Fairbo Investment Ltd v. Leung Chit, The Person Appointed By Order Dated 22nd November 2017 To Represent the Estate of Leung Tai Cheung also known as Liang Tai Cheung and Liang Chun, Deceased and Another
Read the full judgment text of LDCS 23000/2014 on BabelCite. This LDCS judgment was delivered on 26 July 2018.
1. This is an application for compulsory sale of all the undivided shares of and in section K (“the 1st Lot”), section L (“the 2nd Lot”), section M (“the 3rd Lot”) and section N (“the 4th Lot”) of New Kowloon Inland Lot No 3586 (the 1st Lot, the 2nd Lot, the 3rd Lot and the 4th Lot are collectively referred to as “the Lots”), together with 2 buildings erected thereon known as Nos 21 and 23 Berwick Street (“the 1 st Building”) and Nos 25 and 27 Berwick Street (“the 2nd Building”) (the 1 st Buildi
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LDCS 23000/2014 [2018] HKLdT 57 IN THE LANDS TRIBUNAL OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION LAND COMPULSORY SALE MAIN APPLICATION NO 23000 OF 2014 __________________________
__________________ 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 section K (“the 1st Lot”), section L (“the 2nd Lot”), section M (“the 3rd Lot”) and section N (“the 4th Lot”) of New Kowloon Inland Lot No 3586 (the 1st Lot, the 2nd Lot, the 3rd Lot and the 4th Lot are collectively referred to as “the Lots”), together with 2 buildings erected thereon known as Nos 21 and 23 Berwick Street (“the 1st Building”) and Nos 25 and 27 Berwick Street (“the 2nd Building”) (the 1st Building and the 2nd Building are collectively referred to as “The Buildings”) for the purposes of redevelopment under the Land (Compulsory Sale for Redevelopment) Ordinance, Cap 545 (“the Ordinance”). 2.The 1st Building and the 2nd Building are not connected to each other. They are of 4‑storey and each is served by a common staircase. According to the approved building plans, there are 2 domestic units planned on each floor from Ground Floor (“G/F”) to Third Floor (“3/F”) of each of the 1st Building and the 2nd Building. Notwithstanding that, each of 3/F of No 21 Berwick Street and 3/F of No 25 Berwick Street has been sub‑divided into 3 flats (“the Sub‑divided Units”). Domestic Permit No 142 was issued on 26 April 1952, wherein permission was granted to occupy and use the Buildings for domestic purposes. Nevertheless, units on G/F of the Buildings are occupied as shops. 3.Each of the Lots was allocated 4 undivided shares and each of the originally planned unit was given 1 undivided share, making up a total of 4 undivided shares. Each of the Sub‑divided Units was given 1/3 of 1/4 undivided shares. 4.The applicant filed the Notice of Application (“the NOA”) on 15 December 2014, and was subsequently amended, re‑amended and re‑re‑amended pursuant to Rule 12 of the Lands Tribunal Rules, Cap 17A, and Orders of the tribunal respectively. At the time of filing of the NOA, the Buildings were over 62 years old, and the applicant owned on average 87.50% (i.e. 3 out of the total 4 undivided shares of section K and all undivided shares of section L) of the 1st Lot and the 2nd Lot (i.e. the 1st Building), and on average 97.92% (i.e. 3 and 2.5/3 out of the total 4 undivided shares of section M and all the undivided shares of section N) of the 3rd Lot and the 4th Lot (i.e. the 2nd Building). 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. 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 Buildings were issued in 1952, i.e. more than 50 years before the date of application (i.e. 15 December 2014), the applicable percentage is therefore 80%. Respondents Remaining 6.The following are the 2 remaining live respondents: -
7.R1 filed the Notice of Opposition on 16 January 2018. Although R1 disputed the value of some or all units as assessed in the application, R1 expressed that R1 was not prepared to adduce valuation evidence to dispute the assessments in the valuation report annexed to the application provided that such assessments are accepted by the tribunal to be fair and reasonable and R1 did not dispute the condition of the Buildings too. R1 had also confirmed at the pre‑trial review that attendance of R1 at trial be excused, but solicitor for R1, Mr Vincent Chan, appeared at trial and newly raised that he would cross‑examine the valuer appointed by the applicant on the percentage of profit adopted in the residual valuation. 8.In HCA 2237 of 2011 which was commenced by one Ma Weineng against R2, it was ordered on 14 May 2013 that R2 had lost his right to bring any action to recover his shares of interest in the R2’s Property and that his title had been extinguished in favour of Ma Weineng by virtue of section 17 of the Limitation Ordinance, Cap 347, and further that Ma Weineng had acquired all the rights and interest in the R2’s property (“the adverse possession order”). Thereafter, by an assignment dated 30 August 2013, the applicant acquired the title and interest of Ma Weineng in the R2’s Property granted to him under the adverse possession order. In the circumstances, the possessory title in respect of the R2’s Property had been assigned to the applicant who became the equitable owner. Notwithstanding that, R2 remains the paper title owner of the R2’s Property and continues to be named as party in the present proceedings. ISSUES FOR DETERMINATION BY THE TRIBUNAL 9.Above all, the tribunal is required to determine the following issues under the Ordinance: -
10.Since the applicant has combined the 1st Building and the 2nd Building in one application 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 11.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 not less than the percentage specified in section 3(1). 12.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 building, the applicant had also owned on average more than 80% of the undivided share in the respective lots. The application was also accompanied by a valuation report, prepared by Mr Charles CK Chan (“Mr Charles Chan”) of Savills Valuation and Professional Services Limited (“Savills”), 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 22 September 2014 (“Application Report”), which was within 3 months of the application. 13.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 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 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 Sai Ning Benson (“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 applicant and R1 on the question whether redevelopment of the Lots is justified due to the age or state of repair of the Buildings. 16.Mr CM Wong conducted a structural survey of the Buildings and prepared a Structural Assessment Report dated 10 April 2018. Mr Benson Wong conducted a condition survey and prepared a Condition Survey Report dated 13 April 2018. Having considered the evidence of Mr CM Wong and Mr Benson 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 66‑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 17.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: -
18.R1 did not file any expert evidence disputing the EUV valuation as assessed by Mr Charles Chan. As stated in the Notice of Opposition, R1 simply puts the applicant to strict proof. R2 is a paper title owner only. The applicant had already acquired the possessory title of the R2’s Property on 30 August 2013. In any event, service of documents in the present proceedings on R2 has been dispensed with pursuant to the Order made by the tribunal on 29 January 2018. Notwithstanding that, I agree with Ms Lan, counsel for the applicant, that the tribunal is under a duty to review the EUV proposed by the applicant.[1] 19.In the Application Report, Mr Charles Chan explained the direct comparison method he adopted and the process of his assessment to arrive at the EUV of each unit of the Buildings. After the Application Report was filed, he had prepared a supplemental report on 12 April 2018 (“Supplemental Report”) in which he revised the EUV of all the units in the Buildings as at 22 September 2014. In the Supplemental Report, he had taken into consideration of the confirmed property indices and 2 additional domestic comparables. He had also taken away the costs for converting the G/F units from domestic use into shop uses. 20.Mr Charles Chan noted that notwithstanding the designated domestic use of the G/F units, they were occupied as shops. He considered that conversion of the G/F units to shops would likely be approved by the Building Authority upon submission of necessary plans for addition and alteration works and therefore assessed the G/F units as shops. He further rectified in the Supplemental Report that, based on the principle of “market realities should dictate”[2], it is not necessary to allow such conversion costs in the valuation. I agree. 21.Mr Charles Chan valued the reference shop unit (i.e. G/F of No 21 Berwick Street) at $315,000 per square meters and the reference domestic unit (i.e. 2/F of No 21 Berwick Street) at $57,900 per square meter. He then compared the reference units with the other units in the Buildings and assessed the EUV of all units in the Buildings at $155,330,000. EUV Valuation 22.I accept the EUV assessed by Mr Charles Chan in the Supplemental Report and am satisfied that the value of the units owned by the respondents are not less than fair and reasonable and not less than fair and reasonable when compared to the value of the applicant’s properties. The EUV of all units in each building and the Buildings as at the relevant date of valuation, i.e. 22 September 2014, are appended below: -
23.The total EUVs of the 1st Building and the 2nd Building are $76,340,000 and $78,990,000 respectively. The total EUV of the Buildings is $155,330,000. WHETHER THE APPLICANT HAS TAKEN REASONABLE STEPS 24.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. 25.The applicant had made 2 offers to R1 and R2 on 12 April 2018 and 12 June 2018 respectively. Given that R2 is a paper title owner, the applicant offered a nominal sum at $1,000 only to acquire the R2’s Property in both offers. Although Order for substituted service had been made by the tribunal on 29 January 2018, the applicant continued to send both offers to the R2’s Property. Whilst, the applicant’s offers to R1 on 12 April 2018 and 12 June 2018 were $11,376,000 and $11,736,000 respectively. Ms Lan submitted that all the prices offered by the applicant to R1 had reflected the R1’s proportionate shares in the RDV of the Lots, which were then assessed by Savills. She further submitted that the applicant had taken reasonable steps to acquire the remaining undivided shares of the Lots. 26.In assessing the reasonableness of the offers, there is the following guidance from Ribeiro PJ of CFA in Capital Well[3]at [33] and [36]:-
27.I consider that the applicant’s offers to R1, which had considered the marriage value of site assembly of the Lots, 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 Mr Vincent Chan appeared to dispute about the RDV valuations at trial and my determination of the RDV as at 7 June 2018 below is higher than Mr Charles Chan’s assessment, there is no evidence before this tribunal that Mr Charles Chan had deliberately made any mistake in his assessments and there is also not much difference between the tribunal’s determination and his valuation. 28.On the other hand, since R2 is a paper title owner only, his right and interest in the R2’s Property had been acquired under the adverse possession order and there was Order for substituted service, apparently no offer to purchase could have reached R2 and it could never be successful in acquiring the paper title in the R2’s Property by negotiation. Hence, it is unnecessary for the tribunal to determine whether the applicant’s offers to R2 at $1,000 is or is not reasonable. 29.I am satisfied that the applicant had taken reasonable steps to acquire all the undivided shares of the Lots. ORDER FOR SALE 30.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 31.Mr Charles Chan adopted residual method to assess the RDV of the Lots as a composite site instead of 2 independent sites as at 7 June 2018 at $392,000,000. He said that he had also attempted to apply direct comparison method to assess the RDV of the Lots, but no relevant comparable was identified. 32.Mr Charles Chan opined that the optimum development on the Lots comprised a 25‑storey commercial / residential composite building with retail shops on ground floor, clubhouse and plant room on 1st floor and residential units on 2nd floor to 24th floor. Details of the hypothetical development with the proposed gross floor area of 3,868.3 square meters and plot ratio of about 8.4375, the GDV assessed (i.e. $358,000 per square meter saleable area for shop on ground floor and an average $242,000 per square meter saleable area for residential units on upper floors), the development costs adopted (i.e. an average $44,585 per square meter gross floor area) and the residual valuation were set out in his RDV report dated 11 June 2018. 33.In the pre‑trial review hearing on 6 June 2018, I have raised my concern over the percentage of profit at 15% adopted in Mr Charles Chan’s residual valuation as at 9 April 2018. In the subsequent review, Mr Charles Chan continued to adopt a percentage of profit at 15% in his residual valuation as at 7 June 2018. He explained at trial that he had already considered a number of factors including the then common practice adopted by valuers in the market, size and location of the Lots, potential of and competition among developers in the subject district and etc. and adoption of 15% was his personal judgment. He had not provided any quantitative analysis to support his opinion. Although he maintained his view that percentage of profit at 15% was reasonable, he replied to the tribunal that he could not say that percentage of profit at say 10% was unreasonable. 34.Mr Vincent Chan had just asked a general question requesting Mr Charles Chan to tell the tribunal on what basis that he adopted the percentage of profit at 15% in the residual valuation, which in fact had been raised by the tribunal in the pre‑trial review hearing and had already been covered in the examination-in-chief. I consider that the presence of Mr Vincent Chan at trial could not provide any assistance to the tribunal. 35.Ms Lan submitted that the tribunal is not required to conduct a rigorous RDV assessments when fixing the reserve price, and in the absence of evidence to the contrary she asked the tribunal to accept Mr Charles Chan’s valuation. With respect, I disagree with both Mr Charles Chan and Ms Lan in this regard. I consider that the usual percentage of profit adopted by valuer in residual valuation for modification of government lease as mentioned by Mr Charles Chan at trial is irrelevant at all. In the current competitive market for development sites, if the GDV in the residual valuation is assessed at current value, I consider that the percentage of profit at 15% should not be right and 10% appeared to be much more reasonable in the subject residual valuation. Further, although there is valuation evidence of Mr Charles Chan only in the present proceedings and Ms Lan did not name R2 as a missing owner, I consider that similar to the EUV valuation the tribunal is also under a duty to review the RDV proposed by the applicant. In any event, R1 appeared to dispute at trial the RDV proposed by the applicant. 36.Bearing in mind all the factors, including the current competitive market for development sites, and parameters in the subject model of residual valuation that assesses GDV at current value, I consider that adoption of percentage of profit at 10%, instead of 15% proposed by Mr Charles Chan, is fair and reasonable. 37.I accept the other figures and parameters adopted by Mr Charles Chan in his RDV valuation. Accordingly, the residual land value is determined by the tribunal at $418,000,000. The residual valuation is listed in Appendix of the judgment. RDV of the Lots as at 7 June 2018 38.RDV of the Lots is determined at $418,000,000, equivalent to an accommodation value of about $108,058 per square meter (i.e. about $10,039 per square foot). Sale of the Lots as a Composite Site 39.In a recently decided land compulsory sale case Asia Charming Limited v Kar Shing Capital Resources Ltd and Others[4], I have stated in the judgement that whether the reserve price should be set on a merged site basis or an aggregate of individual site values of lots basis is arguable, but I finally agreed in Asia Charming to set the reserve price on a merged site basis because of its specific circumstances. In the present proceedings, the applicant also asked for sale of the Lots on a merged site basis, whilst R1 had no dispute on this issue. 40.I consider that this case is similar to Asia Charming. Since both the applicant and R1 had no dispute on this issue and R2 is a paper title owner only, I agree to set the reserve price on a merged site basis too. I maintain my view that 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 generally not prejudice interest of minority owners. Hence, the RDV as determined at $418,000,000 on a merged site basis should be the reserve price for the auction of the Lots. APPORTIONMENT OF THE SALE PROCEEDS 41.The applicant asked for the respective EUV of all the units in the Buildings as determined by the tribunal be adopted for apportionment of the proceeds of sale of the Lots. Similar to Asia Charming, there is no dispute between the applicant and the respondents on this issue in the present proceedings. In any event, even if R2 is a missing owner, he is a paper title owner only, and the building densities of the two buildings on the Lots, which are both 4‑storey tenement blocks, are similar too. 42.I agree to apportion the sale proceeds in accordance with the respective EUV of all the units in the Buildings, which appears not to prejudice interest of the minority owners. Order 43.By reason of the above, this tribunal comes to the following decisions: -
COSTS 44.Ms Lan submitted that, following Good Faith [5], the applicant would not oppose to pay the R1’s costs of the present proceedings on High Court scale except for the R1’s costs of attending the trial on 5 July 2018. Ms Lan contended that R1 had not asked for leave to attend the trial after the tribunal ordered at the pre-trial review that his attendance at trial be excused, which was agreed by R1. In fact, R1 was legally represented by the same solicitor at both the pre‑trial review and the trial and hence there should have no misunderstanding. Further, R1 had just asked a general question about development profit only, which in any event would be discussed at trial, because the tribunal had already raised at the pre‑trial review the concern on this issue. She said that the attendance of R1 at trial could not assist the tribunal at all. I agree. 45.I make a costs order nisi that, except for the R1’s costs of attending the trial on 5 July 2018, the applicant do pay costs of the present proceedings to the respondents on High Court scale, 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 Gekko Lan, instructed by Lo & Lo, for the applicant Mr Vincent Chan, of Lee Chan Cheng, for the 1st respondent The 2nd respondent was not represented and did not appear
[1] Main Light Ltd v Tim Richie Investment Ltd, LDCS 3000/2013, dated 31 October 2014, unreported, §12 [2] Cheer Capital Ltd v Unibase Investment Ltd & Others, LDCS 5000 & 6000/2013, dated 12 June 2015, unreported, §51 & §56 [3] Capital Well Ltd v Bond Star Development Ltd (2005) 8 HKCFAR 578, [2005] 4 HKLRD 363 [4] LDCS 5000/2016, [2018] HKLdT 44, 13 June 2018, §§60-63 [5] Good Faith Properties Ltd and Others v Cibean Development Co Ltd [2014] 5 HKLRD 5340 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cases cited in this judgment
Further hearings and rulings under LDCS 23000/2014