Billtech Ltd and Others v. Director of Lands
Read the full judgment text of LDLR 1/2011 on BabelCite. This Lands Tribunal judgment was delivered on 15 January 2019.
1. This is an application by the applicants for determination of compensation pursuant to the Lands Resumption Ordinance, Cap 124 (“the Ordinance”).
Cites 6 cases
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LDLR 1/2011 [2019] HKLdT 3 IN THE LANDS TRIBUNAL OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION LANDS RESUMPTION APPLICATION NO 1 OF 2011 _________________
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_________________ J U D G M E N T _________________ A. BACKGROUND 1.This is an application by the applicants for determination of compensation pursuant to the Lands Resumption Ordinance, Cap 124 (“the Ordinance”). 2.The applicants are the former registered owners of 7 pieces of land known as Nos 1 to 10 Yu Lok Lane, and registered in the Land Registry as the Remaining Portion of section D of Inland Lot No 683, sub-section 1 of section D of Inland Lot No 683, the Remaining Portion of section E of Inland Lot No 683, sub-section 2 of section E of Inland Lot No 683, sub-section 1 of section E of Inland Lot No 683, Inland Lot No 4051 and Inland Lot No 4052 (“the Lots”). 3.By a notice of resumption dated 23 December 2008 and published in G.N. 204, the Government informed the applicants that the Lots would be resumed and reverted to the Government for implementation of Development Scheme SYP/1/001 by the Urban Renewal Authority at Yu Lok Lane / Centre Street, Sai Ying Pun, Hong Kong on the expiration of 3 months from the date of affixing of the notice. The notice of resumption was affixed to the Lots on 9 January 2009. Thus, upon expiration of the 3‑month notice period, reversion took place at midnight on 9 April 2009. 4.At the hearing, the applicants and the respondent had no dispute that the basis of compensation in the present proceedings should be the market value of the Lots as at the date of resumption, i.e. 9 April 2009, and the Lots should be assessed as a whole on a joint development basis. Since no relevant site comparable could be identified for direct comparison, they also agreed to adopt residual valuation method in the assessment. 5.The parties have also agreed that the Lots were a Class B site, and after deduction of a right of way had a total net site area of 455.94 square meters. However, they had different views of the development potential. The major disputes involve whether car parking spaces could be built upon development, and whether gross floor areas (“GFA”) for the provision of car parking spaces if any could be exempted from plot ratio calculation. 6.Mr Lam, counsel for the respondent, argued that: -
7.Mr Mok, counsel for the applicants, on the other hand, suggested that the Prohibited Zone was not lawfully imposed. Even if the Prohibited Zone was lawful, it could be deleted or modified to enable the relevant section of Centre Street to be reopened for vehicular traffic, and hence section 12(c) of the Ordinance is not engaged to affect the intrinsic nature of whether the Lots upon development was entitled to incorporate car parking levels. Further, the exemption of the GFA of the car parking levels should also not be caught by section 12(c) of the Ordinance, because it is no different from the other decisions of the Building Authority (“BA”) such as the determination of the BA on the plot ratio of unclassified site and the granting of bonus plot ratio by the BA, which were determined by CFA in Director of Lands v Yin Shuen Enterprises Ltd & Another (2003) 6 HKCFAR 1. 8.The issues remain to be determined by the Tribunal are summarized as follows: -
9.The applicants submitted that the compensation based on the applicants’ principal valuation should be $321,640,000, whereas the applicants have also proposed 4 fall-back scenarios at the value from 234,850,000 to $313,060,000. Whilst, the respondent submitted that the compensation was assessed at $135,751,000 only. B. THE EVIDENCE 10.The parties had produced the following traffic expert report and statement: -
11.In respect of valuation, the parties had produced the following valuation expert reports and documents: -
12.The valuation experts had prepared 1st Joint Expert Statement of Agreement/Disagreement dated 5 May 2017 and 2nd Joint Expert Statement of Agreement/Disagreement dated 30 July 2018. The parties together with their experts and we have also inspected the Lots and the comparables externally on 10 September 2018. C. WHETHER THE PROHIBITED ZONE WAS LAWFULLY DESIGNATED 13.It is undisputed that, at the date of resumption, traffic signs and barriers were erected to prohibit the access and egress of all motor traffic to or from the Prohibited Zone. According to the TD, the Prohibited Zone was designated as such under reg. 14(1)(a) of the Road Traffic (Traffic Control) Regulations Cap. 374G (“the Regulations”), which provides that the Commissioner for Transport may, by notice in the gazette, designate any area as a prohibited zone. 14.Reg. 14(2) of the Regulations further provides that a designation under reg. 14(1)(a) may, absolutely, on specified days, during specified hours in any day, or during specified hours in any specified days, prohibit the driving of any motor vehicle or any specified class or description of motor vehicle on any road within the prohibited zone. 15.The gazette documents pertaining to the Prohibited Zone however cannot be found in the TD’s current file records. The respondent explained that pursuant to the letter from the TD dated 17 June 2016[1], it is the TD’s departmental practice to keep file records for the past 10 years only. 16.According to Ms Mak’s statement, the earliest set of digital traffic aid drawings that the TD keeps, and which shows the pair of traffic signs designating the Prohibited Zone as such, was dated 6 January 2000. Ms Mak informed the Tribunal at trial that the year of 2000 was the time when traffic aid drawings first became digitalized. After she had tried to go through older hard copies of drawings dated before 2000, she was able to discern the pair of prohibited zone traffic signs in question in those older drawings, but she was unable to find the date when the Prohibited Zone was first designated. She also could not recall the date of the earliest traffic aid drawing that she looked into and which showed the traffic signs in question. 17.In §3(1)(b) of her statement, Ms Mak gave details of the prevailing administrative procedure under which traffic signs pertaining to the designation of a prohibited zone find their way into the traffic aid drawings. Mr Lam submitted that there is a proper procedure in place to ensure that a prohibited zone is properly gazetted before the relevant traffic signs are recorded in a traffic aid drawing and that there is no evidence to suggest that the procedure was not adhered to by the officers concerned. 18.The Vehicles and Traffic Regulation (promulgated under the Traffic Regulation Ordinance 1912) (published vide Government gazette dated 19 July 1935) (“1935 Regulation”) reveals that[2], as early as in 1935, Centre Street, in between Bonham Road and Queen’s Road West, had been closed to motor traffic and that a driver was not allowed to drive or place his vehicle on that section of Centre Street except with the permission in writing of the Inspector General of Police[3]. The reason for closing this part of Centre Street seems to be unknown. 19.Mr Lam fairly accepted that it cannot be traced as to how and when the section of Centre Street as between Second Street and Queen’s Road West, as well as the junction areas of Centre Street with High Street and Third Street, now become open to traffic. However, he submitted that although, due to the passage of time, no direct relation can be traced between the 1935 Regulation and the Prohibited Zone as it now is (and therefore the 1935 Regulation cannot be direct evidence of proper designation of the Prohibited Zone), the 1935 Regulation does provide historical background which suggests that the closure of the section of Centre Street as between High Street and Third Street has a long history. 20.In the circumstances, Mr Lam submitted that although no primary evidence is provided, there is sufficient secondary evidence to prove, at least on a balance of probabilities, that the Prohibited Zone was properly designated. 21.On the other hand, Mr Mok submitted that the Prohibited Zone has never been validly imposed by a gazette notice under reg. 14 of the Regulations: -
22.To start with, as it is the respondent who opposes the provision of the car parking spaces in the hypothetical development model by raising the existence of the Prohibited Zone, the respondent has the burden to prove that it was lawfully designated under reg. 14 of the Regulations. 23.Secondly, it is the respondent’s stance that the Commissioner for Transport did publish a notice in the gazette to designate the area in question as a prohibited zone pursuant to reg. 14(1)(a) of the Regulations, instead of the other authority pursuant to any other legislation. Nonetheless, the record of such notice in the gazette may be destructed or cannot be located for some reasons. 24.Based on the evidence given by Ms Mak including her written statement, she did not have the personal knowledge that the Commissioner for Transport did publish a notice in the gazette to designate the area in question as a prohibited zone under reg. 14(1)(a) of the Regulations. Taking her evidence to the highest, she just genuinely believes that the Commissioner for Transport should have published such a notice in the gazette and that such notice should have been destructed due to the departmental practice. 25.According to the 1935 Regulation, as early as 1935, the then Governor in Executive Council issued a notice in the gazette in exercise of the powers conferred by section 3 of the Vehicles and Traffic Regulation Ordinance, 1912 that Centre Street, in between Bonham Road and Queen’s Road West, was closed to motor traffic. Subsequently, for unknown reasons, the section of Centre Street as between Second Street and Queen’s Road West, as well as the junction areas of Centre Street with High Street and Third Street, became open to traffic. Indeed, no document is provided to the Tribunal to prove such opening. Further no one including Ms Mak can tell as to why, how and when it happened. 26.The Tribunal has great reservation on the genuine belief of Ms Mak that the Commissioner for Transport should have published a notice in the gazette to designate the area in question as a prohibited zone under reg. 14(1)(a) of the Regulations. Her such belief may not be correct since there may be some other authorities, like the Governor in Executive Council who may have power under certain legislations in force at the material times (at least from 1912 to 1935) to open or close Centre Street or certain parts thereof before the enactment of the Regulations. 27.Mr Lam failed to address the Tribunal as to when the Vehicles and Traffic Regulation Ordinance, 1912 has been repealed and then it may be replaced by another legislation, like the Regulations. The Tribunal is in complete darkness as to who has the authority to open and close the roads before the enactment of the Regulations. 28.Ms Mak said in her statement that one of the prevailing administrative procedures for designation of a prohibited zone is to publish the gazette on the Government Logistics Department’s website and the TD’s website. As there is no evidence regarding the date of set up of the 2 websites and Ms Mak has no idea as to the date of publishing the relevant gazette notice concerning the Prohibited Zone, the Tribunal has great doubt as to whether the said prevailing administrative procedures are applicable or there were any administrative procedures at the time when the Commissioner for Transport was said to publish such a notice in the gazette as what Ms Mak believed. 29.Ms Mak mainly relied on the traffic aid drawings which shows the pair of traffic signs designating the Prohibited Zone, dated 6 January 2000. Therefore, she believes that the Prohibited Zone was properly designated before 6 January 2000. Ms Mak only started to work in the TD since 2009 and the traffic aid drawings were updated manually by hand before 2000. In our view, it is always possible for the officers who manually updated or counterchecked the said drawings might make mistakes. The Tribunal is unable to put much weight on her evidence in this regard. Accordingly, the Tribunal comes to the conclusion that the traffic aid drawings are insufficient evidence to support her such belief. 30.Mr Lam relied on the presumption of regularity and cited Silver Mountain Investments Ltd and Another v Attorney General and Another[4], in which Nazareth JA said:
31.The Tribunal is of the view that as Silver Mountain Investments’ case concerns the judicial review for quashing the resumption orders made by the Governor in Council, the presumption of regularity is only applicable in its specific context but not in the present case where the burden of proof rests on the respondent. Further, the other two judges of the Court of Appeal in this case had not expressed any opinion on the presumption of regularity and dismissed the appeal on different grounds. 32.If the presumption of regularity applies in the present case, the Tribunal considers that it will indirectly shift the burden of proof to the applicants to show that the Commissioner for Transport did not publish a notice in the gazette under reg. 14(1)(a) of the Regulations. It is unfair and unduly harsh to the applicants. 33.Besides, Ms Mak said in her statement that according to the internal practice of record keeping (within government departments), file records would be disposed after a certain reasonable period of time and the file records for the Centre Street issues kept by the TD at that moment (i.e. 22 February 2017) was back to 18 December 2002 (i.e. more than 14 years). All file records dated earlier than 18 December 2002 were destructed after obtaining the consent from the Government Record Service Director. That is to say, the file records can indeed be kept more than 10 years which is contrary to the letter from the TD dated 17 June 2016 saying the practice to keep file for the past 10 years only. Besides, there is no mention in the said letter that the requisite consent from the Government Record Service Director has to be granted before destruction. 34.As Ms Mak agreed that the relevant gazette notice concerning the Prohibited Zone is a very important document, the Tribunal can see no reason why it should not or could not be kept in the TD’s files even there is an internal departmental practice to keep file records for the past 10 years only, especially in the case when the police may have to prosecute someone who drive or park the car inside the Prohibited Zone. 35.Ms Mak also gave evidence that the Government Supplies Department should have kept records of the issuance and date of the gazette notice but she did not expressly say that the similar departmental practice is also applicable to the Government Supplies Department. She simply answered that she did try the effort to locate the record in another department but did not know from when she should start to look for. At the end, she was unable to find the record. The relevant transcript of the questions of Mr Mok and answers of Ms Mak is as follows: -
36.In our view, Ms Mak was uncertain if the Government Supplies Department may still keep the records. The respondent should have no difficulty to call a relevant officer of the Government Supplies Department to give direct evidence in this regard and no reason is given for her failure to do so. 37.To conclude, the Tribunal is not satisfied that on a balance of probabilities, the respondent has discharged its burden of proof on this issue. Hence, the respondent fails to prove that the Prohibited Zone was lawfully designated pursuant to the Regulations. The Tribunal considers that the building of car park spaces in the hypothetical development is as of right. D. WHETHER SECTION 12(c) APPLIES TO THE PROHIBITED ZONE 38.In case the Prohibited Zone was lawfully designated, it is necessary for the Tribunal to decide whether section 12(c) of the Ordinance applies. 39.Section 12(c) of the Ordinance provides that:
40.The leading authority on section12(c) is the case of Director of Lands v Yin Shuen Enterprises Ltd. & Another[5], in which Lord Millett, giving the judgment of the CFA, commented on the width of this section and recognised that there are limitations to the operation of section 12(c). The learned judge said in §33: -
41.Lord Millett then gave examples of what licence etc did not affect the intrinsic value of the land, by reference to the previous decided cases. In Ching Chun Kau v Director of Lands and Survey[6], the land in question was the subject of a Crown lease which restricted its use to use for the purpose of a dairy farm. This required a licence issued by the Director of Agriculture and Fisheries. Lord Millett in approving the Court of Appeal’s decision in that case which section12(c) had no application in relation to the likelihood of the diary licence being renewed by the Director disagreed the Court of Appeal's identification of the dairy licence as an "administrative licence" and said as follows: -
42.Lord Millett then discussed the case of Niceboard Development Ltd v China Light & Power Co Ltd[7], in which the claimant’s land was found to be a building land (as opposed to an agricultural land), but it was subject to a building covenant (as opposed to a user covenant) which imposed a requirement to obtain the approval of the Crown’s surveyor for the erection of any building or structure on the land: -
43.Lord Millett also discussed the case of Million-Add Development Ltd v Secretary for Transport[8], which was concerned with the availability of bonus plot ratio. The Lands Tribunal’s decision was approved on the ground that what was involved in that case was the probability or expectancy of the Government accepting a surrender of the claimant’s interest in part of the land, not the grant of any licence, permit or permission. The learned judge said in paras. 46 and 48: -
44.Mr Mok opposed the engagement of section 12(c) in respect of the Prohibited Zone and invited the Tribunal to bear in mind the following factual context: -
45.Mr Lam submitted that in the present case, the viability of the building of a carpark in the applicants’ hypothetical development hinges on the grant of a permit or permission by the TD for the access or egress to or from the hypothetical development if the Prohibited Zone was lawfully designated. It is not personal to any particular claimant, and it is not something that can be obtained by complying with certain requirements (as in the case of building approval). It is a matter that affects the value of the land, and falls squarely within section 12(c). It is no different from the situation where access to a piece of land is dependent upon a right of way over neighbouring land. The absence or presence of the right of way must affect the value of the land 46.Regarding the “speculative element”, Mr Lam submitted that “speculative element” is thus not an additional element to be present before section 12(c) is engaged. It is merely a term descriptive of the excess value that purchasers were willing to pay in the hope that certain licence, permit etc would be granted. In the later CFA case of Dragon House Investment Ltd & Another v Secretary for Transport & Another[9], Lord Millett remarked:-
47.In our view, as reg. 14(2) of the Regulations is a "may" provision, the decision of the TD on whether to modify or delete the Prohibited Zone must be a discretionary one which is not equivalent to the grant of a licence, permit or permission by the TD for the access or egress to or from the hypothetical development. Similar to Million-Add Development’s case, the TD’s decision in the present case involves discretion to modify or delete the Prohibited Zone, which will not affect the intrinsic value of the Lots. The applicants are not seeking any licence, permit or permission from the TD. Even if the TD refuses to exercise its discretion to modify or delete the Prohibited Zone, theoretically the BA can still approve the provision of carpark levels in the hypothetical development although it may not be practically and commercially sensible. 48.Further as said in Million-Add Development’s case, section 12(c) is concerned with the probability or expectancy of the grant of a licence, permit or permission for the claimant to do something on the land in question (as opposed to outside the land). However, the TD’s decision to modify or delete the Prohibited Zone is not to do something on the Lots but on certain part of Centre Street. The Tribunal therefore accepts the submission of Mr Mok that the Lots are unrestricted leases of building land and that car parking levels may be constructed as of right. Section 12(c) is not engaged. E. WHETHER THE TD IS LIKELY TO DELETE OR MODIFY THE PROHIBITED ZONE 49.For the sake of completeness, in the event that the Prohibited Zone is lawful but section 12(c) is not engaged, the Tribunal has to decide whether the TD is likely to delete or modify to enable the relevant section of Centre Street to be reopened for vehicular traffic. 50.Mr Lam submitted that the applicants has failed to satisfy the Tribunal that, on a balance of probabilities, the Prohibited Zone would be cancelled or modified by the TD. 51.On the other hand, Mr Mok submitted that even if the Prohibited Zone is not deleted, it should be modified, at the very least, that special permits should be issued for the 17 car parking spaces of the proposed hypothetical development and that temporary construction permits should be issued to enable vehicular access to the Lots for the construction works during the development period. 52.Mr Mok relied on the changes of traffic arrangement at Tai Yuen Street, Wanchai, in 2001 and 2008 to demonstrate the general approach of the TD to respect land owners’ right and to be willing to make changes to local traffic arrangements to allow the land owners of buildings without car parks to construct car parking facilities when redeveloping their lots, provided traffic safety can be properly managed. 53.Based on Ms Mak’s evidence, the Tribunal considers that whether or not a prohibited zone would be cancelled or modified by the TD is determined on a case-by-case basis and that situations in other areas, such as Tai Yuen Street, offer very little assistance. 54.As a whole, Ms Mak’s evidence concerning this issue is briefly as follows: -
55.The Tribunal is of view that the information and justification provided by the applicants fails to demonstrate that there is a strong need for changing the existing traffic management situation of the Prohibited Zone. The main reason for its deletion or modification is simply to accommodate the building of the 17 car parking spaces in the hypothetical development but nothing else. If the view of local residents is consulted, the Tribunal cannot see how they will support the proposed deletion or modification as they have got used to the present situation and would not be benefitted from the change. Accordingly, the applicants fail to prove that the TD is likely to delete the Prohibited Zone to enable the relevant section of Centre Street to be reopened for vehicular traffic. 56.As to the modification of the Prohibited Zone by issuing special permits for the 17 car parking spaces, the Tribunal considers that there will be an addition problem for execution by the police in case other vehicles are unlawfully driven in the zone without permit. Hence, the Tribunal also concludes that the TD is unlikely to modify the Prohibited Zone by issuing the special permits. 57.As Ms Mak confirmed that the TD may grant temporary construction permits to enable vehicular access during the redevelopment of the hypothetical development, the Tribunal considers that this kind of permit is temporary in nature and is likely to be granted by the TD for construction purpose only. F. WHETHER S.12(c) IS ENGAGED IN THE EXEMPTION OF THE GFA OF THE CAR PARKING LEVELS 58.Mr Lam submitted that obtaining of permission from the BA that the carpark area be exempted from the GFA calculations under reg. 23(3) of the B(P)R is also caught by section 12(c). Reg. 23(3) provides that: -
59.Mr Lam contended that Mr Chan has simply assumed in his valuation (without any explanation whatsoever) that the discretion would be exercised by the BA in his client’s favour. 60.Nonetheless, it was confirmed by Mr Lai during cross-examination that he would have provided for the car parking levels if not for the Prohibited Zone. Mr Mok submitted that there is no disagreement between the two valuation experts that it is proper to incorporate the car parking levels (which would be GFA exempted) in their hypothetical developments in the event the Tribunal rules that the Prohibited Zone had not been lawfully imposed. In any event, there is no evidence from both parties on what is the practice of the BA when making decisions on such exemption. 61.As rightly submitted by Mr Mok, reg. 23(3)(b) of the B(P)R is a "may" provision and the decision of the BA is a discretionary one which is not equivalent to the grant of a licence, permit or permission. As said in Yin Shuen’s case, the granting of bonus plot ratio by the BA under reg. 22 of the B(P)R does not engage section 12(c). The Tribunal considers that the GFA exemption under reg. 23(3)(b) of the B(P)R should equally not be caught by section 12(c). G. WHAT PRICE WOULD A PRUDENT PURCHASER IN THE OPEN MARKET PAY 62.Mr Lam submitted that even if section 12(c) is to be disregarded, the Tribunal has to determine how a prudent purchaser in the open market would assess the situation and what price he would pay for the Lots. He argued that what would be awarded to the applicants would only be a “hope value” to reflect the chance of the Prohibited Zone being cancelled or modified, and/or the carpark area being exempted from the GFA. 63.Mr Lam cited Tsan Luk Yuk Yin & Others v The Secretary for the Environment, Transport and Works[10], in which it was said at §32: -
64.The Tribunal in Tsan Luk Yuk Yin’s case also pointed out at §49: -
65.Nonetheless, both valuation experts, Mr Chan and Mr Lai, have not suggested in their reports or oral evidence at the trial any discount or a “hope value” to reflect the chance of the Prohibited Zone being cancelled or modified, and/or the carpark area being exempted from the GFA. The Tribunal is not in a position to determine this issue. If Mr Lam intends to raise this issue, there is no reason for Mr Lai not to mention it in his report or the joint reports. The Tribunal therefore rejects the submission of Mr Lam in this regard. H. HYPOTHETICAL DEVELOPMENT 66.Mr Chan proposed to build a 39-storey residential building with 17 car parking spaces on 1st to 4th floors, 5th floor as mechanical floor, 6th floor as clubhouse and 7th to 38th floors as residential units (including 30th floor as sky garden). On each typical residential floor from 7th to 29th floors, Mr Chan proposed to accommodate 1 residential unit with effective saleable area of 109.45m². From 31st to 38th floors, there would be 4 duplex residential units, each with effective saleable area of 220.99m². Whilst, Mr Lai proposed to build a 25-storey commercial/residential composite building with ground floor and cockloft for shop uses, 1st floor for mechanical facilities, 2nd floor for clubhouse and 3rd to 24th floors for domestic use. On each typical residential floor from 3rd to 22nd floors, Mr Lai proposed to accommodate 2 residential units, each with effective saleable area of 68.48m². On 23rd to 24th floors, there would be 2 duplex units, each with effective saleable area of 133.96m². 67.In response to the hypothetical development proposed by Mr Lai, Mr Chan has prepared various fallback scenarios. In summary, they disputed over mainly whether car parking spaces would be built, size of typical residential units, and size and number of duplex residential units. If no car parking spaces would be built, they also disputed over whether shops would be built on ground floor and cockloft. H.1 Residential Building or Composite Building 68.If no car parking spaces would be built, Mr Chan in his fallback scenario proposed to use ground floor as a plant room in addition to the domestic entrance lobby, lift and staircase. Mr Lai said that ground floor and cockloft should accommodate shops, which in his opinion accords more with commercial reality. 69.Although value of cockloft had not been agreed by the valuation experts, it is not disputed that the shops facing Centre Street should be valued at $97,000 per m² saleable and those facing Yu Lok Lane should be valued at $80,000 per m² saleable. 70.According to the calculation under the B(P)R, building of shops, being non-domestic floor area, would increase the overall GFA of the hypothetical development, but lesser domestic floor area could be built as a result. Given that the agreed shop unit value is lower than residential unit value, which will be discussed in the latter part of the judgment, and unit value of cockloft should be much lower than residential unit value, we consider that site value of a residential building is higher than site value of a composite commercial / residential building. Hence, we agree with Mr Chan that a residential building should be built if there would be no car parking spaces in the hypothetical development. H.2 One or Two Units on Each Typical Residential Floor 71.Mr Chan proposed 1 residential unit on each typical residential floor, but Mr Lai said that there should be 2 residential units because flat sizes ranging from 40m² to 70m² saleable area were more popular and large unit of 109.45m² saleable area would not be in demand in the area. 72.With the benefit of site inspection with the parties, we agree with Mr Lai that 2 residential units should be accommodated on each typical residential floor. View of the residential units particularly those on the lower floors of the hypothetical development would be blocked by the buildings on the opposite side of Yu Lok Lane and the distance between the two was relatively short indeed, which would limit sale price of large units. Although there was no supply of large units in the area, we disagree with Mr Chan that building of large units in the hypothetical development would meet the then demand. We are of the view that there was not much demand for large units in the area, and therefore building of large units in the hypothetical development would have much higher development risk. Even if Mr Chan’s scenario of 1 residential unit on each typical residential floor is accepted, we consider that the residual valuation in this instance should allow a higher percentage of developer’s profit, which would eventually lower the residual land value. H.3 Two or Eight Duplex Residential Floors and Size of Each Duplex Unit 73.Mr Chan and Mr Lai proposed 8 and 2 duplex residential floors respectively. Similar to the discussions on number of residential units on each typical residential floor above, we consider that the then demand for large unit was relatively low in the area, and hence would prefer to build lesser and smaller duplex units. 74.Nevertheless, we accept Mr Chan’s fallback scenario of 4 duplex units on the top 4 floors, each with effective saleable area of 133.5m². Since the respondent had not submitted for Tribunal’s consideration fallback scenarios without car parking floors and/or shops, the Tribunal can take the hypothetical developments proposed by Mr Chan in his Fallback Scenario 3b (i.e. without shops but with car parking floors) and Combined Fallback Scenario (i.e. without shops and car parking floors) for assessment only. Other components of the residual valuation that are in dispute are further determined by the Tribunal below. I. SELECTION OF RESIDENTIAL COMPARABLES 75.Mr Chan adopted 3 sets of comparables, transactions with building view, partial sea view and full sea view, all from Island Crest Tower 2, No 8 First Street, for assessment of GDV. While, Mr Lai selected 6 comparables in either Elite Court, No 33 Centre Street, or Centreplace, No 1 High Street. Both experts considered the comparables suggested by the other side unsuitable. Mr Lai said that the Island Crest comparables were transacted much later, were pre-sales transactions that would have benefits offered by the developers and sometimes estate agents, and did not have a prefabricated / curtain wall as in Mr Chan’s hypothetical developments. Mr Chan said that Elite Court that was completed in 2002 could not compare with the subject newly built hypothetical development, and Centreplace is located in a different locality at Bonham Road in Mid-level West. 76.We agree that the transactions in the said 3 developments are not the best comparables because of mainly their respective deficiencies as commented by the valuation experts. Nonetheless, in weighing the pros and cons, we prefer to adopt the Island Crest comparables to assess the GDV. Centreplace is located in a different locality with different nature of view. Both Elite Court and Island Crest are close to the Lots, but Elite Court faces the adjacent wet markets directly. Elite Court was also completed much earlier, which could not be compared easily with newly built development. 77.Although Island Crest comparables were pre-sales transactions that would normally be excluded in residual valuation, we consider that they can still be adopted in the subject assessment while there are no other better comparables. Island Crest comparables were transacted in February 2010 and to be completed on or before 30 September 2010, and such completion period could be anticipated at the date of transaction. We consider that this pre-sales condition together with the benefits offered by the developer and / or the estate agents if any can be allowed in the assessment to compare with the hypothetical development. The adjustments to the comparables in Island Crest are discussed in the paragraphs below. J. ADJUSTMENTS TO THE COMPARABLES 78.The valuation experts agreed on the unit value of each car parking space if any at $450,000, the unit value of shop facing Centre Street if any at $97,000 per m² saleable and the unit value of shop facing Yu Lok Lane if any at $80,000 per m² saleable. In the assessment of each set of hypothetical residential units, they agreed to adopt the “mid-floor” approach, in which the unit value of a mid-floor unit is assessed and then extrapolated to all units in the same set. 79.They also agreed on the conversion of balcony at the same unit value of the premises proper, the conversion of flat roof at 1/6 of the unit value of the premises to which the flat roof belongs and the conversion of roof at 1/8 of the unit value of the top floor, but they disagreed on the conversion rate of utility platform. 80.Regarding the adjustment rates applicable to each set of the Island Crest comparables, they agreed on the adjustment for location at -4%; the adjustment for floor at 0.75% per floor; nil adjustment for age and orientation; and nil adjustment for view except the view of typical units with building view at -5% and the view of duplex units with sea view at -10%. They adopted the same index (i.e. Private Domestic Indices Class A, B & C) to adjust for time of typical residential units. While Mr Lai had not suggested any adjustment rate for time of duplex residential units, the Tribunal accepts Mr Chan’s suggestion in this regard with reference to Private Domestic Indices Class D & E. Nevertheless, they disagreed on the adjustments for scales and facilities, car parking, size, and duplex unit. They also disagreed on the adjustments for benefits available for purchasers of Island Crest at -2% proposed by Mr Lai. J.1 Conversion of Utility Platform 81.It is the applicants’ case that unit value of utility platform is identical to that of the residential unit proper, but Mr Lai said that it is only 2/3 of the unit value to reflect that it is a less useful area. 82.While floor area of utility platform is fully counted in the calculation of saleable area, we consider that it is not less useful in the subject hypothetical residential unit and the comparables. In fact, the utility platform just counts for a small portion of the subject hypothetical residential unit and the comparables. We accept Mr Chan’s conversion of utility platform at the same unit value of the residential unit proper. J.2 Adjustment for Scale and Facilities / Car Parking 83.It is agreed that Island Crest is superior in terms of scale and facilities. Mr Chan suggested an adjustment rate at -5%, but Mr Lai said that it should be -10%. On the condition that Island Crest is larger in scale and has the additional facilities of massage room, sauna, swimming pool, jacuzzi, BBQ area, etc, we consider that an adjustment rate at -7.5% is appropriate. 84.In the hypothetical development without car parking facilities, Mr Lai suggested an additional adjustment at -5% but Mr Chan had made nil adjustment. We consider that in the subject district, which accommodates mainly the middle-income groups, the provision of car parking facilities would enhance the value of residential units within the same development, but the adjustment rate should be -2% only. J.3 Adjustment for Size 85.Mr Chan suggested an adjustment for size at the rate of 1% for every 10m² difference on an interval basis, whilst Mr Lai adopted a greater rate of 1% for 5m² difference on a straight line basis. We agree with Mr Chan that in the subject assessment size is not a sensitive factor and prefer an adjustment rate at 1% for every 10m² difference. Further, since there is no material difference between the adjustments on an interval basis and on a straight line basis and it is appropriate to simplify our determinations in the judgment that would base on the comparison tables adopted by Mr Chan in his fallback scenarios, we accept Mr Chan’s model in this regard. J.4 Adjustment for Duplex Unit 86.Based on an analysis that comprised 7 pairs of transactions, Mr Chan suggested an adjustment rate at 15%, but Mr Lai said that the adjustment rate should be 10% only. We consider that Mr Chan’s analysis that comprised substantial adjustments and had result ranging from -1% to +29% cannot draw a meaningful conclusion. Although we have no objection to make adjustment for duplex unit in the subject assessment, we consider that there should have differences between duplex units with ancillary flat roof and / or roof and those without ancillary areas, and the former would no doubt be better. In addition to the adjustment for ancillary area if any, we agree to make adjustment for duplex unit with roof at 15%, but the adjustment rate for duplex unit without flat roof and / or roof should be 10% only. J.5 Adjustment for Benefits Available for Purchasers and Presales 87.Mr Lai suggested in his fallback scenario that there should have an adjustment at -2% for benefits available for purchasers of Island Crest. Mr Lai further said that there was at least saving of legal costs offered by the developer. Mr Lam also submitted that even if Island Crest comparables are to be used, adjustments ought to be made to take into account the fact that they were presales. Whilst, Mr Chan had not made any adjustments for benefits available for purchasers nor the factor of presales. Mr Chan said that the saving of legal costs if any is minimal and negligible, and is out of proportion to compare with the 2% discount suggested by Mr Lai. 88.We agree that there would likely have other benefits in addition to legal costs offered by the developer directly and indirectly, and in 2010 when the property market was recovering from a financial crisis, purchasers of pre-sales transactions would generally be benefited from pre-sales that would have a relatively long completion period. The Island Crest comparables had an anticipated completion period of about 7 months, which was longer than the normal completion period. In the circumstances, we consider that these benefits should be allowed in the comparison with the Island Crest comparables, and based on the evidence submitted by the parties, it is appropriate to make adjustment at -2% for the said two factors. J.6 Unit Value of Hypothetical Residential Units 89.Given that we agree to adopt the hypothetical developments suggested by Mr Chan in his Fallback Scenario 3b (i.e. without shops but with car parking floors) and Combined Fallback Scenario (i.e. without shops and car parking floors) and the 3 sets of Island Crest comparables with building view, partial sea view and full sea view, our determination on unit value of hypothetical residential units would base on the adjustment tables prepared by Mr Chan and as shown in the 2nd Joint Expert Statement of Agreement/ Disagreement[11]. Nevertheless, the adjustments for scale and facilities, car parking, size, duplex unit, benefits available for purchasers and presales should be further revised or added in accordance with the above discussions. 90.In the hypothetical development without shops but with car parking floors, we determine the unit value of hypothetical residential units as follows: -
91.In the hypothetical development without shops and car parking floors, we determine the unit value of hypothetical residential units as follows: -
92.Accordingly, we have also determined the unit value of flat roof at 1/6 of the unit value of the lowest residential floor and the unit value of roof at 1/8 of the unit value of the highest residential floor. The figure of each unit value is listed in Appendix I (i.e. Residual Valuation with Car Parking Floors) and Appendix II (i.e. Residual Valuation without Car Parking Floors) of the judgment. K. PARAMETRES OF RESIDUAL VALUATION 93.The parties have agreed on a number of parameters including marketing costs at 1% of the GDV, the GFA of existing buildings, construction period of 3 years, deferment rate at 5% per annum, professional fee at 6% of costs, total deferment period for the GDV of 3.5 years. However, they disagreed on demolition cost, demolition period, construction costs, profit on costs and time required for obtaining vacant possession. K.1 Demolition Cost and Period 94.Although the parties could agree on the construction period and the total deferment period for the GDV, they could not agree on the demolition period. Mr Chan and Mr Lai have suggested 0.75 year and 0.5 year respectively. We consider that demolition period of 0.75 year in the subject case is reasonable and there would be an overlapping period of 3 months between the demolition period and the construction period. 95.Mr Chan suggested the demolition cost at the rate of $1,200/m². Mr Lai said that Mr Chan’s suggested rate is low and has failed to take into account the factor of difficult access. Mr Lai considered that the rate should be $1,500/m², which is in line with the ceiling rate recommended by a quantity surveyor. Having considered the bulk of the existing buildings and the location of the Lots abutting on a sloping street in Mid-levels, we are of the view that the rate at $1,500/m² suggested by Mr Lai is more reasonable. K.2 Construction Cost 96.Based on the hypothetical developments in Fallback Scenario 3b and Combined Fallback Scenario, Mr Chan suggested the installation cost of car lift at $2,800,000, and the construction unit cost of car parking area, residential area and clubhouse area at $5,700/m², $15,000/m² and 21,100/m² respectively. In the event that the TD would not rescind, modify or relax the Prohibited Zone in any way, Mr Chan agreed that there should be an increase of construction costs for 10% as proposed by Mr Lai but disputed that there should be another increase in costs of 10% on account of small scale of the hypothetical development. 97.In our determination above, we decide that the Prohibited Zone was unlawful. Even if the Prohibited Zone was lawful, we agree with the applicants that the TD would grant temporary construction permits to enable construction works to be carried out during the hypothetical development period. Nevertheless, we consider that the location of the Lots abutting on a sloping street in Mid-levels, which would have relatively more difficult accessibility, would justify an upward adjustment to the standard construction cost. 98.Regarding the scale of the hypothetical development, we agree with the respondent that, with reference to the Building Cost Pro-Forma compiled by the Hong Kong Institute of Surveyors in 2013, an upward adjustment should be made. No doubt, the hypothetical development has the GFA less than 5,000m² and is relatively small in scale. The applicants were misconceived to argue that the Building Cost Pro-Forma should not be followed because it had not been published as at the valuation date. We accept Mr Lam’s submission that the Building Cost Pro-Forma is a tool only to assist valuers in cost estimation, which put down in writing what should have been done by valuers all along in the course of making a realistic cost estimation. Relevant factors like scale of hypothetical development that should be considered would not be extinguished as at the valuation date just because they had then not been recommended in a document. 99.Above all, having considered the Building Cost Index, and the quality, scale and accessibility of the hypothetical developments, we determine the installation cost of car lift at $2,800,000, and the construction unit cost of car parking area, residential and commercial area, and clubhouse area at $6,270/m², $16,850/m² and 23,210/m² respectively. Since the assessment would base on the GFA only instead of construction floor area, we also agree with the respondent that additional cost should be allowed for building of plant room, mechanical floor, sky garden, and etc. in the hypothetical developments. We consider that an adjustment for an area of say 341.83m², about size of 2 upper floors, and at unit construction cost of $6,270/m², same as the unit construction cost of car parking area, is appropriate in the circumstances. K.3 Developer’s Profit 100.Mr Chan and Mr Lai suggested developer’s profit at 10% and 20% on costs respectively. Mr Chan considered that the hypothetical development was not high in risk and therefore he adopted 10% only in his assessment, but Mr Lai said that the rate of 10% is low taking into account the market sentiment prevailing as at the valuation date. We agree with Mr Lai that the market sentiment as at the valuation date, when was immediately after a financial crisis and was recovering, was not that good and should justify developer’s profit at 20% of costs. 101.Although the Tribunal had accepted developer’s profit at 15% in the case Cheng Kwok Kuen v Director of Lands [2018] HKLdT 41, 7 June 2018, which determined the compensation of No 14 Yu Lok Lane in the same resumption scheme, 15% cannot be applied in the subject case because the hypothetical developments in the two cases are substantially different. There was demand from owner-occupier which would accept lower profit margin in Cheng Kwok Kuen’scase, but there was no such owner-occupier demand for the subject hypothetical developments, which comprised a substantial number of residential units. K.4 Time Required for Obtaining Vacant Possession 102.Given that the Lots were subject to tenancy, Mr Lai suggested to defer the land value for 1 month, which in his opinion was required to obtain vacant possession for development. Since he assumed that demolition could immediately take place on the valuation date and the developer should obtain vacant possession before demolition of the existing buildings, he allowed for time required for obtaining vacant possession separately. 103.We disagree to make such deferment because the actions for obtaining vacant possession and planning for demolition and construction could be implemented simultaneously. Our determination of the demolition period of 0.75 year should have already considered the time for making application to the BA for demolition, which would overlap with the time for obtaining vacant possession. L. VALUATION 104.In accordance with the above discussions and determinations that the Prohibited Zone was unlawful and car parking floors could be assumed in the hypothetical development, the residual valuation is listed in Appendix I of the judgment. The overall GDV with total plot ratio gross floor areas of 4,101.90m² is assessed at about $419,055,286. The then market value of the Lots on redevelopment basis is assessed at $204,500,000, equivalent to an accommodation value of about $49,855/m². 105.If we are wrong in finding that the Lots would be developed with car parking spaces, this is our assessment on basis of it being a hypothetical residential development without shops and car parking floors. The residual valuation in these circumstances is listed in Appendix II of the judgment. The then market value of the Lots on redevelopment basis is assessed at $187,300,000, equivalent to an accommodation value of about $45,662/m². M. CONCLUSION 106.We determine the value of the Lots should be, for the purpose of section 10(2)(a) of the Ordinance, in the sum of $204,500,000. N. ORDERS 107.Accordingly, we order that the respondent do pay the applicants compensation for the Lots in the sum of $204,500,000. The matters of professional fees, interest and costs shall be adjourned to a date to be fixed by parties in consultation with Counsel’s diaries if it needs, with liberty to apply for any other ancillary and consequential matters. 108.Regarding Appendix DD and Appendix D annexed to the 2nd Joint Expert Statement dated 30 July 2018 filed by the applicants, which have been admitted on a de bene esse basis subject to the determination of the Tribunal, the respondent submitted that it is unnecessary, irrelevant, lacking in probative value and / or being prejudicial, and that it is unhelpful to the Tribunal in the determination of any issues to be resolved herein. We cannot say that the information that shows the differences between the Island Crest comparables and the Centreplace comparables is totally irrelevant and prejudicial, but we agree that it is unnecessary, lacking probative value and unhelpful to the Tribunal. The assessment that only shows the differences from the applicants’ perspective cannot assist the Tribunal to select the comparables. At best, it is because of the differences, the information can only indicate that the two sets of comparables are not compatible and therefore only one of them should be adopted in the valuation. We decide that Appendix DD and Appendix D annexed to the 2nd Joint Expert Statement are not admissible.
Mr Y C Mok, instructed by Hastings & Co, for the 1st to 4th applicants Mr Simon K C Lam, instructed by the Department of Justice, for the respondent
[1] Trial Bundle C2, page 1460 [2] Schedule D thereof [3] See reg. 27 & 72 thereof [4] CACV 197/1992 [5] (2003) 6 HKCFAR 1 [6] [1978] HKLTLR 190 [7] [1994] HKDCLR 69 [8] [1997] CPR 316 [9] (2005) 8 HKCFAR 668 [10] LDMR 3/2005 (9 May 2014) [11] Pages 105 to 109 and pages 111 to 113 [12] The adjustments in addition to those as shown in the relevant page of the 2nd Joint Expert Statement | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cases cited in this judgment