Pacific Base Holdings Ltd and Others v. Lee Hop Biu and Others
Read the full judgment text of LDCS 14000/2017 on BabelCite. This LDCS judgment was delivered on 4 June 2020.
1. On 19 December 2017, the applicants filed the Notice of Application with the Tribunal seeking, inter alia, compulsory sale of all the undivided shares of and in the following lots in Tsim Sha Tsui, Kowloon, Hong Kong (“the Application”) for the purposes of redevelopment pursuant to section 3(1) of the Land (Compulsory Sale for Redevelopment) Ordinance, Cap 545 (“the Ordinance”):
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LDCS 14000/2017 [2020] HKLdT 20 IN THE LANDS TRIBUNAL OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION LAND COMPULSORY SALE MAIN APPLICATION NO 14000 OF 2017 ___________________ BETWEEN
_____________________________ Before: His Honour Judge S Lo, Presiding Officer of the Lands Tribunal, and
Mr Lawrence Pang, Member of
the Lands Tribunal Dates of Trial: 9 -13 and 16 -18 September 2019 Dates of Applicants’ Written Closing Submissions and Written Reply: 10 and 17 February 2020 Dates of the 1st Respondent’s Written Closing Submissions and Written Reply: 10 and 17 February 2020 Dates of the 2nd and 3rd Respondents’ Written Closing Submissions: 11 February 2020 Dates of the 4th Respondent’s Written Closing Submissions and Written Reply: 10 and 17 February 2020 Date of Judgment: 4 June 2020 __________________ J U D G M E N T __________________ A. Introduction 1.On 19 December 2017, the applicants filed the Notice of Application with the Tribunal seeking, inter alia, compulsory sale of all the undivided shares of and in the following lots in Tsim Sha Tsui, Kowloon, Hong Kong (“the Application”) for the purposes of redevelopment pursuant to section 3(1) of the Land (Compulsory Sale for Redevelopment) Ordinance, Cap 545 (“the Ordinance”):
The above lots are collectively referred to as “the Subject Lots”. 2.In the event the Tribunal grants the order for sale mentioned above, the applicants seek directions under section 4(6)(a) and/or (c) and/or section 4(9) of the Ordinance as follows:
3.The applicants are represented by Mr Mok Yeuk Chi (“Mr Mok”) whereas the 1st respondent (“R1”) is represented by Mr C Y Li SC (“Mr Li”) leading Mr Adrian But. The 2nd and 3rd respondents (“R2 and R3”) are represented by Mr Albert Chan whereas the 4th respondent (“R4”) is represented by Mr Ambrose Ho SC (“Mr Ho”) leading Ms Anna Chow. 4.On 1 August 2019 (about a month before the trial), R4 filed the following interlocutory application and inter-partes summons:
5.After hearing the parties’ submission at the pre-trial review on 7 August 2019, we granted leave to the R4’s interlocutory application for leave to amend her Notice of Opposition (subject to no further expert evidence to be adduced by R4) but dismissed the Intended Intervener’s Summons. 6.Following an 8-day trial in September 2019, owing to meeting counsel’s diaries and the leave to appeal application by the Intended Intervener[1], oral closing submissions were originally scheduled on 24 and 25 February 2020. The long path to this trial nearly involved a further lengthy detour caused by the general adjourned period (the GAP, as it is called) as a response to the Covid-19 problem. In order to avoid further delay and attendance of the parties with the risk of cross infections, at the invitation of the Tribunal, the parties have agreed that the oral closing submissions be dispensed with and further directions were made by the Tribunal for written replies by the parties. 7.By reference to the valuation report attached to the Notice of Application prepared by Mr Alnwick Chan (“Mr A Chan”) of Knight Frank Petty Limited pursuant to section 3(1) of the Ordinance (“the Valuation Report”):
8.More particularly, No 59 Granville Road and No 75 Granville Road are not included in the Application. 9.Each of Nos 61-73 Granville Road has 1 unit on each floor (from G/F to 4/F) and governed by a Deed of Mutual Covenant (with each of the 5 units given 1/5 of the undivided shares). 10.Nos 65-67 Granville Road have occupation permit issued on 4 September 1954 and the units and undivided shares of the lots are owned as follows:
11.Nos 69-71 Granville Road have occupation permit issued on 4 September 1954 and the units and undivided shares of the lots are owned as follows:
12.Nos 73-75 Granville Road have occupation permit issued on 24 March 1955 but the latter is not a subject lot in the Application. 13.As stated above, No 73 Granville Road is governed by its own Deed of Mutual Covenant with each unit being allotted 1/5 undivided shares owned as follows:
B. Issues to be Determined 14.The applicants managed to agree issues with R1 to R3 other than R4 as follows:
15.As regards R4, bearing in mind that Nos 73-75 Granville Road comprise a single building structurally sharing two common staircases, thus necessitating the dissecting the existing building, the Tribunal shall determine:
C. The Evidence 16.The applicants have filed the following documents in support of the Application:
17.Each of R1, R2 and R4 has one factual witness and R3 has no factual witness. By consent of the parties, the witness statements of R1, R2 and R4 have been admitted without the statement makers being called. 18.The main dispute between the applicants and R1 to R3 is on valuation regarding the EUV of the units within the Subject Lots (and/or the Adjoining Lots) and the reserved price based on the RDV of the Subject Lots (and/or the Adjoining Lots). R1 to R3 together with R4 appointed Sat Wei Ling (“Ms Sat”) of Memfus Wong Surveyors Ltd as their single joint expert who has prepared a valuation report of 31 October 2018 on both EUV and RDV of the Subject Lots and the Adjoining Lots, a Supplemental Report of 11 December 2018, a Joint Expert Statement with Mr A Chan on 3 January 2019 and a Supplemental Joint Expert Statement with Mr A Chan on 5 August 2019. 19.R1 to R3 have not filed any expert evidence on the age and state of repair of the existing developments at Nos 65-73 Granville Road and in effect put the applicants to prove that redevelopment of Nos 65-73 Granville Road is justified due to the age and/or state of repair of the existing developments. On the other hand, R4 appointed Joy Leung (“Sr Leung”) and Lo Kwok Kay (“Ir Lo”) as the experts on building condition and structural assessment to cover No 73 Granville Road and No 75 Granville Road instead of the Subject Lots. Their evidence does not cover Nos 61-71 Granville Road. In any event, they prepared the following reports:-
20.The corresponding experts on building conditions and structural assessment have also prepared their joint statements dated 29 July 2019. It would seem that the main disagreements set out in the Joint Statement on Structural Assessment include the following topics:
21.Sr Cheung and Sr Leung agreed to confine their agreements and disagreements on 6 topics or items as follows:
D. Whether the ownership percentage requirements as set out in the Ordinance are met 22.Regarding the issue in para 14(i) above, section 3(1) of the Ordinance requires an applicant to have not less than 90% of the undivided shares in a lot before he can make an application to the Tribunal for an order for the sale of the lot for the purposes of the redevelopment of the lot. 23.Section 3(2) of the Ordinance also provides that an application under subsection (1) may cover—
24.Section 3(5) of the Ordinance provides further that the Chief Executive in Council may, by notice in the Gazette, specify a percentage lower than the percentage mentioned in section 3(1) in respect of a lot belonging to a class of lots specified in the notice. 25.The Land (Compulsory Sale for Redevelopment) (Specification of Lower Percentage) Notice was gazetted on 22 January 2010 and came into operation on 1 April 2010 (“the Notice”). Section 3 of the Notice lowered the threshold for compulsory sale in respect of the classes of lots specified in the Notice from 90% to 80%. Those classes of lots include: “a lot with each of the buildings erected on the lot issued with an occupation permit at least 50 years before the relevant date (ie the date of the application under the Ordinance)”. 26.As mentioned, the occupation permits for the buildings under consideration were issued on 4 September 1954 or 24 March 1955 (ie not less than 50 years before the date of the Application). The Notice is applicable and the threshold percentage should be 80%. 27.At the time of the filing of the Application, the applicants owned not less than the threshold percentage of the undivided shares of the relevant lots and the ownership percentage requirements are met. We therefore agree that the applicants are entitled to make the Application under section 3(2)(a) of the Ordinance for Nos 65-67 Granville Road and for Nos 69-71 Granville Road. We are also satisfied that the applicants are entitled to make the Application under section 3(1) of the Ordinance for No 73 Granville Road. E. Legal issues raised by R4 28.Before discussing the remaining issues in para 14 above, we consider appropriate to deal with the legal issues raised by R4 as said in para 15 above first. 29.Mr Ho for R4 reminds the Tribunal that according to the long title of the Ordinance, it is an ordinance to enable persons who own a specified majority of the undivided shares in a lot to make an application to the Tribunal for an order for the sale of all of the undivided shares in the lot for the purposes of the redevelopment of the lot; to enable the Tribunal to make such an order if specified criteria are met; and for matters incidental thereto or connected therewith. 30.Section 3 of the Ordinance provides that:
31.Section 4 of the Ordinance further stipulates that the Tribunal shall determine the application in the following manner:
32.Para 1(a) of Schedule 3 to the Ordinance requires that there shall be redevelopment[2] of the lot and the redevelopment shall be completed and made fit for occupation within such period[3], not being a period which expires after 6 years after the date on which the purchaser of the lot became the owner of the lot, as specified by the Tribunal in the order for sale to which the lot is subject. 33.“Building” is defined in section 2 of the Ordinance to mean “a building within the meaning of the Building Ordinance (Cap 123)” and the definition of “building” in section 2 of Cap 123 is very wide which “includes the whole, or any part, of any domestic or public building…” 34.The statutory scheme in the Ordinance had been fully enunciated by Ribeiro PJ in the landmark case Capital Well Ltd v Bond Star Development Ltd (2005) 8 HKCFAR 578, which is not necessary to repeat here. 35.In the recent decision of the Court of Appeal in Good Faith Properties Ltd & Others v Cibean Development Co Ltd [2014] 5 HKLRD 534, Lam VP has re-stated the statutory regime of the Ordinance and the four distinct phases already identified by Ribeiro PJ in Capital Well, namely (i) the application; (ii) the Tribunal’s determination; (iii) the sale; and (iv) apportionment and application of the proceeds of sale[4]. By the statutory regime of the Ordinance, it gives the majority owner(s) a statutory means to override a minority owner’s right of private ownership protected under Article 6 of the Basic Law for the purposes of redevelopment. 36.Mr Ho submitted that the prime and most important objective of the Ordinance is for the purpose of redevelopment of the lot(s), namely for the purpose of replacing the existing building by a new one. Mr Ho further argued that section 3(2) of the Ordinance does not cover the situation when only a portion of a single building is included as the subject of the application but the remaining portion of the same building is not. He contended that the Tribunal has no power to make an order for sale under section 4(1)(b) and 4(2) of the Ordinance by including the 3rd Lot. 37.With respect, we find that, on proper construction, the provisions in section 3(1) and 3(2) of the Ordinance allow for the inclusion of No 73 Granville Road (KIL 9549) in the Application even when No 75 Granville Road (KIL No 10162) is not a subject lot of the Application. Section 3(1) enables an application to be made if the applicant holds “not less than 90% (or 80% under the Notice) of the undivided shares in a lot.” The focus is on the undivided share regime of the lot and not the structure erected thereon. Section 3(2)(a) requires the same in the event the applicant owns not less than the required percentage “of the undivided share in each lot”. Again the focus is on the undivided share regime of the lot and not the structure thereon. 38.As mentioned above, A8, A14 and A15 owned not less than 80% of the undivided shares in KIL 9549 (ie No 73 Granville Road). It is beyond dispute that the “ownership requirement” over this lot under section 3(1) has been satisfied. The applicants are not required to satisfy both section 3(1) and/or section 3(2)(a) on the one hand and section 3(2)(b) on the other. The word “or” is used to separate section 3(2)(a) and section 3(2)(b). There is nothing to compel the applicants to rely only on section 3(2)(b) in respect of the Application concerning KIL 9549 (ie No 73 Granville Road). The applicants are entitled to choose section 3(1) and/or section 3(2)(a) but not section 3(2)(b). Since section 3(2)(b) is not invoked, R4’s reliance on the notions of “connected buildings” or “common staircase” under section 3(2)(b) is misplaced. 39.Section 3(1)(b) describes the order to be applied for as “an order to sell all the undivided shares in the lot for the purposes of the redevelopment of the lot”. It constitutes only a description of the order which is to be applied for and does not impose any other requirement of what the Tribunal has to be satisfied before the order shall be made. Instead, as we shall see, section 4(2) governs what the Tribunal has to be satisfied before an order is to be made which places no attention to other lot or the building thereon which is not a subject of the Application. What the Tribunal has to be satisfied on the redevelopment of the lot are confined to two items: (a) the “age” and (b) “state of repair” of the existing development on the lot, and nothing else. Such “state of repair” requirement is confined to “the existing development on the lot” (ie part of the structure or building on No 73 Granville Road) instead of the structural safety of its “neighboring lot(s)” (ie remaining part of the structure or building on No 75 Granville Road). As said, the definition of “building” in section 2 of Cap 123 is wide enough to cover only part but not whole of the building. 40.In any event, the Tribunal considers that there is no reason why, when a majority owner qualifies under section 3(1) and/or section 3(2)(a), section 3(1) and section 3(2) should be interpreted in such a way that the majority owner also has to satisfy section 3(2)(b) by the mere fact that the existing structure standing on the lot shares a common staircase with its neighbouring lot and the two structures are one building from the structural perspective. 41.Fundamentally, section 3(2) was enacted to facilitate majority owners who might not be able to achieve the 80% ownership requirement in “a lot”. It enables them to rely on an alternative mechanism through the average ownership of “2 or more lots” connected by common staircases to satisfy the ownership requirement. The expression used under section 3(2) “…an application under subsection (1) may cover…2 or more lots…” clearly indicates that it is entirely up to the applicants as the majority owners to choose whether to rely on either section 3(1) alone, section 3(1) with section 3(2)(a) or section 3(1) with section 3(2)(b) as they wish. The employment of the word “may” in section 3(2) and the disjunctive word “or” to separate section 3(2)(a) and section 3(2)(b) evince the clear legislative intent that section 3(2)(b) covering the common staircase situation is just an option, but not a compulsion. 42.Indeed, the feasibility of redevelopment (including the so-called “structural safety” concerns) to be undertaken by the majority owner/developer in the lot has been excluded by the legislature as an irrelevant consideration by the following proviso under section 4(2)(a):
43.It is clear that the Tribunal is expressly excluded from taking into consideration whether or not the majority owner is ready for or is capable of undertaking the redevelopment. The approval from the Building Authority has no place in the Ordinance. The applicants are not required by section 3(1)(b) of the Ordinance to satisfy the Tribunal with evidence of a detailed demolition proposal that would sufficiently address the structural stability and safety issue of the remaining structure on No 75 Granville Road; this latter should be a matter left to be catered for by the Building Authority under different statutory requirements. 44.The Tribunal is of the view that the granting of the order under the Ordinance is to have the compulsory sale of all the undivided shares of the subject lot but not to order the demolition of the existing structures on the subject lot. In the auction sale under section 5(1)(a), for instance, the applicants may or may not be the successful bidder to become the purchaser. It will then be for the successful purchaser (who may not be the applicants during the trial) to formulate the redevelopment plan and to present a demolition submission to the Building Authority under the Buildings Ordinance to apply for a demolition permit. The so-called “structural safety” or possibility of “dissection/cutting up” of a building at an adjoining lot is not a relevant concern in adjudicating whether No 73 Granville Road could be sold. The granting of an order for sale by itself will not affect the so-called “structural safety” or possibility of “dissection/cutting up” of a building at an adjoining lot. If R4 is correct in the issue of “structural safety”, the Tribunal would have a lot of matters to consider such as environmental impact, traffic concerns, drainage issues etc. The Tribunal simply has no jurisdiction to entertain these complaints. 45.Section 7(1)(ii) of the Ordinance provides that the conditions specified in Schedule 3 (ie 6-year requirement to complete the redevelopment and made fit for occupation) shall be binding on and enforceable against the purchaser and the purchaser’s successor in title. The prospective purchasers who participate in the auction if the order for sale is granted may have to take into account the costs of remedial measures to the structural stability and safety of the existing structure on No 75 Granville Road (KIL 10162) whereas the question of adequacy of such remedial measures may be relevant to the application for demolition permit to the Building Authority but not to the Application. In our view, any owner of No 75 Granville Road (KIL 10162) has the right to complain to the Building Authority if the demolition process or outcome is unsafe. Eventually, it is the successful purchaser (who may not be the applicants) to take his own risk that the demolition plan to be submitted to the Building Authority under the Buildings Ordinance is not approved and to face the very serious consequence for re-entry of the Government under section 9 in the event of a breach of any condition specified in Schedule 3. 46.Mr Ho for R4 submitted that the Tribunal should apply purposive construction of a statutory provision in its proper context to find its objective intention and attempted to rely on minutes of statements made in the Bills Committee and the Provisional Legislative Council and the submissions made to the Bills Committee by the Hong Kong Institute of Surveyors (“HKIS”) and the Bills Committee Report to show how the relevant provisions in the Ordinance, in particularly how the words “an order to sell all the undivided shares in the lot for the purpose of the redevelopment of the lot” in section 3(1)(b) and section 4(1)(b) and the definition of “redevelopment”, should be interpreted. 47.The Tribunal accepts the submission of Mr Mok for the applicants that there are clear limits on how far legislative materials can be used in the interpretation of a statute, as stated by the Court of Final Appeal in HKSAR v Cheung Kwun Yin (2009) 12 HKCFAR568:
48.In Bond Star Development Ltd v Capital Well Ltd (CACV 458/2002), Rogers VP said in para 18 of the judgment:
49.The Tribunal considers that there is no need to go to the submissions of the HKIS and statements made by Mr Ronald Arculli and Mr Edward Ho as submitted by R4 in order to ascertain the context and purpose of the Ordinance since the constructions of section 3 and section 4 are extremely clear. 50.Mr Ho for R4 in his closing submissions asked for directions as set out in para 91(a) to (e) thereof ordering the applicants to take various steps, said to be for the benefit of No 75 Granville Road, regarding the submissions of demolition plan within 3 months of the sale order, seeking consent of the Intended Intervener regarding the demolition plan, an application to cancel the sale order in the event the demolition plan shall not be approved by the Building Authority within 3 months, notices to be given to R4 regarding the submission of the demolition plan and the outcome. He relied on section 4(6)(a)(i), (6)(c) and (9) of the Ordinance. 51.In our views, R4 fails to make any analysis as to how these sections give the necessary power to the Tribunal to make such requested directions upon the granting of the order for sale. As said, the applicants may or may not be the successful bidder to become the purchaser. It is entirely inappropriate for the Tribunal to impose these directions on the applicants to submit the demolition plan as asked by R4. Accordingly, the Tribunal refuses to do so even if the Tribunal has such power under section 4(6)(a)(i), (6)(c) and (9) as said by R4. 52.Furthermore, notwithstanding the structural expert evidence of R4, the Tribunal considers that for the purpose of the Application only, it was feasible for the redevelopment of No 73 Granville Road to be carried out alone with suitable strengthening and stabilization works as opined by the applicants’ structural expert. 53.To answer the legal issues as stated in para 15 above, the Tribunal concludes that:
F. EUV as at 20 November 2017 F.1 EUV for G/F 54.Both the applicants’ valuation expert, Mr A Chan and the joint valuation expert of the respondents, Ms Sat, assessed the EUV of each unit of Nos 61-73 Granville Road. There is no disagreement between the experts on:-
55.In their Supplemental Joint Statement dated 5 August 2019, Mr A Chan set out his comparables for the G/F, No 67 Granville Road as follows[5]:
* The conversion factors adopted for cockloft (“C/L”) and yard were agreed at 1/4 and 1/6 respectively. 56.As submitted by Mr Li, the major disagreement between the experts is that Ms Sat disagreed to use Shop 12A on G/F, Windsor Mansion (ie comparable 5 above) as comparable for the following reasons:
57.We agree with most of the above comments save that we consider mortgagee sale may or may not lead to a down-market effect. It is well-established that a mortgagee has the duty to take reasonable precautions to obtain the best price reasonably obtainable for the mortgaged property at the time: Tse Kwong Lam v Wong Chit Sen & Others [1983] 1 WLR 1349 (PC) at 1355B-C. For the captioned comparable, it is revealed during cross-examination that it was indeed a mortgagee sale by open tender which would have attracted competitive biddings. 58.Having said that, we would not disregard this comparable 5 for mere fact that it was a mortgagee sale. As regards its small size however, we are surprised that Ms Sat took into consideration other comparables (ie comparables 6 and 8) that have similar small sizes. Therefore we would not disregard this comparable 5. 59.On the other hand, the two experts had the following agreements/disagreement on the various adjustment factors[6]:
60.The table below shows the various adjustments applied by Mr A Chan (while those by Ms Sat would be shown in parenthesis if they are different[7]):
61.As regards location, we had a joint inspection conducted on 10 September 2019 with the parties of the subject buildings as well as all the comparables. Granville Road at which the subject buildings are situated is a local distributor connecting the most bustling part of Tsim Sha Tsui particularly west of Carnarvon Road to Tsim Sha Tsui East where office developments predominate. More particularly, the entrances to the MTR Tsim Sha Tsui station are all situated west of Carnarvon Road near the respective junctions of Nathan Road. 62.At this juncture, we note R1’s submission that Mr Wong, representative of the applicants, admitted that the applicants began their acquisition of the Subject Lots and its nearby/opposite area (eg Granville Circuit) many years ago. There were also other ongoing redevelopment projects in other sections of Granville Road near to the Subject Lots such as Nos 20-22, Nos 29A-31A and Nos 46-48 Granville Road etc. R1 submitted that the applicants’ acquisition and ongoing redevelopments in the neighbourhood have led to “redevelopment blight” in the part of Granville Road close to and surrounding the Subject Lots. The applicants had already acquired over half of the G/F shops of the Subject Lots between 2010 to 2012. The redevelopment project gradually caused shops to become vacant and reduced the pedestrian flow at the locality. Therefore, R1 submitted that any adverse effect of the redevelopment project/resumption scheme itself must be disregarded, following the Pointe Gourde principle (which is denominated following the Privy Council decision in Pointe Gourde Quarrying and Transport Co Ltd v Sub-Intendent of Crown Lands [1947] AC 565). By this principle, “any increase (or decrease) in value which is entirely due to the scheme underlying the acquisition” should be disregarded. 63.But what is the scheme underlying the acquisition? In the House of Lords decision in Waters & Others v Welsh Development Agency [2004] 1 WLR 1304, the application of the Pointe Gourde principle was expanded and clarified. Lord Nicholls set out, at para 63 of the decision, six rules to be considered in applying this principle:
64.This decision also supports the view that the scheme should be ignored by assuming that it has been abandoned immediately prior to the valuation date. 65.The impact of Waters was considered in some detail by the English Lands Tribunal in RMC (UK) Ltd v London Borough of Greenwich (2005) 274/ ACQ/6 & ACQ/60/2003. The case concerned two plots of land which were the subject of compulsory purchase for the Millennium Dome complex. The claimants argued that the scheme to be disregarded was simply the Millennium Dome, and the plot of land should be valued taken into account the benefit of the comprehensive infrastructure and development works taking place in the surrounding area. The acquiring authority argued that the Dome was only part of a wider scheme which had to be left out of account and which comprised the comprehensive development of the Greenwich Peninsula. 66.In the opinion of the English Lands Tribunal at para 8 of the decision:
67.It is noted that both parties in this English case defined the scheme as something significantly larger than the area of the then compulsory purchase order (“CPO”) itself. While the CPO extended to some 19 acres, the Millennium Dome (ie the claimant’s scheme) took up some 181 acres while the local authority’s scheme extended to 294 acres. The English Lands Tribunal noted the House of Lords view that the Pointe Gourde principle had come to be interpreted too widely, and had regard to Lord Nicholls’s six rules to be considered when applying the principle. It took the view that the starting point should be a narrow view that the scheme is only what takes place on the CPO itself. In the end, the English Lands Tribunal decided that it was not appropriate to treat the scheme as extending to the whole of the Greenwich Peninsula; otherwise it would breach the second rule of Lord Nicholls’s as it would be impractical to construct such a no scheme world. It should seek to confine the scheme to the area of the CPO unless an extended definition of the scheme is necessary in order to establish fair compensation. 68.More recently in the Hong Kong case of Sham Chi Keung v Director of Lands [2007] 1 HKLRD 374, the applicant in that case operated a retailing business supplying LPG gas in cylinders from a side shop situated at Shanghai Street. The shop fell within the scheme of resumption referred to as “K2” by the Urban Renewal Authority (“URA”) and the site has since been redeveloped into the Langham Hotel complex in Mongkok. The resumption began in 1993 and the URA began to vacate K2 over a period of four years starting from January 1994. The applicant continued operating his business until the final clearance day in December 1997. The question of law to be determined was:
69.The Court of Appeal found no causal link between the resumption of the applicant’s land and loss sustained. The reason why the applicant’s clients moved out of K2 was because their own land or building was being resumed. The ensuing loss was due to the moving out of clients from K2 and not, as required by the Ordinance, due to the removal of the business from the applicant’s land as a result of the resumption. 70.Bearing in mind of the above, in our opinion, “the scheme underlying the acquisition” only includes the Subject Lots under the Application but not the surrounding area or neighbourhood in which even the applicants or their related parties have been carrying out the acquisition. We would ignore Mr Li’s suggestion of adjustments in a more vibrant scene which would violate the second rule set out by Lord Nicholls in Waters, supra. 71.Thus we agree with the location adjustments suggested by Mr A Chan save that we agree with Ms Sat on those for comparable 1, comparable 5 (as a fallback by R1 in Mr Li’s closing submission) and comparable 6. 72.Turning to the adjustments for building ages, it has been established that values of retail properties are less sensitive to the ages of the premises. In such regard, the adjustments if any would only be approximate and we therefore prefer an integer adjustment (ie Mr A Chan’s method) to Ms Sat’s meticulous approach. 73.Then we come to the frontage adjustments. Both experts refer to previous decisions of this Tribunal to support their respective formulae being used. However, the Tribunal has been cautious to mention that there can be no such mechanical formula that can be applied in the real world; any adjustment tends to be case sensitive and depends on the surrounding circumstances/ evidence. On the other hand, as explained by the Tribunal in Tai Ping Restaurant Ltd v Director of Lands, LDLR 1/2013 (unreported, dated 8 December 2014) at para 48 of its judgment, there shall not be any adjustment for frontage unless the frontage in consideration is clearly superior or inferior to the norm that the benefits or disabilities which the frontage produces are clearly evident. If a shop has a frontage of reasonable width, the addition of frontage would not make significant difference. This is particularly true in the Application when the reference shop at G/F, 67 Granville Road has a reasonably wide frontage of 5.03 metres. In this regard, we prefer Mr A Chan’s adoption of 2% for every 1 m to Ms Sat’s 4% for every 1 m. 74.As regards the adjustment for return frontage, we understand it is merely a spot figure. Therefore, again, we prefer Mr A Chan’s adoption of 5% instead of Ms Sat’s 4%. 75.Similarly, for the headroom adjustments, we prefer Mr A Chan’s rounded figures to the nearest integer. 76.In terms of size adjustments, we have earlier commented in para 58 above that comparables 5, 6 and 8 of relatively small sizes were adopted. In this regard, we tend to agree with Mr A Chan to adopt a higher adjustment rate of 3% for every 10 sq m in order to reflect the differences but with higher upper limit of 60% instead of 30%. 77.On the other hand, having conducted the joint site inspection and scrutinized the various floor plans, we agree with Ms Sat for her adjustments for layout and steps. 78.However, we do not agree with Ms Sat that the visibility of comparable 7 is blocked. 79.Having carried out the above analysis, we set out below our evaluation of the reference unit:
80.The EUV of all G/F units of the Subject Lots is thus calculated as follows:
F.2 EUV for 1/F 81.Next, we come to the assessment of the 1/F units. Both experts adopted 1/F, No 67 Granville Road as the reference unit and they agree that the 1/F units are for non-domestic purposes. They also agree the following comparables to be adopted[8]:
82.Again, the two experts had the following agreements/disagreement on the various adjustment factors:[9]
83.Similarly, the table below shows the various adjustments applied by Mr A Chan (while those by Ms Sat would be shown in parenthesis if they are different[10]):
84.Again, our comments on age adjustment for the G/F above are applicable to these 1/F comparables. 85.As regards floor level, we disagree with Mr A Chan as all the comparables have lift services; but we agree with his adjustments for size and headroom. We also agree with Mr A Chan for his adjustments for lift facilities because the services of 2 lifts would be better than one, for instance during rush hours and during period when one lift is under repair or not in operation. 86.The EUV of 1/F, No 67 Granville Road is thus calculated as follows:
87.As a check, we find this unit rate for 1/F at $139,000 is about 1/5 that for G/F, which appears to be reasonable (bearing in mind it is not served by any lift). 88.Then we follow Mr A Chan’s assessments of the other 1/F units of the Subject Lots and Adjoining Lots as follows on the ground that he had inspected the internal condition of all the units[11]:
F.3 EUV for Upper Domestic Floors 89.We are going to determine the EUV of the upper domestic floors based on the following comparables agreed by Mr A Chan and Ms Sat[12]:
90.Again, the two experts had the following agreements/ disagreement on the various adjustment factors:[13]
91.Similarly, the table below shows the various adjustments applied by Mr A Chan (while those by Ms Sat would be shown in parenthesis if they are different[14]):
92.As we can see, the major difference in opinion between the two experts is the adoption of comparables with lift facilities by Mr A Chan. We have no strong view against that if such comparables are adopted mainly for checking purposes. 93.In respect of the comparables with no lift facilities, there is no difference in opinion between the two experts except Ms Sat applies an upward adjustment to the top floor which we agree. 94.The other major difference in opinion is in respect of the size adjustments. Having regard to the significant differences in size between the reference unit and the comparables with no lift, we prefer a higher adjustment rate of 2% for every 10 sq m adopted by Mr A Chan. 95.The EUV of 3/F, No 67 Granville Road is thus calculated as follows:
96.Having reviewed the above, we consider a unit rate of $110,000/sq m for 3/F, No 67 Granville Road reasonable. 97.Then we follow Mr A Chan’s assessments of the other 1/F units of the Subject Lots and Adjoining Lots as follows on the ground that he had inspected the internal condition of all the units[15]:
F.4 Conclusion on EUV 98.Thus, the total EUV for the Subject Lots is:
99.From the above, the respondents’ respective units represent the following pro rata share of the total EUV:
G. Whether Redevelopment of the Subject Lots is Justified 100.Section 4(2) of the Ordinance provides that the Tribunal shall not make an order for sale unless it is satisfied that the “age or state of repair” of existing development on the Subject Lots is justified and that the applicants have taken "reasonable steps" to acquire all undivided shares of the Subject Lots. 101.The applicants referred to the guidelines laid down in Top Sail International Limited v Cheng Kai Ming, LDCS 18000/2010 (unreported, dated 15 November 2011) (“Top Sail”) and Charmlink v Lee Tong Hing & Others, LDCS 16000/2010 (unreported, dated 29 November 2011) (“Charmlink”) on the factors that the Tribunal should consider whether redevelopment is justified due to age or state of repair. 102.In Top Sail, the Tribunal stated:
103.Such a discretion by the Tribunal was followed in Charmlink:
104.For the above purpose, the applicants have filed expert evidence from Sr Cheung on the building condition of the buildings standing on Nos 65-73 Granville Road and from Ir Chan on the structural conditions. 105.The buildings at Nos 65-73 Granville Road were designed and constructed more than 65 years ago under the construction requirement of the London County Council By-laws 1938. Based on Ir Chan’s report, the condition of the building structure is poor as the concrete has passed its working life of 50 years. Severe cracks and spalling on beams, columns, walls and slabs were found in some units. At some locations, the reinforcements are exposed and showed an advanced stage of corrosion. Various integrity tests were conducted on the buildings, including:
106.Following these tests, it has been Ir Chan’s opinion that in order to bring the buildings back to a structural adequate condition, an extremely comprehensive and expensive scheme of repairing works must be carried out promptly. The compressive strength of concrete at some part of the buildings has been deteriorated to 1/3 of the original strength. The carbonation test, chloride content test and direct open-up inspection all showed that the reinforcement bars are undergoing various degrees of corrosion, from mild to severe. Severely reduced concrete strength, combined with heavily corroded reinforcement, drastically reduce the strength of the structural members, as well as the overall stability of the buildings. The scale of the repairing works required would be substantial and usually requires clearing out the occupants.[16] 107.Sr Cheung, based on Ir Chan’s report, concluded that no matter how good the internal areas are, if the basic structure is not in a satisfactory condition, the buildings would not be fit for occupation. Also, Sr Cheung opined that the buildings have not been provided with sufficient and up-to-date provisions and services installation including proper means of escape, fire resisting construction, fire services installations, building facilities etc to protect life and properties of building occupants and users in case of emergency. Making accommodations for these provisions and installations into the buildings to meet current safety standards would necessitate substantial alteration and addition works and disturb the occupants. The total estimated initial repair costs to restore the buildings to a tenantable condition are $19,347,091 which is about 18.74% of the unit cost of constructing new building with up-to-date design and services provisions[17] while the long term maintenance costs are expected to grow and become more frequent[18]. It is considered not suitable and uneconomical to do so.[19] 108.As stated at para 19 above, R1 to R3 have not filed any expert evidence on the age and state of repair of the existing developments at Nos 65-73 Granville Road. R4 appointed Sr Leung and Ir Lo as the experts on building condition and structural assessment to cover No 73 Granville Road and No 75 Granville Road instead of the buildings standing on Subject Lots. 109.In any event, at para 1.3 of the Structural Assessment Joint Statement[20], Ir Lo agreed with Ir Chan that within the criteria as stipulated in the Practice Note for Authorised Persons and Registered Structural Engineers APP-117, the Building Authority would use current building regulations and codes of practice for checking the structural adequacy of an existing building or part thereof, as may be affected by proposed Addition & Alteration Works. 110.During cross-examination, Ir Lo agreed that the intention of APP-117 is to improve the safety of the building and the safety, health and hygiene of the occupiers of the building. It is not in dispute that many of these construction requirements are incapable of being introduced to old buildings such as the ones at Nos 65-73 Granville Road because of the physical constraints of how they were constructed. 111.Ir Chan, after considering the result of his visual inspection, the laboratory test results on the structural condition of Nos 65-73 Granville Road, and the reports of Ir Lo, concluded that the costs to remedy the structural defects that No 73 Granville Road are suffering from came to the substantial amount of $1,769,049 and those of Nos 65-71 Granville Road at $7,345,884. 112.Ir Chan arrived at the above amounts by the following process:
113.Ir Lo disputed Ir Chan’s above evidence by raising 4 points:[23]
114.In respect of the lack of record drawings for Nos 73-75 Granville Road, in para 2.9 of the structural joint statement, Ir Chan explained how he took the structural plans of Nos 65-71 Granville Road for reference and concluded from the test results that it was natural to infer that the original bar size was 1/4 inch or bigger. In fact, Ir Lo in his first report also stated clearly that he made the assumption that the design parameters of Nos 73-75 Granville Road are similar to those of Nos 65-71 Granville Road. Thus, we agree that Ir Chan’s inference on the original bar sizes (used in his calculation of the loss of sectional area of more than 15% in the open up test results of Ir Lo) is clearly reasonable. 115.As regards Ir Lo’s second concern that the laboratory reports of Ir Chan’s open up inspection stated the loss of section to be less than 10%, it is noted during cross-examination, Ir Lo readily confirmed that the laboratory did not have any information on the original designed diameters of the reinforcement bars and the loss of section stated on the laboratory reports represented only the percentage calculated by the laboratory based on (a) its “maximum measured diameter” of an exposed reinforcement bar and (b) its “minimum measured diameter” of that exposed reinforcement bars. This is not the proper method to calculate the loss of sectional area. According to the applicants, which we agree, the proper method to calculate the loss of sectional area should be based on comparing (a) the “minimum measured diameters” of the reinforcement bars to (b) the original designed diameter of the reinforcement bars. 116.In respect of Ir Lo’s query on whether the mandatory inspection code is applicable only when there is spalling concrete, Ir Lo agreed, during cross-examination, that the mandatory inspection code’s stipulation, namely that the loss of sectional area of more than 15% of a reinforcement bar of a structural element is serious corrosion and “shall be replaced”, should be taken as the objective standard when corrosion of a reinforcement bar in a structural element should be considered serious that should be replaced. Ir Lo further accepted that even if there is no spalling concrete on the structural element, if the reinforcement inside has suffered a loss of sectional area of more than 15%, it should be considered serious corrosion. 117.In respect of Ir Lo’s final query, namely that hacking off 75% of the surface area of all interior structural elements and replacing the heavily corroded reinforcement underneath should not be done without being justified by detailed structural assessment including calculations to be carried out to ascertain the safety level of the structural element concerned, it is noted that Ir Lo, again during cross-examination, accepted that his view was based on the consideration of the safety of the structural elements. In other words, if a structural element is not shown to be unsafe, he would not recommend hacking off and replacement. However, Ir Lo agreed to the following propositions put to him:
118.We thus consider Ir Chan’s costs of structural repair do serve the proper function of informing the Tribunal for the purposes of the Ordinance how much it would have required to remove the serious internal defect of having a high proportion of the reinforcement bars of the structural frame of No 73 Granville Road suffering from a loss of sectional area of more than 15%. When Ir Lo relied on safety as the only standard to examine whether the existing development of No 73 Granville Road is justified to be redeveloped, we consider it not being the threshold required by the Ordinance to justify development. 119.Indeed, the Tribunal in Intelligent House Ltd v Chan Tung Shing & Others [2008] 4 HKC 421 at paras 130-151, rejected the minority’s submission that the Tribunal would only investigate whether the state of repair was so bad that it could not be repaired or that it was dangerous to public health and safety such that it ought to be demolished. And in Fortress Jet Limited & Others v Tang Hoi Yip and Cheung Sau Chan Property Limited & Others, LDCS 3000/2015 (unreported, dated 11 August 2017), the Tribunal made this ruling at para 37 of the judgment:
120.Similarly, as regards the difference in opinion between the two experts on building conditions, to the extent stated that Sr Leung placed her concern on the repercussion of the demolition of No 73 Granville Road alone on the safety of 75 Granville Road, we have explained in paras 28-53 above that this is not a relevant consideration of whether redevelopment of, for instance, No 73 Granville Road is justified for redevelopment under the Ordinance. 121.Sr Cheung adopted “tenantable condition” to formulate the repairs. As stated in para 107 above, he considered appropriate to compare No 73 Granville Road with the requirements of the current laws, regulations and standards, particularly those on safety, health and hygiene to ascertain whether No 73 Granville Road may be considered to be aged, suffering from obsolescence and falling short of the meaning within the definition of “tenantable standard” accepted by the Tribunal in Intelligent House at para 163 as follows:
122.As a result, Sr Cheung considered that improvement works should be included as essential works under “tenantable condition”. In any event, the Court of Appeal in Fineway Properties Ltd v Sin Ho Yuen Victor [2010] 4 HKLRD 1 while criticizing the concept of economic lifespan and the economic test in Intelligent House made no adverse comment on, for instance, the standard of “tenantable condition” or other related topics. 123.On the other hand, Sr Leung used “habitable condition” to formulate the repairs. The test is thus safety as indicated in the second subparagraph of her statement in the joint statement under item 1 (tenantable condition vs habitable condition)[24]:
124.However, Sr Leung confirmed that the items of improvement works identified by her but excluded as essential repairs were required by regulations and codes introduced since the construction of Nos 73-75 Granville Road and intended to improve the safety, health and hygiene of the occupants of buildings. Then when she was asked what advice would be on the improvement works if she were asked by an owners’ corporation (“IO”) to formulate a renovation plan for the building, Sr Leung replied that she:
125.Having regard to the above, we consider it correct to include the costs of the improvement works as part of the costs in deciding whether redevelopment of No 73 Granville Road is justified. This, together with our discussion of the difference between Ir Chan and Ir Lo on calculation of the loss of sectional area of more than 15%, explains the difference on repair costs between Sr Cheung and Sr Leung. We accept therefore the costs estimate of Sr Cheung as set out in Exhibit A3:
126.To be complete, the last item of disagreement between Sr Cheung and Sr Leung is on a research paper funded by the Hong Kong Institute of Surveyors and conducted by the City University of Hong Kong on the benchmarking of management and maintenance fees for residential properties (public and private in 2007-2008) (“the research paper”): whether it shows, as Sr Leung asserted in the joint statement, “that the repair costs will not increase when age of building increase provided there is regular maintenance”[25]. 127.Whereas 41 sets of data were collected for the research paper from residential properties managed by estate management companies, there is no management company and no owners’ corporation or even Owners’ Committee formed for the building at Nos 73-75 Granville Road. That means to apply the survey results obtained in the research paper to the building at Nos 73-75 Granville Road which has been without proper management/ maintenance in the past years is not appropriate. Indeed, orders by the Building Authority under section 26 of the Buildings Ordinance specifying repair works to be carried out for the building at Nos 73-75 Granville Road. The research paper also acknowledged that data of Property/Facilities collected from the 41 residential estates did not meet the minimum number of samples for statistical analysis. More particularly, only 2 out of the 41 samples were within the age ranging 40-50 years; others were much younger in ages. The building at Nos 73-75 Granville Road was at least 14 years older than the oldest building in the research. Lastly, the last subparagraph of the research paper stated as follows:
128.The above proviso, when read with Sr Leung’s following statement in the joint statement dealing with another part of the research paper is quite conclusive against any reliance on the finding of the research paper and any application to Nos 73-75 Granville Road:
129.Thus, the evidence analyzed so far firmly establishes the following:
130.Bearing in mind the above, particularly when the buildings at Nos 65-73 Granville Road are aged from physical and functional perspective, we consider it is justified to redevelop Nos 65-73 Granville Road. H. Section 4(2)(b) – Whether applicants have taken reasonable steps 131.The applicants are under an obligation to take reasonable steps to negotiate on terms that are fair and reasonable for the purchase of the interest of R1 to R4 under Section 4(2)(b) of the Ordinance. 132.It is not disputed that the applicants have made the following offers to the respondents through their solicitors to acquire the units they own:-
133.Obviously, these offers were much higher than the EUV as determined for the respective units[27]. 134.We are also satisfied from the evidence before us that each of the first two rounds of offers made to the respondents was accompanied by the advice letter or referred to the valuation reports of Mr A Chan setting out the relevant valuation assessments and calculations of the share of the respondents’ unit(s) of the RDV apportioned according to the statutory formula and each offer was in excess of the share of the respondents’ unit(s). 135.The latest offers on 17 September 2019 were made after the respondents’ joint valuation expert, Ms Sat, was allowed by the Tribunal to introduce different RDV valuations based on different models during the trial. 136.None of the offers were accepted by the respondents[28]. 137.Mr Mok for the applicants referred to Capital Well Limited v Bond Star Development Limited (2005) 8 HKCFAR 578 where the Court of Final Appeal remarked at para 33 as follows:
138.On the other hand, there is no evidence before this Tribunal to demonstrate that the preliminary assessments by Mr A Chan can in any way be faulted.[30] 139.Also, in Good Faith Properties Limited & Others v Cibean Development Company Limited, LDCS 42000/2011 (unreported, dated 31 May 2013), the Tribunal had at para 40 of the judgment confirmed that the time for it to be satisfied with the steps taken being reasonable was at trial and not before. 140.Bearing in mind the above, we are satisfied that on the evidence available and in the circumstances of the Application, the applicants have taken reasonable steps to acquire all the undivided shares in the Subject Lots including negotiating for the purchase of such of those shares as are owned by R1 to R4 on terms that are fair and reasonable. I. Disputes on the estimation of the RDV of the Subject Lots and Adjoining Lots I.1 Optimum hypothetical development model 141.Although the applicants seek 3 compulsory sale orders, one covering each of the 1st Lot, the 2nd Lot and/or the 3rd Lot, the applicants intend to have one sale to cover both the Adjoining Lots and the Subject Lots with one single reserve price. The net site area accountable for redevelopment is about 1,007.15 sq m. 142.In Capital Well at para 42, the Court of Final Appeal “leave it open for possible future consideration whether the Tribunal has a discretion to give suitable directions (under s 4(6)(a) of the Ordinance or otherwise) concerning conduct of the sale designed to secure that the sale of the single lot, the subject of its order, can take place together with the sale of the other redevelopment lots, similar to the directions given by the Court of Appeal in Golden Bay Investment Ltd v Chou Hung [1994] 2 HKC 197 at pp 200-202, or along analogous lines.” 143.In any event, both Mr A Chan and Ms Sat resorted to the residual valuation method in determining the RDV on the above basis as at 12/13 August 2019. This is done by deducting development cost (including construction costs, professional fees, finance costs etc) and developer’s profit from the estimated gross development value (“GDV”) of the completed optimum development. 144.Mr A Chan had assumed a hypothetical development of a 20-storey commercial building designated to retail and office purposes. Ms Sat initially had different hypothetical development models but at the beginning of her cross-examination on the RDV (17 September 2019), she announced the abandonment of her model, for instance, with car park basement. At the last date of trial on 18 September 2019, she also confirmed the abandonment of her typical office floor plan. In the premises, the RDV residual valuation would be based on Mr A Chan’s model, subject to the following modifications and questions:
145.In respect of the question whether there should be a subdivision of the 2 offices into 4, it was noted that at the beginning of the cross-examination of Ms Sat, she confirmed that there should be 2 offices per floor because this would give a size around 220 sq m each, being commensurate with the image of the office block. Ms Sat also considered that 4 offices per floor will produce small office units (each around 110 sq m) which might take longer to sell than that of 2 offices per floor. 146.Although Ms Sat had somehow wanted to change her opinion at the last date of trial, we agree with her initial view, having particular regard to the comparables being adopted and the following evidence from Mr A Chan:
147.Thus, we would determine the GDV on the basis of 2 offices per floor. In any event, the difference between 2 offices per floor or 4 offices per floor is academic because as can be noted later, we have adopted the size adjustment at 1% per 50 sq m. 148.Ms Sat provided a value for the 4/F Flat Roof and Mr A Chan clarified in his oral evidence that the retention of the 4/F Flat Roof in his residual valuation was a mistake. He explained that his original hypothetical ginza model did not have a mechanic floor and as a result had a 4/F Flat Roof, whereas his office model has 3/F mechanical floor and there was no 4/F Flat Roof. Then when his residual valuation of the office block was done, he forgot to delete the 4/F Flat Roof. Mr A Chan further explained that it is inappropriate to provide flat roof next to the mechanical spaces which generate much heat and noise. 149.We accept Mr A Chan’s explanation and agree that there should not be a value for the 4/F Flat Roof. This is particularly the case when Ms Sat had eventually accepted a development model having the mechanical floor located on 3/F, ie there would not be a Flat Roof on 4/F. 150.In respect of whether Mr A Chan’s 4 shops should be subdivided into 8 shops, Mr A Chan’s evidence was that shop sizes in No 8 Observatory Road and No 68 Kimberley Road, both new developments in the vicinity, comprise bigger shops of 100 sq m to 200 sq m. Large shops of 100-200 sq m are able to attract up-market restaurant, wine shop, duty free shop, jewellery shop and so on which are capable of enhancing the image of the proposed development. On the other hand, we were informed that shops of smaller sizes of about 50-100 sq m would attract trades restricted to florist, estate agent, fashion boutique, convenient store, coffee shops and the like. 151.However, when we carried out our joint inspection on 10 September 2019, we noted shops of latter trades predominate in this section of Granville Road and/or Chatham Road South in the proximity. More importantly, we understand that both experts relied on 4 or 5 of the comparables that they adopted in assessing the EUV; the sizes of these comparables ranged from 28.83 sq m to 82.17 sq m with a median of 40.82 sq m. If the comparable with less than 30.0 sq m (ie the one at Windsor Mansion) is excluded, the median becomes 58.48 sq m. Thus, we prefer to adopt a scenario of 8 shops so that we can compare more like with like. We do not consider subdividing the G/F of the hypothetical development into 8 shops per se would have adverse impact on the up-market image of the proposed building. 152.Lastly in respect of the design of the hypothetical development model, the Tribunal is invited to decide whether to keep Mr A Chan’s staircase to the 1/F or to relocate it to the rear as suggested by Ms Sat in Exhibit R1(10). In this regard, we prefer Ms Sat’s argument not to use up valuable frontage for the 1/F staircase, especially when we are going to adopt shops of smaller sizes. I.2 GDV for Shops 153.Regarding the choice of shop comparables for determining the GDV, Mr A Chan used 5 and Sat used 4 all of which are common with Mr A Chan’s except the one at Windsor Mansion as we discussed in para 56-57 above. For the same reasons that we stated at para 57 above, we set out below Mr A Chan’s 5 comparables for consideration:
154.We would adopt the various adjustment factors we discussed save that we now adopt Ms Sat’s size adjustment of 2% per 10 sq m (on threshold basis) because we have adopted her suggestion of 8 smaller-sized shops. Our calculation is shown as follows:
155.Then we follow Ms Sat’s revised calculation of the shops’ value as shown in Exhibit R1(6) as follows:
156.Taking a unit rate of about 1/3 and 1/4 of $1,165,250/ sq m for the retail value on 1/F and 2/F, we arrive at $388,000/ sq m and $291,000/ sq m respectively. I.3 GDV for Offices 157.Turning to the assessment of the GDV for the offices, there is a hot dispute on the choice of comparables. 158.There are only three common comparables (ie KF2/MW11, KF9/MW12 and KF10/MW17) between the two experts. Mr A Chan’s 7 comparables (ie KF1, KF3 to KF 8) were rejected by Ms Sat on the ground that the buildings are too old in age. On the other hand, Ms Sat’s 14 comparables were mostly rejected by Mr A Chan on the ground that their sizes were relatively small. However, in order to have a more comprehensive review of their comparables, we consider appropriate to include all the comparables for analysis:[31]
159.Then, the two experts had the following agreements/ disagreement on the various adjustment factors:[32]
160.During the trial, Ms Sat produced updated price indices by R&V showing a marginal upward trend. However, as time passed, the R&V indices in fact showed a downward trend. Bearing in mind what the Court of Appeal stated in Fineway Properties Limited v Sin Ho Yuen Victor [2010] 4 HKLRD 1 at para 14 that “(t)here would have been no reason (much less good reason) for the Tribunal not to have ‘approved’ the price agreed by the parties”, we would rather maintain the time adjustments agreed by the 2 experts in place. 161.In terms of location, we appreciate that there is dearth of transactions of new office premises in the vicinity. As a result, the two experts had to refer to sales of office premises built more than 20 or 30 years ago. Even so, it is unfortunate that the only 3 common comparables, all in Concordia Plaza, are situated in another area which is far away from the Subject Lots and where trading environment is significantly different. In that regard, we prefer to adopt the location adjustments proposed by Ms Sat. 162.Chevalier House, Multifield Plaza and Empress Plaza, like the Subject Lots, are situated west of Chatham Road South. The commercial environment there resembles closely that of the Subject Lots. In that regard, we do not agree with the significant location adjustment proposed by Mr A Chan for Chevalier House. We would simply allow no adjustment for such location. 163.As regards adjustment for age, we prefer to adopt Mr A Chan’s 0.5% for every 1 year as office premises are less sensitive to age. On the other hand, we accept the grading /development scale adjustment proposed by Ms Sat save that we shall reduce the -20% for Concordia Plaza to -10% instead. According to the Appendix 1 of HKIS Guideline Notes on Valuation of Development Land, it is suggested that architectural design, IT backbone installations, Fit Out (Ceilings, central a/c, lighting provision etc) are potential adjustment factors to office comparables. When being cross-examined whether such factors have been incorporated into consideration, Mr A Chan indicated adjustment on “Building Age” has reflected such difference. We disagree. The building age adjustment is purely a quantitative measure reflecting depreciation generally without sufficient consideration into other peculiar features which distinguishes one development from another. In simple words, buildings of the same age could have totally different gradings and facilities. To demonstrate, Concordia Plaza, Multifield Plaza and Empress Plaza were all completed in 1994 but Concordia Plaza is way superior to the latter two in terms of grading, design and scale. The 5% “facilities” adjustment adopted by Mr A Chan obviously could not reflect such superiority. 164.Coming to floor adjustments, we prefer Ms Sat’s 0.5% for every 1 level which we consider more reflective of market conditions. On the other hand, we agree with Mr A Chan on his treatment of the headroom adjustments by rounding them to the nearest integer. 165.Owing to the earlier difference in the actual floor of the reference unit, the two experts had disagreement on how “building view” should be properly adjusted. However, when Ms Sat had agreed the mechanical room would be on 3/F, the reference unit of Mr A Chan shall be adopted. Then there is no significant dispute between the experts about the adjustments based on “building view” (+10%), “open view” (+5%) (or “building and garden view” as proposed by Ms Sat (+7%)) or “seaveiw” (0%). 166.On the other hand, Mr Li in his closing submission raised criticism on Mr A Chan’s adjustment for KF9/ MW12. However, in comparison with Unit 5 on 8/F (ie KF6), Unit 8 on 7/F (ie KF9/ MW12) faces a more open view towards Hong Kong Science Museum. We agree with Mr A Chan’s adjustment. 167.We also follow Mr A Chan’s adjustment for facilities which also in part takes care of Ms Sat’s proposed adjustment for grading and development scale where “(t)he better the building facilities and finishes, …, the better the grading of the office.” 168.Regarding the adjustments for size, Mr A Chan proposed 1% for every 10 sq m whereas Ms Sat proposed 1% for every 50 sq m. We note that in Alliance Fame Limited & Others v Mak Kam Ho & Others, LDCS 9000/2015 (unreported, dated 4 August 2017) where a hypothetical office development was assumed, the experts in that case agreed size adjustments based on 1% per 75 sq m. Also two of the common comparables adopted were resulted from a combination of office units. We tend to agree here with Ms Sat’s suggestion as the market for offices should be less sensitive to size. 169.Thus, on the basis of the above analysis, we determine the office GDV as shown in the following:
170.From the above, we find the adjusted average of the 3 common comparables yields at $276,880/sq m. Unfortunately, all the 3 common comparables come from the same building, ie Concordia Plaza. If we look at the other comparables, their adjusted unit rates still fall within reasonable bounds. We then prefer to adopt the average of all the comparables which is $283,809/sq m, say $284,000/sq m. 171.We then calculate the value of the other floors of the hypothetical development:
I.4 Other Factors in Residual Valuation 172.In respect of other elements in the residual valuation, there are not many differences between the experts. For instance, they agreed the total GFA to be adopted, the marketing cost and the demolition cost as well as the development period. 173.As regards the construction cost, Mr A Chan adopted $315,867,057 (ie $26,135/sq m)[33] whereas Ms Sat followed the same at Exhibit R1(12b). We consider this a conservative estimate as Ir Chan has indicated that strengthening and stabilization measures have to be taken to protect the integrity of No 75 Granville Road during construction. 174.There is a difference in opinion on the discount /deferment rate. Mr A Chan adopted 5.125% which was the HSBC offering rate whereas Ms Sat used 4%. During the cross-examination of Mr Wong, representative of the applicants, he admitted that as a developer, borrowing rate around 4% can be achieved. Therefore, we adopt 4% as the deferment rate. 175.As said, the two experts had agreed a developer’s profit at 20% on development costs (including land cost). In Mr Li’s closing submission, however, he suggested that it should be 15%, citing Century Wide Development Limited v Lai Yee Wah & Others, LDCS 11000/2016 (unreported, dated 8 November 2019). 176.As for any business undertaking, the developer who takes the trouble to assemble a piece of land for redevelopment would seek to make a profit in return. In Hong Kong it is usual to assume that the developer seeks a capital profit expressed as a percentage of the total development cost (including interest) but such a percentage can never be a constant. “The target levels of profit will depend on the nature of development and allied risks, the competition for development schemes in the market, the period of the development and the general optimism in relation to that form of development.”[34] 177.On the one hand, Mr Li’s suggestion was never made in trial and the experts were not cross-examined. In any event, in Century Wide, the hypothetical development assumed was a composite development with residential units on the upper floors in Tai Kok Tsui. It cannot be compared with the Application case where the hypothetical development comprises an office cum retail development in Tsim Sha Tsui. 178.Notwithstanding the above, in Excel Castle International (HK) Limited & Others v Vivian Jeansson, LDCS 2000/2019 (unreported, dated 25 March 2020) where a compulsory sale order was granted for Nos 49, 49A and 51 Kimberley Road also in Tsim Sha Tsui, the Tribunal adopted the developer’s profit of 20% on costs for a hypothetical office development. J. Finding on RDV and the Reserve Price 179.Our residual valuation is found at Appendix 1 where we determine the land value of the Subject Lots and Adjoining Lots at $1,926,200,000 (ie accommodation value of $159,377/sq m)[35]. 180.Ms Sat had tried to use certain site transactions for the purpose of rough cross-checking. The first one is the sale of Nos 21-27 Ashley Road at $1,750,000,000 on 27 June 2019. The site area is 753.16 sq m or the accommodation value obtained is $193,628/sq m. We agree with Mr Mok that, for the following reasons, it is not an appropriate comparable:
181.Ms Sat also referred to the sale of No 32 Granville Road at an accommodation of $246,236/sq m for checking purpose. This is however a very small site of about 94.76 sq m which is 10 times smaller than the Subject Lots and the Adjoining Lots. More importantly, this site is situated at the superior location to the west of Carnarvon Road with a better pedestrian flow and more bustling environment. 182.We shall adopt the estimated RDV of $1,926,200,000 as the Reserve Price for the auction of the Subject Lots and the Adjoining Lots. K. Order 183.Mr Mok for the applicants in his opening asks for 3 compulsory sale orders covering each of the 1st Lot (Nos 65-67 Granville Road), the 2nd Lot (No 69-71 Granville Road) and the 3rd Lot (No 73 Granville Road), rather than one order for the sale of the Subject Lots. By the Notice of Application filed to the Lands Tribunal on 19 December 2017, the applicants sought, inter alia, an order to sell all the undivided shares in the 1st Lot, the 2nd Lot and the 3rd Lot for the purpose of the redevelopment of the 1st Lot and/or the 2nd Lot and/or the 3rd Lot and/or the Land (ie Nos 61-73 Granville Road), pursuant to sections 3(2) and 4(1)(b) of the Ordinance. Since no corresponding application to amend the Notice of Application has been made by the applicants, the Tribunal considers that one order, instead of 3, for sale shall be granted. 184.Our order is as follows:-
185.Applying the well-established principle by the Court of Appeal concerning costs in the compulsory sale application in Good Faith Properties Ltd & Others v Cibean Development Co Ltd [2014] 5 HKLRD 534 and despite the submission of Mr Mok in his Reply Submission, the Tribunal makes a costs order nisi that:
Unless any of the parties apply by summons to vary it, the costs order nisi shall be made absolute upon expiry of 14 days. 186.Last but not least, the Tribunal thanks all Counsel for their assistance.
Mr Mok Yeuk Chi, instructed by So, Lung & Associates, for the 1st to 17th applicants Mr C Y Li SC leading Mr Adrian But, instructed by Vincent T K Cheung, Yap & Co, for the 1st respondent Mr Albert Chan, instructed by Tang & So and Woo, Kwan, Lee & Lo, for the 2nd and 3rd respondents Mr Ambrose Ho SC leading Ms Anna Chow, instructed by Hoosenally & Neo, for the 4th respondent Appendix 1
Remark: This resultant unit value of GDV at $260,194/sq m compares reasonably with the en-bloc transaction of a relatively new office development (with retail and carparking facilities), No 8 Observatory Road, on 27 July 2018 at $4,100 million (or at a unit rate of $267,194 per sq m of gross floor area). [1] Decision for leave to appeal is handed down on the same day of this judgment. [2] “Redevelopment” (重新發展), in relation to a lot, means the replacement of a building on (or formerly on) the lot: see Section 2 of the Ordinance. In Chinese, “重新發展”: 就某地段而言，指以新的建築物取代座落於該地段或先前座落於該地段的建築物: see Chinese version of Section 2 of the Ordinance. [3] Para 1(b) of Schedule 3 provides that the Tribunal may allow such further period on the application of the purchaser of the lot or his successor in title. [4] Paras 10 to 21 of the judgment in Capital Well. [5] See Bundle D2/391-7. [6] See Bundle D2/370. [7] See Inspection Bundle p91A. [8] See Bundle D2/391-8A. [9] See Bundle D2/372. [10] See Inspection Bundle p92A. [11] See Bundle D2/391-11A. [12] See Bundle D2/391-9. [13] See Bundle D2/372. [14] See Bundle D2/391-9 and D2/391-16. [15] See Bundle D2/391-11A. [16] See Bundle E4/1168-1169. [17] See Exhibit A3. [18] Sr Leung had referred to a research paper funded by the Hong Kong Institute of Surveyors and conducted by City University of Hong Kong on the benchmarking of management and maintenance fees for residential properties (public and private in 2007-2008) suggesting that the common belief that repair cost will increase with building ages is unsubstantiated. Sr Cheung had rebutted that the finding in the research paper being inconclusive and in any event not applicable to Nos 73-75 Granville Road. See Bundle E7/2631-2633. [19] See Bundle E1/53-54. [20] See Bundle E7/2648. [21] See Bundle E6/2286. [22] See Bundle E6/2293, at para 10.6. [23] See Bundle E7/2655-2656. [24] See Bundle E7/2629. [25] See Bundle E7/2631. [26] MR in the research paper stands for “management remuneration”. [27] See para 99 above. [28] In the 2nd and 3rd Respondents’ closing submission, it appears that the 3rd Respondent had accepted the applicants’ latest offer of $32,500,000 on 27 September 2019. [29] The Court of Final Appeal stated further at para 36 of the judgment that: “What the Tribunal must do is to consider whether, in the circumstances of each case, the offer falls within a band of what represents a fair and reasonable assessment of the value of the minority owner’s interest reflecting a proportionate share of the redevelopment value of the whole site.” [30] Indeed, based on our determination of the RDV at 1,926,200,000 below, the latest offer by the applicants to R1 falls within 10% range of the pro rata share. [31] See Inspection Bundle p95A and p96A. [32] See Bundle D2/508. [33] See Bundle D2/519. [34] Eric Shapiro, David Mackmin and Gary Sams, Modern Methods of Valuation, 12th Edition, 2019, p222. [35] Incidentally, this resultant value is very close to Ms Sat’s assessment of $1,931,000,000 before she abandoned her model during the trial. See Bundle D2/528. [36] Indeed, Nos 21 & 21A Ashley Road was the subject of a compulsory sale order pursuant to Fortress Jet Limited & Others v Tang Hoi Yip and Cheung Sau Chan Property Limited & Another, LDCS 3000/2015 (unreported, dated 11 August 2017). [37] The draft Particulars and Conditions is found at Bundle C3/79/1026-3 to 1026-31. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cases cited in this judgment
Further hearings and rulings under LDCS 14000/2017