Pair of Lots); section C and section D of subsection 2 of section A of Hung Hom Marine Lot No 1 (“2nd Pair of Lots”); and section A and section B of subsection 2 of section A of Hung Hom Marine Lot No 1 (“3rd Pair of Lots”) (Lot 1, 1st P
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LDCS 5000/2016 [2018] HKLdT 44 IN THE LANDS TRIBUNAL OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION LAND COMPULSORY SALE MAIN APPLICATION NO 5000 OF 2016 __________________________
Before: Mr Alex Ng, Member of the Lands Tribunal Dates of Hearing: 16 and 18 – 20 April 2018 Date of Closing Submissions: 25 April 2018 Date of Judgment: 13 June 2018 __________________ J U D G M E N T __________________ Background 1.These are 4 applications for compulsory sale of all the undivided shares of and in the Remaining Portion of subsection 2 of section A of Hung Hom Marine Lot No 1 (“Lot 1”); section E and section F of subsection 2 of section A of Hung Hom Marine Lot No 1 (“1st Pair of Lots); section C and section D of subsection 2 of section A of Hung Hom Marine Lot No 1 (“2nd Pair of Lots”); and section A and section B of subsection 2 of section A of Hung Hom Marine Lot No 1 (“3rd Pair of Lots”) (Lot 1, 1st Pair of Lots, 2nd Pair of Lots and 3rd Pair of Lots are collectively referred to as “the Lots”), together with 4 buildings erected thereon known as Nos 30-32 Gillies Avenue South and Nos 75-77 Baker Street (“Building 1”); Nos 34-36 Gillies Avenue South (“1st Pair of Buildings”); Nos 38-40 Gillies Avenue South (“2nd Pair of Buildings); and Nos 42-44 Gillies Avenue South (“3rd Pair of Buildings”) (Building 1, 1st Pair of Buildings, 2nd Pair of Buildings and 3rd Pair of Buildings are collectively referred to as “The Buildings”) respectively for the purposes of redevelopment under the Land (Compulsory Sale for Redevelopment) Ordinance, Cap 545 (“the Ordinance”). 2.Building 1, 1st Pair of Buildings, 2nd Pair of Buildings and 3rd Pair of Buildings are not connected to each other. Building 1 that is served by 3 common staircases is a 7-storey Chinese tenement block. An occupation permit No K2 dated 7 December 1956 was issued for Building 1 granting permission to occupy ground floor (“G/F”) for non‑domestic purpose and upper floors for domestic purpose. According to the approved building plans dated 14 August 1956, there were 4 shops (i.e. No 30 Gillies Avenue South, No 32 Gillies Avenue South, No 75 Baker Street and No 77 Baker Street) planned on G/F and 2 flats (i.e. Nos 30 & 32 Gillies Avenue South and Nos 75 & 77 Baker Street) planned on each of 1st Floor (“1/F”) to 6th Floor (“6/F”). According to the approved alteration and addition plan dated 9 February 1957, the use of G/F of No 30 Gillies Avenue South was changed from shop (non-domestic) to food shop (non-domestic). According to the approved alteration and addition plan dated 25 February 1967, the use of both G/F of No 30 Gillies Avenue South and G/F of No 32 Gillies Avenue South were further changed to restaurant. Nevertheless, with reference to the records of the Land Register, G/F of No 30 Gillies Avenue South was sub-divided into 5 shops (i.e. Shop A, Shop B, Shop C, Shop D and Shop E). In addition, each of the original planned flats on upper floors of Nos 30 & 32 Gillies Avenue South were subdivided into 2 flats (i.e. No 30 Gillies Avenue South and No 32 Gillies Avenue South). 3.Each of 1st Pair of Buildings, 2nd Pair of Buildings and 3rd Pair of Buildings that is served by 2 common staircases is a 7-storey Chinese tenement block too. An occupation permit No 17K dated 26 June 1956 was issued for these 3 pairs of buildings granting permission to occupy them for domestic purpose. Nevertheless, according to the approved building plans dated 4 January 1956 and in each pair of buildings, there were 4 shops (non-domestic) planned on G/F, 4 office units planned on mezzanine floor (“M/F”), and 2 flats planned on each of 1/F to 5th Floor (“5/F”). According to the approved alteration and addition plan dated 2 May 1957, the use of front portions on G/F of Nos 40 and 42 Gillies Avenue South was changed from shop (non-domestic) to restaurant. According to the approved alteration and addition plans dated 10 July 1961, there were addition of an internal staircase from front portion on G/F of No 42 Gillies Avenue South to front portion on M/F of No 42 Gillies Avenue South, and change of use from office to seating accommodation at front portions on M/F of Nos 40 and 42 Gillies Avenue South. A portion of front portion on G/F of Nos 40 and 42 Gillies Aveune South was also changed from restaurant to food preparation room. According to the approved alteration and addition plan dated 25 November 1963, there were removal and erection of a water closet at front portion on G/F of Nos 40 and 42 Gillies Avenue South. According to the approved alteration and addition plan dated 7 May 1957, there were addition of an internal staircase and change of use from shop (non-domestic) to common gaming house (mahjong school) at front portion on G/F of No 44 Gillies Avenue South. Further, with reference to the records of the Land Register, each of the original planned flats on upper floors were subdivided into 2 flats (i.e. Front Portion and Rear Portion). Front Portion on 5/F of No 42 Gillies Avenue South and Rear Portion on 3/F of No 44 Gillies Avenue South were also subdivided into 4 flats (i.e. Flat A, Flat B, Flat C and Flat D) and 2 flats (i.e. Flat A and Flat B) respectively. 4.Lot 1 together with Building 1 standing thereon was allocated 22 undivided shares, and each of the 4 shops on G/F and each of the 3 flats on upper floors was given 1 undivided share, making up a total of 22 undivided shares. Part of 1st Pair of Lot (i.e. section F) together with part of 1st Pair of Buildings (i.e. No 34 Gillies Avenue South) standing thereon was allocated 14 undivided shares, and each of the 2 shops on G/F, 2 offices on M/F and 2 flats on upper floors was given 1 undivided share, making up a total of 14 undivided shares. Each of section E (i.e. No 36 Gillies Avenue South), section D (i.e. 38 Gillies Avenue South), section C (i.e. No 40 Gillies Avenue South), section B (i.e. No 42 Gillies Avenue South) and section A (i.e. No 44 Gillies Avenue South) in the respective pairs of lots and pairs of buildings has the same allocation of 14 undivided shares too. Further, each of the subdivided flats at Front Portion on 5/F of No 42 Gillies Avenue South and Rear Portion on 3/F of No 44 Gillies Avenue South was allocated with 1/4 of 1/14 and 1/2 of 1/14 undivided shares respectively. 5.The applicant filed the Notice of Application (“the NOA”) on 29 August 2016. At the time of filing of the NOA, the Building was over 50 years old, and the applicant owned 83.64% (i.e. 18.4 out of the total 22 undivided shares) of Lot 1, on average 82.14% (i.e. 9 out of the total 14 undivided shares of section F and 14 out of the total 14 undivided shares of section E) of 1st Pair of Lots, on average 82.14% (i.e. 13 out of the total 14 undivided shares of section D and 10 out of the total 14 undivided shares of section C) of 2nd Pair of Lots, and on average 89.29% (i.e. 14 out of the total 14 undivided shares of section B and 11 out of the total 14 undivided shares of section A) of 3rd Pair of Lots,. In the premises, the applicant owned more than the threshold of 80% undivided shares of the Lots required for building aged 50 years or above. 6.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 permits of the Buildings were issued in 1956, i.e. more than 50 years before the date of application (i.e. 29 August 2016), the applicable percentage is therefore 80%. Respondents Remaining 7.At the time of application, there were 15 groups of respondents. Since then, the applicant acquired further undivided shares from some of the respondents, and discontinued the proceedings against the 1st respondent, the 2nd respondents, the 4th respondent, the 5th respondent, the 6th respondent, the 7th respondent, the 8th respondent and the 14th respondent. At the time of trial, the applicant owned 98.18% of Lot 1, on average 96.43% of 1st Pair of Lots, on average 85.71% of 2nd Pair of Lots and on average 89.29% of 3rd Pair of Lots. There are 7 group of respondents whose units and undivided shares have not yet been acquired by the applicant. 8.At the 1st day of trial, the applicant and the 3rd respondent (“R3”), the 9th respondent (“R9”) and the 13th respondent (“R13”) entered into agreements respectively. Upon their respective applications, leave was granted to R3, R9, and R13 respectively to withdraw their Notices of Opposition and witness statements in the present proceedings and that their subsequent attendance at trial be excused. 9.The following are the 4 remaining groups of live respondents: -
10.R10, R11 and R12 have not filed any Notice of Opposition. They are not missing. Messrs Foo, Leung and Yeung had confirmed that its client had been applying for the grant of Letters of Administration in respect of R10’s estate, but such grant was not yet available as at 14 March 2018 and there was also no application for an appointment to represent the estate of R10 in the present proceedings. R11 and R12 had been informed and served with documents of the application, but they have not responded. 11.R15s are legally represented in the application. Issues for Determination by the Tribunal 12.At trial, Mr Yuen, counsel for R15s, submitted that they primary disputed the Buildings’ existing use value (“EUV”) and the Lots’ redevelopment value (“RDV”) and put the applicant to strict proof in respect of other statutory requirements. 13.Above all, the tribunal is required to determine the following issues under the Ordinance: -
14.Since the applicant has combined 4 applications into one and asked for orders of a combined sale of the Lots in one auction, the reserve price to be set at the RDV of the Lots as a composite site and the respective EUV of all the units in the Buildings to be adopted for the apportionment of the proceeds of sale of the Lots, the tribunal is required to determine whether the applicant’s suggestions are acceptable. Whether the Conditions for Making an Application Under the Ordinance are Satisfied by the Applicant 15.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. Section 3(2)(b) specifies that an application may also cover 2 or more lots, on which one building is connected to another building by a staircase intended for common use by the occupiers of the buildings, and where the average of (A) the percentage of the undivided shares owned by the majority owner in the lot or lots on which one of the buildings stands; and (B) the percentage of the undivided shares owned by the majority owner in the lot or lots on which the other of the buildings stand, is the not less than the percentage specified in section 3(1). 16.As mentioned above, the Buildings were over 50 years’ old when the application was made. The applicable threshold is 80%. I am satisfied that as at the date of application, the applicant had already owned on average more than 80% of the undivided shares in the Lots. In terms of each application that has one building or one pairs of buildings, the applicant had also owned on average more than 80% of the undivided share in the respective lot or lots too. The application was also accompanied by a valuation report, prepared by Mr Wong Chi Wai (“Mr CW Wong”) of Grandmax Surveyors Limited, assessing the EUV of each and every units of the Buildings on vacant possession basis without taking into account of the redevelopment potential of the Lots as at 8 July 2016, which was within 3 months of the application. 17.I agree that the applicant was entitled to make the application under section 3(1) and section 3(2)(b) of the Ordinance. Whether Development of the Lot is Justified Due to “Age” and/or “State of Repair” of the Building 18.In determining the application, section 4(2) of the Ordinance empowers the tribunal to make an order for sale if it is satisfied that: -
19.For the age and state of repair requirements, the applicant adduced expert evidence of Mr Wong Chi Ming (“Mr CM Wong”) of CM Wong & Associates Limited, both a structural engineer and a geotechnical engineer, and Mr Wong Wing Cheung Dennis (“Mr Dennis Wong”) of Prudential Surveyors International Limited, both a building surveyor and a structural engineer. None of the respondents had adduced any expert evidence in this connection. There is no dispute between the applicant and R15s on the question whether redevelopment of the Lots is justified due to the age or state of repair of the Buildings. 20.Mr CM Wong conducted a structural survey of the Buildings and prepared a Structural Assessment Report dated 17 July 2017. Mr Dennis Wong conducted a condition survey and prepared a Condition Survey Report in July 2017. Having considered the evidence of Mr CM Wong and Mr Dennis Wong, I am satisfied that redevelopment of the Buildings is justified due to their poor state of repair and the disproportionate costs of repair and maintenance. Although regular repair could extend the life of the Buildings, repair costs will increase with time. Further, I opine that maintenance can bring about a modest improvement only to the existing condition, and each of the Buildings would remain a sub-standard one. I am also satisfied that redevelopment of the Buildings is justified due to the age of the Buildings. These 61-year old Buildings are in a poor condition and have in fact come to the end of their design life. Their 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 BuildingS 21.Under section 4(1)(a)(i) of the Ordinance, if there is a dispute between the parties on the EUV of the units as assessed in the application, the tribunal has to determine the values. Section 4(1)(a)(ii) further provides that, in the case of any minority owner of the lot who cannot be found, the majority owner of the lot is required to satisfy the tribunal that the value of the minority owner’s property as assessed in the application is: -
22.Although there is no missing owner and 3 out of the 4 groups of live respondents have not made any representations in the present proceedings, R15s disputed the Buildings’ EUV as assessed in the application. R15s relied on the reports and valuations prepared by Mr Wayne WK Lee (“Mr Wayne Lee”) of Wayne Lee & Associates Limited, who was the single joint valuation expert appointed pursuant to the Order made by the tribunal on 5 June 2017. EUV – G/F Shop 23.Although the occupation permit No 17K dated 26 June 1956 granted permission to occupy 1st Pair of Buildings, 2nd Pair of Buildings and 3rd Pair of Buildings for domestic purpose only, it is common ground of the two valuation experts that the EUV of all the units on G/F and M/F in these 3 pairs of buildings should be assessed for commercial purposes respectively in accordance with the approved building plans. Given that the corresponding Government lease is virtually unrestricted subject to the restriction on various trades for offensive uses only, I agree with their assessments in this connection. 24.The two valuation experts had agreed a reference shop unit (i.e. Front Portion on G/F of No 38 Gillies Avenue South) for assessment but they had disagreements on selection of comparables and some of the adjustments to them. Mr CW Wong selected 9 shop comparables and excluded 2 of them after his analyses, whilst Mr Wayne Lee adopted 3 shop comparables that were also analyzed by Mr CW Wong. Although Mr CW Wong had excluded 1 of the 3 common shop comparables (i.e. Comparable ES6[1]), I agree with Mr Wayne Lee that it could be included in the valuation but the adjustment for its location should be reviewed. I also agree to adopt the other 2 common shop comparables (i.e. Comparable ES8[2] and Comparable ES9[3]) and Comparable ES1[4] proposed by Mr CW Wong, of which the dispute on its ambit had been resolved. Further, I agree with Mr Wayne Lee to exclude the 4 shop comparables along Station Lane because they are much smaller in size. 25.The two valuation experts had agreement on adjustments for time, building age, size, headroom and return frontage, but they had disagreement on adjustments for frontage, layout and location. I consider that adjustment for frontage is generally not necessary unless the frontage in consideration is clearly superior or inferior to the norm that the benefits or limitations which the frontage produces are clearly evident. Nevertheless, on balance, I prefer the lesser adjustment rate at 1% per 1-meter difference in frontage proposed by Mr CW Wong. I also agree with Mr CW Wong not to make any adjustment for layout to Comparables ES6, ES8 and ES9 because their respective shapes and depths are no great different from those of the reference shop unit, but I consider that Comparable ES1 should be adjusted at +2.5% to reflect its shorter depth. 26.In terms of location, I agree with Mr CW Wong that lesser downward adjustment should be made to Comparable ES6, but the adjustment rate should be -20%. I also agree with Mr CW Wong that Comparable ES1 where has heavier pedestrian flow too should be adjusted at -15%. On the other hand, although I agree with Mr CW Wong that the location of Comparable ES8 that abuts on Bulkeley Street is relatively better than the location of Comparble ES9 close to the junction between Cook Street and Chatham Road North, I consider that they should be adjusted at +30% and +35% respectively. 27.The valuation of the reference shop unit is listed in Appendix I of the judgment, which is assessed at $370,000 per square meters. 28.In the comparison between the reference shop unit and the other G/F shop units, the two valuation experts agreed that the rear portion should be adjusted at -70% of the reference shop unit rate, but they had disagreement on the adjustments for frontage, layout and location (Unit B on G/F of No 30 Gillies Avenue South only). Similar to the assessment of the reference shop unit, I agree with Mr CW Wong to adopt a lesser adjustment rate for frontage. I also agree with Mr CW Wong to make adjustment for layout at +5% to the sub-divided shops units of No 30 Gillies Avenue South. Each of them has a much shorter depth. Nevertheless, I agree with Mr Wayne Lee to make upward adjustment for layout to G/F of No 75 and No 77 Gillies Avenue South that have shorter depth, but the respective adjustment rates should be +2.5% only. In addition, I also agree with Mr Wayne Lee to make adjustment for location to Unit B on G/F of No 30 Gillies Avenue South at +5%, which is immediately next to a pedestrian crossing. The valuation of all the G/F shops is listed in Appendix II of the judgment. EUV – M/F Office / Shop 29.According to the approved alteration and addition plans, there is an internal staircase connecting G/F and M/F in each of No 42 and No 44 Gillies Avenue South, but the two valuation experts in their respective valuations had considered the internal staircase of No 44 Gillies Avenue South only. Both the applicant and R15s had not explained why the internal staircase of No 42 Gillies Avenue South was ignored in the assessment. Nevertheless, since the applicant being the majority owner owns the G/F and M/F of No 42 Gillies Avenue South and the internal staircase would enhance the value of the M/F thereof, I am of the view that the assessment without consideration of the said internal staircase would not be less than fair and reasonable to the minority owners in the present proceedings and therefore is acceptable. Nevertheless, the conversion factor for the M/F of No 44 Gillies Avenue South that is in dispute should be determined by the tribunal. 30.Mr CW Wong said that M/F of No 44 Gillies Avenue should be assessed at 1/4 (i.e. 25%) of its ground floor unit rate, whereas Mr Wayne Lee adopted a conversion factor of 1/3 (i.e. 33.33%). They had a similar dispute in respect of a RDV shop comparable (i.e. Comparable RS5), but they agreed that 1/F of the hypothetical development, which would be accessible via an exclusive staircase from G/F in addition to common lifts and staircases, could be assessed at 1/3 (i.e. 33.33%). This is a subjective adjustment. I consider that it is reasonable to convert the M/F in this instance, which is accessible via an internal staircase and a common staircase only, at 30% of the ground floor unit rate. 31.In the valuation of other M/F office units, the two valuation experts agreed on the selection of the reference M/F office unit (i.e. Front Portion on M/F of No 38 Gillies Avenue South), the selection of 5 commercial comparables and the adjustments for time, building age, view and provision of lift service. They disagreed on the adjustments for location and size only. Having considered the respective locations and the characteristics of upper floor office in secondary location, I am of the view that lesser downward adjustment for location should be made to the comparables in Lux Theatre Building; greater upward adjustment for location should be made to the comparables in Lai Ming Court, Yee Fai Building and Wah Keung Building; and lesser adjustment at 1% per 10 square meters’ difference should be made for size in this instance, and therefore prefer all the adjustments proposed by Mr CW Wong and the adjusted unit rate at $77,000 per square meters. 32.The valuation of all the M/F units is listed in Appendix III of the judgment. In the comparison between the reference M/F office unit and the other M/F units, I agree with Mr CW Wong on the adjustment for size at 1% per 10 square meters’ difference too, whilst the two valuation experts agreed on the adjustment for internal condition of each unit. EUV – Upper Floor Flat 33.The two valuation experts agreed on the selection of 6 common comparables and all the adjustments to them except the adjustment for size only. Having considered the then market condition, I agree with Mr Wayne Lee to adopt greater downward adjustment for size in this instance at 1% per 5 square meters’ difference, and therefore agree to his proposed adjusted unit rate at $71,000 per square meters too. 34.The valuation of all the upper floor flats is listed in Appendix IV of the judgment. In the comparison between the reference residential unit (i.e. Front Portion on 2/F of No 38 Gillies Avenue South) and the other upper floor residential units, I agree with Mr Wayne Lee on the adjustment for size at 1% per 5 square meters’ difference. I also agree with Mr Wayne Lee that an additional downward adjustment should be made to the flats on top floor, which are susceptible to the adverse effects of heat and water leakage, but I consider that the adjustment rate should be -2% instead of -5% proposed by him. Nevertheless, with reference to the registered floor plan, I agree with Mr CW Wong that nil adjustment for lighting and ventilation should be made to the subdivided Unit A of Front Portion on 5/F of No 42 Gillies Avenue South. EUV Valuation 35.In accordance with the agreements between the two valuation experts and the above determinations, the EUV of all units in each of the buildings and the Buildings as at the relevant date of valuation, i.e. 8 July 2016, are appended below: -
36.The total EUVs of Building 1, 1st Pair of Buildings, 2nd Pair of Buildings and 3rd Pair of Buildings are $165,939,000, $133,672,000, $141,631,000 and $142,240,000 respectively. The total EUV of the Buildings is $583,482,000. Whether the Applicant Has Taken Reasonable Steps 37.The applicant is 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. 38.The applicant had made 4 batches of offers to the then live respondents on 29 July 2017, 30 August 2017, 23 March 2018 and 4 April 2018 respectively. Ms Ngai, counsel for the applicant, submitted that the applicant had taken reasonable steps to acquire the remaining undivided shares of the Lots. She contended that all the prices offered by the applicant are higher than the respective EUV of the live respondents’ units assessed by the two valuation experts, and had reflected the live respondents’ proportionate shares in the RDV of the Lots for joint redevelopment as a composite site. 39.In assessing the reasonableness of the offers, there is the following guidance from Ribeiro PJ of CFA in Capital Well[5]at [33] and [36]:-
40.I consider that the applicant’s offers, which had considered the marriage value of site assembly, had reflected the then RDV attributable to the units and were based on professional valuation, do fall within a range of what may broadly be regarded as fair and reasonable. Although R15s and Mr Wayne Lee disputed on both the EUV and the RDV valuations, there is no evidence before this tribunal that Mr CW Wong’s assessments were faulted. It is a matter of professional judgment and the two valuation experts had different opinion on some valuation issues. In fact, there is no substantial difference between the respective EUV valuations of the two valuation experts. They differed on mainly the RDV valuation, and I determine below a RDV closer to that suggested by Mr CW Wong. 41.I am satisfied that the applicant had taken reasonable steps to acquire all the undivided shares of the Lots. Order for Sale 42.I am satisfied that redevelopment of the Lots is justified in terms of age and state of repair of the Buildings. I am also satisfied that the applicant 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, I agree that an order for sale should be granted in favour of the applicant. Reserve Price for the Auction 43.After a without prejudice meeting, the two valuation experts updated their respective RDV assessments as at 22 March 2018 and 23 March 2018 and prepared a Supplemental Joint Expert Statement dated 4 April 2018. They agreed to value the Lots as a composite site instead of 4 independent sites. They adopted residual method to assess the RDV of the Lots and opined that the optimum redevelopment on the Lots comprised a 23-storey commercial/residential composite development. Before the trial, they had further updated their respective RDV assessments, but they still had different opinions on gross development value (“GDV”), construction costs and construction period. 44.Although the two valuation experts had adopted two different valuation dates, the difference is 1 day only. I consider that this difference is insignificant in valuation, but for ease of reference I adopt the RDV valuation date of 22 March 2018. 45.In the assessment of GDV, the two valuation experts agreed on all areas of the hypothetical development and the conversion factors, but they disagreed on the unit rates of the G/F reference shop and the upper floor reference flat. They also argued whether the G/F reference shop unit rate should be applied directly to all hypothetical G/F shops or each of the hypothetical G/F shops should be assessed individually. GDV – G/F Shop 46.Mr CW Wong adopted 9 shop comparables, and 8 of them were also adopted by Mr Wayne Lee. They argued whether Comparable RS5[6], which was subject to a leaseback arrangement, should be adopted in the assessment. Since the said leaseback had a 3-month fixed term and a 3-month optional term only and Mr CW Wong had explained the relationship between the agreed rent and the then market rent with reference to the then rateable value satisfactorily, I agree to include Comparable RS5 in the analyses. Nevertheless, similar to the EUV valuation, I consider that Comparables RS2, RS6, RS9 and RS10, which are much smaller in size, should be excluded in the assessment. All in all, the other 4 common comparables are Comparables RS1[7], RS3[8], RS4[9] and RS8. Comparable RS8 is named as Comparable ES1 in the EUV assessment. 47.The two valuation experts also disagreed on the conversion factors for 1/F of Comparable RS5. Given that 1/F of Comparable RS5 is accessible via an internal staircase in addition to common lifts and staircases, I consider that the conversion factor of 1/5 proposed by Mr Wayne Lee should not be right. I accept the conversion factor of 1/3 proposed by Mr CW Wong, which is the same as that for the 1/F of the hypothetical development as agreed by the parties. 48.The two valuation experts agreed on the adjustments for size, headroom, time and building age, but disagreed on some of the adjustments for frontage, return frontage, layout and location. 49.Similar to the EUV assessment, I prefer the lesser adjustment rate at 1% per 1-meter difference in frontage proposed by Mr CW Wong. With reference to the depth of the reference shop and the comparables, I agree with Mr CW Wong to make adjustment for layout to Comparables RS1, RS4 and RS8 at -10%, -5% and -5% respectively, but the adjustment rate for Comparable RS3 should be -2.5% closer to that proposed by Mr Wayne Lee. Regarding Comparable RS5, I consider that it should be adjusted at -7.5% only, instead of -10% proposed by Mr CW Wong. 50.Since Comparable RS1 at the junction of Wuhu Street and Dock Street occupies a prominent location, I agree with Mr CW Wong to make adjustment for its return frontage at -20%. The adjustment for return frontage of Comparable RS8 was agreed by the two valuation experts at -10%. 51.Regarding the adjustment for location, the two valuation experts agreed on the adjustment rates at -25% and -15% for Comparables RS3 and RS8 respectively. I agree to the adjustment rates at -40% and +15% for Comparables RS1 and RS4 proposed by Mr CW Wong too. While the location of Comparable RS1 is much better than the location of the reference shop, the location of Comparable RS4 that is located along the main passage to the nearby funeral parlours is not so inferior. Moreover, I consider that the location of Comparable RS5 is inferior to the location of Comparable RS8 and therefore Comparable RS5 should be adjusted at -10% instead of -15% proposed by Mr CW Wong. 52.The valuation of the G/F reference shop is listed in Appendix V of the judgment, which is assessed at $495,000 per square meter. Mr Wayne Lee said that this adjusted unit rate could be adopted as the average unit rate of all G/F shops of the hypothetical development, but Mr CW Wong had made further adjustments to each of the hypothetical G/F shops. Although Mr CW Wong had not prepared a hypothetical G/F layout plan for reference, I agree to his proposed layout of each hypothetical G/F shop and hence also agree with him to value each hypothetical G/F shop individually. The valuation of the hypothetical G/F shops is listed in Appendix VI of the judgement. 53.Except the adjustment for layout, I agree to the adjustment rates proposed by Mr CW Wong, which are basically the same as those in the valuation of the G/F reference shop. Applying the same rationale in the valuation of the G/F reference shop, I consider that the adjustment rates for layout to Units A and B should be revised to +5%, and the adjustment rates to Units F to L should be revised to -2.5%. The average unit rate of all hypothetical G/F shops is about $481,287 per square meter. GDV – Upper Floor Flat 54.The two valuation experts agreed on the selection of comparables (i.e. transactions of Metro6, No 121 Bulkeley Street, from September 2016 only) and all the assessments except the conversion of the top roof area and the adjustments for view and top floor. I agree with Mr CW Wong that top roof is valuable in the current market and accept his proposed conversion factor at 1/8. I also agree with Mr CW Wong that adjustments for view and top floor are not necessary. With the benefit of joint site inspection, I consider that the respective views of Metro6 and the hypothetical development are similar. Both are surrounded by low-rise tenement blocks and some high-rise composite buildings. Further, unlike the top floor in aged tenement block, I agree with Mr CW Wong that top floor in new buildings would have much better thermal and waterproof insulation. I accept that, at least in a newly completed building, no adjustment for top floor is needed in the assessment. 55.I accept all the adjustments proposed by Mr CW Wong and hence also accept his proposed adjusted unit rate at $233,000 per square meters. Details of the assessment are listed in Appendix VII of the judgment. Development Parameters 56.Other than the GDV that is discussed and determined in the above paragraphs, the two valuation experts agreed on most of the development parameters except for construction costs and development period only. I agree with Mr CW Wong that a longer construction period of 30 months is required to build the hypothetical development in the current market. I accept that in view of the current competition for building resources and stringent building control, construction period could hardly be compressed. 57.Nevertheless, I disagree with Mr CW Wong to inflate the construction costs by 10% because of small development scale. I also disagree to his adoption of shopping center costs in the estimation of the construction costs for the commercial podium in the hypothetical development. The hypothetical development has a total plot ratio gross floor area of 11,015.81 square meters. Although the construction costs of the commercial podium and the residential towers could be analyzed individually, it is anticipated that their construction would be covered by a single main contract only. I am of the view that separate assessments of the construction costs for the commercial podium and the residential towers should not affect the total construction costs, and no adjustment for development scale is necessary in this instance. 58.Regarding the construction costs of the commercial podium, I consider that the adoption of shopping center costs at $34,600 per square meters proposed by Mr CW Wong should not be right. The commercial podium of the hypothetical development is not a shopping center. Although Mr CW Wong had also made reference to the reported construction costs of some new buildings to justify his proposed figure, I consider that these data comprised a lot of unknown factors and cannot be simply adopted for analyses. Nevertheless, I consider that the GDV as determined should reflect the scenario that better external facades would be built in the commercial podium, and hence the construction costs at $20,000 per square meters proposed by Mr Wayne Lee appears not to be adequate. All in all, I determine that a total construction costs of $415,000,000, closer to that proposed by Mr Wayne Lee, could be adopted in the residual valuation. RDV of the Lots as at 22 March 2018 59.Following the agreements between the two valuation experts and the above determinations, the residual valuation of the Lots as at 22 March 2018 is listed in Appendix VIII of the judgment. The Lots is assessed at $1,445,000,000, equivalent to an accommodation value of about $131,175 per square meters (i.e. about $12,186 per square feet). Sale of the Lots as a Composite Site 60.Section 4(6)(a)(i) of the Ordinance stipulates that: -
61.Ms Ngai submitted that, in the case First King Ltd v Liu Keng Chor [2016] 3 HKLRD 39, HH Judge KW Wong was correct in holding that the tribunal has a power under s.4(6)(a)(i) of the Ordinance to direct a combined sale of the subjects of different orders for sale in one auction. Nevertheless, she also submitted that HH Judge KW Wong was erroneous to determine in First Kind that when several lots, the subjects of different orders for sale, were sold together as a composite site in one auction, the reserve price were to be set at the aggregate of the RDVs of lots assessed individually notwithstanding that the subject of the auction sale was enlarged into a composite site. 62.Ms Ngai further submitted that it is appropriate and desirable for the tribunal to follow the decision of a differently constituted tribunal in the Cheer Capital[10] case, which had no dispute between the majority owner and the minority owner respondents that the reserve price should be set on a merged site basis. 63.Whether the reserve price should be set on a merged site basis or an aggregate of individual site values of lots basis is arguable. Up to now, there is no decision of a higher court in this regard. However, since there is no missing owner in the present proceedings and both the applicant and R15s had no dispute on this issue, I agree to set the reserve price on a merged site basis too. From valuation viewpoints, value of a merged site, which would release marriage value if any, is generally higher than the aggregate of individual site values of the lots. By looking at the achievable auction price alone, a higher reserve price would not prejudice the interest of the minority owners. APPORTIONMENT OF the sALE pROCEEDS 64.Even though the reserve price is set on a merged site basis, there are questions on apportionment of sale proceeds. Whether the apportionment should base on the respective EUV of all the units in the Buildings, or there should have apportionment firstly based on individual site values and then on respective EUV of the all the units in each building? Whether individual site values should be taken into account if a reserve price on a merged site basis is ordered, or no order on a merged site basis should be granted if individual site values should be considered in the apportionment? 65.The above questions have not been argued in the present proceedings. Both the applicant and R15s agreed to apportion the sale proceeds in accordance with the respective EUV of all the units in the Buildings. Given that there is no dispute on this issue; there is no missing owners; building densities of the respective buildings in the Lots, which are 7-storey Chinese tenement blocks, appear to be similar; and Lot 1 would in any event benefit from its corner position as a Class B site, I agree to apportion the sale proceeds in accordance with the respective EUV of all the units in the Buildings too, which appears not to prejudice the interest of the minority owners in the present proceedings. Order 66.By reason of the above, this tribunal comes to the following decisions: -
Costs 67.Following Good Faith [11], I make a costs order nisi that the applicant do pay costs of these proceedings to the respondents on High Court scale, with certificate for one 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 applicant Mr Billy Ma and Ms Lorraine Tsang, instructed by Li, Kwok & Law, for the 3rd respondent Mr Ross Yuen and Mr Jun Lee, instructed by Philip K Y Lee & Co, for the 9th and 13th respondents; and instructed by King & Co, for the 15th respondents The 10th, 11th and 12th respondents were not represented and did not appear
[1] Unit C103, G/F, Whampoa Building, Bulkeley Street / Ming On Street / Baker Street [2] Unit B, G/F Bulkeley House, 173-177 Bulkeley Street [3] Unit H, G/F, Hing Fat Building, Baker Street / Malacca Street / Cooke Street [4] Unit B, G/F, Wuhu Residence, 111 Wuhu Street [5] Capital Well Ltd v Bond Star Development Ltd (2005) 8 HKCFAR 578, [2005] 4 HKLRD 363 [6] Unit C, G/F & 1/F, Top Growth Court, 123 Wuhu Street [7] G/F, 18 Wuhu Street [8] Units A102 & A103, G/F, Whampoa Building, Bukeley Street / Ming On Street / Baker Street [9] Unit 8, G/F, Wah Lai Mansion, 2 Lo Lung Hang Street [10] LDCS 5000 & 6000 / 2013 (Consolidated) dated 12 June 2015 [11] Good Faith Properties Ltd and Others v Cibean Development Co Ltd [2014] 5 HKLRD 5340 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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