First Mate Development Ltd v. Chor Kwong Wai and Others
Read the full judgment text of LDCS 9000/2016 on BabelCite. This LDCS judgment was delivered on 14 March 2019.
1. This is an application for compulsory sale of all the undivided shares of and in the Remaining Portion of subsection 3 of section A of Hung Hom Marine Lot No 1 (“1 st Lot”), section I of subsection 3 of section A of Hung Hom Marine Lot No 1 (“2 nd Lot”), section H of subsection 3 of section A of Hung Hom Marine Lot No 1 (“3 rd Lot”), section G of sub-section 3 of section A of Hung Hom Marine Lot Not 1 (“4 th Lot”), and section A of subsection 3 of section A of Hung Hom Marine Lot No 1 (“5 th
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LDCS 9000/2016 [2019] HKLdT 20 IN THE LANDS TRIBUNAL OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION LAND COMPULSORY SALE MAIN APPLICATION NO 9000 OF 2016 __________________________
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__________________ 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 the Remaining Portion of subsection 3 of section A of Hung Hom Marine Lot No 1 (“1st Lot”), section I of subsection 3 of section A of Hung Hom Marine Lot No 1 (“2nd Lot”), section H of subsection 3 of section A of Hung Hom Marine Lot No 1 (“3rd Lot”), section G of sub-section 3 of section A of Hung Hom Marine Lot Not 1 (“4th Lot”), and section A of subsection 3 of section A of Hung Hom Marine Lot No 1 (“5th Lot”) (1st Lot, 2nd Lot, 3rd Lot, 4th Lot and 5th Lot are collectively referred to as “the Lots”), together with 3 buildings erected thereon known as Nos 39 & 41 Whampoa Street and Nos 12A & 12B Bulkeley Street (“1st Building” standing on 1st Lot), Nos 14 & 16 Bulkeley Street (“2nd Building” standing on 2nd Lot and 3rd Lot), and Nos 18 & 20 Bulkeley Street (“3rd Building” standing on 4th Lot and 5th Lot) (1st Building, 2nd Building and 3rd Building 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”). 2.1st Building, 2nd Building, and 3rd Building are not connected to each other. 1st Building that is served by 2 common staircases is an 8-storey tenement block. An occupation permit No K5 dated 5 February 1957 was issued for 1st Building granting permission to occupy its ground floor (“G/F”) for non‑domestic purpose and upper floors for domestic purpose. According to the approved building plans, there were 4 shops planned on G/F and 4 flats planned on each of 1st Floor (“1/F”) to 7th Floor (“7/F”) of 1st Building. Nevertheless, with reference to the land search records, 2/F of No 12B Bulkeley Street was further sub-divided into 3 flats (i.e. Flat A, Flat B and Flat C). 3.Each of 2nd Building and 3rd Building that is served by 2 common staircases is a 6-storey (excluding cockloft) tenement block. An occupation permit No 3K dated 11 June 1956 was issued for these two buildings granting permission to occupy them for domestic purpose. Nevertheless, according to the approved building plans, there were 2 shops planned on G/F for non-domestic purposes together with 2 cocklofts respectively for storage only, and 2 flats planned on each of 1/F to 5th Floor (“5/F”) of each building. The cocklofts thereof are named as mezzanine floors in the land search records. 4.1st Lot together with 1st Building standing thereon was allocated 32 undivided shares, and each of the 4 shops on G/F and each of the 4 flats on upper floors was given 1 undivided share (whilst each of the sub-divided flat of 2/F of No 12B Bulkeley Street was allocated 1/3 of 1 undivided share), making up a total of 32 undivided shares. 2nd Lot together with parts of 2nd Building standing thereon was allocated 6 undivided shares, and each of the shop on G/F and the flat on upper floors was given 1 undivided share, making up a total of 6 undivided shares. The allocation of undivided shares in each of 3rd Lot together with parts of 2nd Building and 4th Lot together with parts of 3rd Building is the same as that in 2nd Lot together with parts of 2nd Building, whilst 5th Lot together with parts of 3rd Building is not subdivided in shares. 5.The applicant filed a Notice of Application (“the NOA”) on 10 November 2016, which was subsequently amended and re-amended on 19 October 2017 and 4 June 2018 respectively. At the time of filing of the NOA, the Buildings were over 50 years old, and the applicant owned 95.834% (i.e. 30.667 out of the total 32 undivided shares of 1st Lot) of 1st Building, on average 83.333% (i.e. 4 out of the total 6 undivided shares of 2nd Lot and all undivided shares of 3rd Lot) of 2nd Building, and on average 83.333% (i.e. 4 out of the total 6 undivided shares of 4th Lot and whole of 5th Lot) of 3rd 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. 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 or 1957, i.e. more than 50 years before the date of application (i.e. 10 November 2016), the applicable percentage in the present proceedings is therefore 80%. RESPONDENTS REMAINING 7.At the time of application, there were 7 groups of respondents. Since then, the applicant acquired further undivided shares from some of the respondents, and discontinued the proceedings against the 1st respondents, the 2nd respondent, the 3rd respondents, the 5th respondents and the 6th respondent. At the time of trial, the applicant owned all the undivided shares of 1st Building (i.e. 1st Lot), on average 91.667% of 2nd Building (i.e. 2nd Lot and 3rd Lot), and on average 91.667% of 3rd Building (i.e. 4th Lot and 5th Lot). There are 2 respondents whose units and undivided shares have not yet been acquired by the applicant. 8.The following are the 2 remaining live respondents: -
9.R4 has not filed anything in the present proceedings, and was granted leave to be excused from the trial. Nevertheless, there was a Re-Amended Summons taken out by one Tam Siu Kwai (“Tam”) in the proceedings of HCMP 1377 of 2017, which was pending for registration against R4’s Property in the Land Registry as at 11 December 2018. In light of the pending proceedings in HCMP 1377 of 2017, Ms Ngai, counsel for the applicant, submitted that if the Lots shall be sold pursuant to the Orders of the tribunal, the net proceeds of sale attributable to R4’s Property should be held by the Trustees to be appointed by the tribunal pending final determination of the proceedings in HCMP 1377 of 2017. I agree. 10.Except for a Notice of Opposition, R7 has not filed anything to oppose the application in the present proceedings. On 11 September 2018, the applicant and R7 entered into a Provisional Agreement for Sale and Purchase (“PASP”) in respect of R7’s Property, but the parties subsequently cancelled the agreement on 22 January 2019 because R7 was unable to complete the sale of R7’s Property free from encumbrances. On 23 January 2019, R7 withdrew its Notice of Opposition, and was granted leave to withdraw its Notice of Opposition and to be excused from the trial. ISSUES FOR DETERMINATION BY THE TRIBUNAL 11.The 2 live respondents were granted leave respectively to be excused from the trial, and they have not filed any evidence to oppose the application in the present proceedings. Ms Ngai called the witnesses to prove the applicant’s case. The applicant contended that all the requirements of the Ordinance had been satisfied and asked for an order for sale of the Lots. 12.Nevertheless, the tribunal is required to determine the following issues under the Ordinance: -
13.Since the application comprises of 3 buildings and the applicant 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 merged site and the respective EUV of all the units in the Buildings to be adopted for 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 14.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). 15.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 of the 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 lot(s) or the Lots as at 30 September 2016 (“Application Report”), which was within 3 months of the application. 16.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 17.In determining the application, section 4(2) of the Ordinance empowers the tribunal to make an order for sale if it is satisfied that: -
18.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 Benson Wong Sai Ning (“Mr Benson Wong”) of Benson Wong & Associates Limited, a building surveyor. None of the respondents had adduced any expert evidence in this connection. 19.Mr CM Wong conducted a structural survey of the Buildings and prepared a Structural Assessment Report dated 12 December 2018. Mr Benson Wong conducted a condition survey and prepared a Condition Survey Report dated 13 December 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 building 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 62 to 63-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 20.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: -
21.Although there is no missing owner and the 2 live respondents have not made any submissions to oppose the application in the present proceedings, Ms Ngai submitted that the tribunal can review the EUV as in the case of missing owner because the schedule of property disclosed on the death of one Chung Hing for estate duty purposes did not cover R4’s Property and the identity of R4 may be in doubt. I agree. 22.In the Application Report, Mr CW Wong explained the direct comparison method he adopted and the process of his assessment to arrive at the EUV of each unit of the Buildings. He had also prepared a supplemental report on 11 December 2018 (“Supplemental Report”) in which he reviewed the EUV of all the units in the Buildings as at 30 September 2016. In the Supplemental Report, he valued the reference shop unit (i.e. G/F of No 12B Bulkeley Street) at $335,000 per square meters and the reference domestic unit (i.e. 3/F of No 14 Bulkeley Street) at $72,000 per square meters. He then compared the reference units with the other units in the Buildings and assessed the EUV of all units in the Buildings at $342,928,000. 23.I accept the EUV assessed by Mr CW Wong 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 with 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. 30 September 2016, are appended below: -
24.The total EUVs of 1st Building, 2nd Building and 3rd Building are $172,384,000, $85,674,000 and $84,870,000 respectively. The total EUV of the Buildings is $342,928,000. WHETHER THE APPLICANT HAS TAKEN REASONABLE STEPS 25.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. 26.The applicant had made 4 offers to R4 on 17 October 2016, 10 October 2017, 18 December 2018 and 24 January 2019 respectively, and the applicant and R7 had once entered into the PASP. Ms Ngai submitted that the applicant had taken reasonable steps to acquire the remaining undivided shares of the Lots. She further submitted that all the prices offered by the applicant to R4 are higher than the EUV of R4’s Property assessed by Mr CW Wong, and the 3rd and 4th offers are also higher than R4’s proportionate shares in the RDV of the Lots as at 14 January 2019 assessed by Mr CW Wong. 27.In assessing the reasonableness of the offers, there is the following guidance from Ribeiro PJ of CFA in Capital Well[1]at [33] and [36]:-
28.I consider that the applicant’s offers to R4, which were based on professional valuation, do fall within a range of what may broadly be regarded as fair and reasonable. There is no evidence before this tribunal that Mr CW Wong’s assessments were faulted. I also accept that the PASP with R7 is a proof of the reasonable steps taken for acquiring R7’s Property. 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 CW Wong adopted both residual method and direct comparison method to assess the RDV of the Lots as a merged site instead of 3 independent sites as at 14 January 2019. 32.In the residual valuation, Mr CW Wong opined that the optimum development on the Lots comprised a 23-storey commercial / residential composite building with retail shops on G/F and 1/F, recreational facilities on 2/F, and domestic units from 3/F to 22/F. Details of the hypothetical development with the proposed gross floor area of 5,852.88 square meters (excluding half of the areas for green features that are exempted in calculation) and plot ratio of 9, the gross development value assessed (i.e. on average $505,359 per square meter saleable area for shops on G/F, on average $106,453 per square meter saleable area for shops on 1/F and on average $220,000 per square meter saleable area for standard residential units on upper floors), the development costs adopted (i.e. on average $39,732 per square meter gross floor area) and the residual valuation were set out in his Supplemental Redevelopment Valuation Report dated 16 January 2019. He assessed the RDV of the Lots by residual method at $626,000,000. 33.In the valuation by direct comparison, Mr CW Wong compared the Lots with a nearby site (i.e. Nos 30 – 44 Gillies Avenue South and Nos 75 & 77 Baker Street), which was ordered by the tribunal for compulsory sale and was sold in a public auction on 31 July 2018. He applied adjustments for development scale and time with reference to Private Domestic Price Indices (All Classes) published by Rating and Valuation Department, and assessed the site value of the Lots at $606,000,000. 34.While I have reservation to adopt a site comparable that was subject to compulsory sale, I disagree to adjust time factor of site comparable with reference to time index of completed property. Value of land is derived from its development potential, and the changes in price of land are generally different from the changes in price of completed property, which had been commented by Member Pang in Able Luck Development Ltd and Others v Public Global Investments Ltd and Others, LDCS 7000/2014 (6 October 2017) at [104 & 105]. RDV of the Lots as at 14 January 2019 35.Having gone through Mr CW Wong’s assessments in his Supplemental Redevelopment Valuation Report, I accept his residual valuation, which assessed the RDV of the Lots at $626,000,000, equivalent to an accommodation value of about $106,956 per square meters (i.e. about $9,937 per square feet). Sale of the Lots as a Composite Site 36.Ms Ngai submitted that the application comprises of all three buildings standing on the Lots and hence the Lots should be sold together by one public auction. 37.In the recently decided land compulsory sale cases Asia Charming Ltd v Kar Shing Capital Resources Ltd and Others[2] and Fairbo Investment Ltd v Leung Chit, The Person Appointed by Order and Another[3], I have stated in the judgments 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 both cases to set the reserve price on a merged site basis because of their specific circumstances. 38.Similar to Asia Charming and Fairbo Investment, there is no dispute on this issue in the present proceedings. 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, subject to a fair and equitable apportionment of the sale proceeds that will be discussed in the paragraphs below, I agree the RDV as assessed at $626,000,000 on a merged site basis should be the reserve price for auction of the Lots. APPORTIONMENT OF THE SALE PROCEEDS 39.Even though the reserve price is set on a merged site basis, there are questions on apportionment of sale proceeds. Ms Ngai submitted that the respective EUV of all the units in the Buildings as determined by the tribunal should be adopted for apportionment of the sale proceeds of the Lots. There is also no dispute on this issue in the present proceedings. However, unlike those in Asia Charming and Fairbo Investment,densities of the buildings in the Lots are not similar. 1st Lot (1st Building), a Class B site, is an 8-storey tenement block with relative greater building bulk, whilst each of 2nd & 3rd Lots (2nd Building) and 4th & 5th Lots (3rd Building), a Class A site, is a 6-storey (excluding cockloft) tenement block only with relative lesser building bulk. 40.If EUV of all units in the buildings with different densities of a merged site are adopted for apportionment of sale proceeds, there could have the possibility that the aggregate of proportionate shares in the RDV of the merged site attributable to the units in the building with lesser building bulk is less than the RDV of this building only if it is redeveloped individually. 41.No doubt, if each of 2nd Building and 3rd Building is redeveloped individually, their respective site value would be lower because of lower efficiency for a smaller site of 195.09 square meters only, whilst the Lots as a merged site has an area of 650.32 square meters. The plot ratio of a composite building on a Class A site in this area would be lower too if the maximum domestic plot ratio at 7.5 under town planning control is firstly utilized. In consideration of the benefits from marriage value on a merged site basis, and the drawbacks to the units in 2nd Building and 3rd Building in the proposed apportionment if any because of their lesser building bulk, I consider that broadly speaking the owners of the units in 2nd Building and 3rd Building would not be prejudiced in the proposed apportionment. The differences in building density in this case appears not to be substantial as that the drawbacks in the regard if any could outweigh the benefits from marriage value. 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 the interest of the minority owners in the present proceedings. ORDER 42.By reason of the above, this tribunal comes to the following decisions: -
COSTS 43.The applicant did not ask for costs. I make a costs order nisi that there be no order as to costs. 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 Lo & Lo, for the applicant The 4th respondent was not represented and attendance was excused The 7th respondent was not represented and attendance was excused [1] Capital Well Ltd v Bond Star Development Ltd (2005) 8 HKCFAR 578, [2005] 4 HKLRD 363 [2] LDCS 5000/2016, [2018] HKLdT 44, 13 June 2018, §§60-63 [3] LDCS 23000/2014, [2018] HKLdT 57, 26 July 2018, §§39-40 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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