Perfect Horizon Ltd v. Co Sam and Others

LDCS 23000/2018

[2020] HKLdT 37

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LAND COMPULSORY SALE MAIN APPLICATION NO 23000 OF 2018

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BETWEEN

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J U D G M E N T

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1.This is an application for a compulsory sale order under the Land (Compulsory Sale for Redevelopment) Ordinance, Cap 545 (“the Ordinance”) (hereinafter referred to as “the Application”) to sell all the undivided shares of the Remaining Portion of New Kowloon Inland Lot No 3759 and Section A of New Kowloon Inland Lot No 3759 (hereinafter collectively referred to as “the Lot”). Erected thereon is a pair of 5-storey (excluding the Mezzanine floor) tenement buildings sharing 2 common staircases (“the Buildings”) with the postal address of Nos 73 & 75 Lion Rock Road respectively.

2.Use and development of the Lot is governed by Conditions of Exchange No 4942 dated 25 September 1953 which contains, inter alia, the following special conditions:

“(2) Thex new lot shall not be used for industrial purpose and no factory building shall be erected thereon.

…

(17) Not more than 2 houses each having a frontage of not less than 20 feet shall be erected on the new lot.”

3.The occupation permit for the Buildings (“OP”) was issued pursuant to the Building Ordinance (Chapter 123 of the Revised Edition, 1950) on 5 July 1954 whereby permission was granted to occupy and use two “European houses” at 73 and 75 Lion Rock Road for domestic use.

4.Section 2 of such earlier Buildings Ordinance defines ‘domestic building’ to mean “any building constructed, used or adapted to be used, wholly or partly, for human habitation, but does not include any building where caretakers only, not exceeding two in number, pass the night” (underline added).

5.It is not disputed that the total gross floor area of the Buildings is about 1,503.17 sq m. According to the General Building Plans approved on 10 November 1953, each of the Buildings comprises a ground floor (“G/F”) for shop use, a mezzanine floor (“M/F”) for non-domestic use and 1^st Floor to 4^th Floor for residential use. According to the approved building plans, there were originally ladders and staircase connecting G/F and M/F but they have been removed. Now there are doors to the M/F which are opened at the staircases. There was a subsequent Addition and Alteration plan (“A&A plan”) covering G/F & M/F, 73 Lion Rock Road where a portion of the open yard at G/F 73 Lion Rock Road was enclosed and covered to accommodate the store, kitchen and utility area. As for M/F, 73 Lion Rock Road, the A&A plan has the following statement marked on the plan:

“THE ILLEGAL COCKLOFT SHALL BE DEMOLISHED AFTER THIS PLAN IS APPROVED AND CONSENT IS GIVEN” (“the said statement”)

But there was no corresponding structural details for any re-construction of the existing “illegal cockloft”. It appears that the “illegal cockloft” erected thereon has not been demolished. See §26 below.

6.According to the Land Registry, there are two Deeds of Mutual Covenant, one for No 73 Lion Rock Road dated 31 August 1955 (“DMC 73”) and another for No 75 Lion Rock Road dated 20 August 1954 (“DMC 75”). Both Deeds of Mutual Covenant contain a similar clause against structural alteration to one’s own unit (clause 12(a) of DMC 73 and clause 12(a) of DMC 75). There is no dispute that five undivided shares were allotted with one share for each floor of No 73 Lion Rock Road (save the M/F) and five undivided shares were allotted with one share for each floor of No 75 Lion Rock Road (save the M/F).

7.Further, by a Deed Poll dated 8 May 1981, G/F and M/F, 75 Lion Rock Road were divided into two parts with 2/3 of 1/5 of the undivided shares allotted to G/F, 75 Lion Rock Road and 1/3 of 1/5 of the undivided shares allotted to M/F, 75 Lion Rock Road.

8.There is also a Sub-Deed of Mutual Covenant and Grants for 3^rd floor of 75 Lion Rock Road dated 18 May 1989 which sub-divided the domestic unit into Flat A, Flat B and Flat C. 1/3 of one share was allocated to each of the units.

9.Mr CY Li, SC (“Mr Li”), counsel for the applicant, summarized in his opening submission that at the time of the Application dated 24 September 2018, the applicant owned all domestic units of the Buildings which represents an average of 80% of the undivided shares of the Lot subject to the remaining shares as follows:

(a)  20% undivided shares of the Remaining Portion of New Kowloon Inland Lot No 3759 being owned by the 1^st respondent (“R1”) and the 2^nd respondent (“R2”) who are tenants in common of G/F and M/F of No 73 Lion Rock Road;

(b)  20% undivided shares of Section A of New Kowloon Inland Lot No 3759 being owned by the 3^rd respondent (“R3”), ie the owner of G/F and M/F of No 75 Lion Rock Road.

10.The respondents are represented by Mr Jonathan Lee (“Mr Lee”), instructed by Messrs Cheung & Liu, Solicitors.

Whether the Applicant is entitled to make the Application

11.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.

12.Section 3(5) of the Ordinance provides 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.

13.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 building 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)”. 

14.As the OP for the Buildings was issued on 5 July 1954, not less than 50 years before the date of the Application, the Notice is applicable and the threshold percentage should be 80%.

15.The applicant, owning an average of 80% of the undivided shares of the Lot, was entitled to file the Application under section 3(2)(b) of the Ordinance which may cover two or more lots—

(i)  on which one building is connected to another building by a staircase intended for common use by the occupiers of the buildings; and

(ii)  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 stands, is not less than the percentage specified in subsection (1).

The Issues in the Application

16.Mr Li summarized the following issues as shall be determined by the Tribunal according to section 4 of the Ordinance:

(a)  Issue not disputed by the respondents but subject to proof by the applicant, namely: -

(i)  whether the redevelopment of the Lot is justified due to the age or state of repair of the existing development, ie the Buildings according to section 4(2)(a) of the Ordinance.

(b)  Issue in dispute between the applicant and the respondents: -

(i)  whether the applicant has taken reasonable steps to acquire all the undivided shares of the Lot on terms that are fair and reasonable in accordance with section 4(2)(b) of the Ordinance.

(ii) what is the market value (which is usually termed by the valuation profession as the Existing Use Value or just “EUV”) of each of the units in the Buildings as at 25 June 2018 as assessed in accordance with Part 1 of Schedule 1 to the Ordinance.

(iii)  if an order for sale of the Lot be granted, what the redevelopment value (“RDV”) of the Lot should be for the purpose of setting the reserve price of the public auction according to clause 2 of Schedule 2 to the Ordinance.

The Evidence

17.The applicant has filed the following documents in support of the Application:

(a)  a witness statement dated 25 June 2019 from Mr Anson Chan, representative of the applicant;

(b)  a Building Condition Survey Report by Mr Benson Wong dated 25 June 2019;

(c)  a Structural Assessment Report by Mr So Kin Shing (“Mr So”) dated 21 June 2019;

(d)  the following reports by Mr Alnwick Chan (“Mr A Chan”) of Knight Frank Petty Limited (“KFP”);

(i)  an Application Report dated 21 September 2018 pursuant to Part 1 of Schedule 1 to the Ordinance;

(ii)  a Supplemental EUV Report dated 8 July 2019 on the revised EUV as at 25 June 2018;

(iii)  a RDV report dated 8 July 2019 on the RDV as at 25 June 2018;

(iv)  a Rebuttal Report dated 26 August 2019 on Dr Wong Tsz-choi (“Dr T Wong”)’s EUV report;

(v)  a Rebuttal Report dated 26 August 2019 on Dr T Wong’s RDV report;

(vi)  a Supplemental RDV report dated 21 October 2019 on revised RDV as at 15 October 2019.

18.The respondents rely on the following reports of Dr T Wong:

(i)  an EUV report dated 17 July 2019 on the EUV as at 25 June 2018;

(ii)  a RDV report dated 17 July 2019 on the RDV as at 25 June 2018;

(iii)  a Rebuttal Report dated 28 August 2019 on Mr A Chan’s EUV report;

(iv)  a Rebuttal Report dated 28 August 2019 on Mr A Chan’s RDV report;

(v)  a Supplemental RDV report dated 22 October 2019 on revised RDV as at 15 October 2019.

19.Mr A Chan and Dr T Wong have prepared two joint statements, one dated 24 September 2019 setting out their agreements and disagreements on EUV and RDV, followed by another one dated 29 October 2019 on RDV.

20.At trial, Dr T Wong revised his assessments of EUV of the premises owned by the respondents.

21.The respondents only adduce witness statements but not expert evidence on the age and state of repair of the Buildings.

EUV as at 25 June 2018

Assessment of EUV of G/F Units

22.Notwithstanding the “domestic purposes” as specified in the OP, the parties are on common ground that the ground floor units in the Buildings should be valued as shops.

23.We consider such an agreement by the parties appropriate having regard to the definition of “domestic building” of the then Buildings Ordinance which allowed for wholly or partly human habitation.

24.In Tsuen Wan Trade Association Education Foundation Ltd. v. Chui Kam Ying [2012] 2 HKLRD 1163, Jeremy Poon J (as he then was), when considering a similar provision under the old Buildings Ordinance No 18 of 1935, ruled at §22 of the judgment that:

“… even if two domestic permits had in fact been issued, it does not necessarily follow that the Property can be used for residential purpose only. ….. This inferentially but strongly shows that the Property can in fact be used for non-residential purposes legally.” (underline added).

25.A fortiori, in Wing Hong Investment Company Limited v Fung Sok Han & Others, [2016] 1 HKLRD 1 (“Wing Hong”), Chan J found at §235 of the judgment that there is no provision in the Buildings Ordinance to suggest that it is an offence to adopt a user of premises which is materially different from that stated in the occupation permit although the Building Authority may serve an order on the owner under section 25(2) to prohibit the intended user or require the changed user to be discontinued if it is found that the changed or intended new user is not acceptable.

26.The G/F of both No 73 and 75 Lion Rock Street have been mostly covered to include the original yards on the approved building plans and the cocklofts thereof have been extended to nearly the whole areas of the G/F. Although Mr Lee for the respondents had tried to argue otherwise, we agree with Mr Li that these covered yards or cocklofts constitute unauthorized structures under the Buildings Ordinance when they cannot be found on any approved building plans. Nevertheless, Mr Benson Wong confirmed during the hearing that the priority of possible enforcement action by the Building Authority should be low. As a matter of fact,  two superseding notices both dated 8 March 2019 were issued by the Building Authority but they only required a prescribed inspection and, if necessary, prescribed repair of the common parts of No 73 Lion Rock Road without requiring removal of any unauthorized structure on G/F and M/F. The same happened to the common parts of No 75 Lion Rock Road.

27.Mr Li submitted in his closing submission that none of the respondents had given any evidence in their witness statements or otherwise on the yard conversion and cockloft conversion as to when they were converted and whether there had been any objection to them by the authorities. During the joint inspection conducted on 13 November 2019, we observed that the conversions were not of recent construction but in all probabilities had existed for a long time.[1]

28.In Join Union Investment Limited v China Tree Investment Limited, [2016] 2 HKLRD 901 (“Join Union”), there was also a subdivision of the ground floor premises into four shops. The expert in the case, a registered structural engineer, could not give any example or authorities of the government or the Building Authority taking enforcement action to require reinstatement of the property to its original state in similar circumstances. Chow J was of the view that there was no real risk of enforcement by the government or Building Authority in respect of the alleged unauthorised partitions, see §§97-103 of the judgment.

29.At §107 of the judgment, the learned judge further observed that:

“... it is apparent, form the evidence of Mr Lai, Madam Chan and Madam Shiu, that none of them considered the 2010 Building Order, or indeed any unauthorised building works in the Property, to be of any great moment. Prior to the respective purchases of the Property by the defendant (through Madam Chan) and the plaintiff (through Madam Shiu), none of them took the trouble to go inside the Property to inspect its physical conditions, or ascertain whether there might be any unauthorised building works in the Property. Even after her attention had been drawn to the 2010 Building Order, Madam Shiu did not carry out any further investigation prior to entering into a binding contract to purchase the Property, and was prepared to accept a modest sum of HK$20,000 from the defendant as sufficient compensation for the costs of complying with the 2010 Building Order. The existence of unauthorised building works in retail premises, especially in the older districts in Hong Kong, is common place and does not appear to have any significant impact on their market or capital values. These properties change hands frequently like ordinary commercial commodities, as demonstrated in the present case by the fact that the defendant (through Madam Chan) purchased the Property in September 2010 and sold it to the plaintiff (through Madam Shiu) in March 2011 for a handsome profit. It is contrary to market reality to treat the existence of an unauthorised cockloft, even of a substantial size like the present one, as constituting a title defect going to the root of title....” (emphasis added)

30.It should also be noted that the term “market value” as defined by the International Valuation Standards and followed by the HKIS Valuation Standards 2017 is set out as follows:

“The estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.”

31.Following Join Union, “willing buyer” is the buyer who purchases in accordance with the realities of the current market and with current market expectations, rather than an imaginary or hypothetical market which cannot be demonstrated or anticipated to exist without taking into account the redevelopment potential of the property or the lot pursuant to Part 1 Schedule 1 of the Ordinance.

32.In the appellate judgment of the Australian High Court in Spencer v Commonwealth (1907) 5 CLR 418 cited by Gordon N Cruden, Land Compensation & Valuation Law in Hong Kong (4^th Ed, 2017) p110.  It is said that:

“In my judgment the test of value of land is to be determined … by inquiring ‘what would a man desiring to buy the land have had to pay for it on that day to a vendor willing to sell it for a fair price but not desirous to sell?’

The necessary mental process is to put yourself as far as possible in the position of persons conversant with the subject at the relevant time, and from that point of view to ascertain what, according to the then current opinion of land values, a purchaser would have had to offer for the land to induce such a willing vendor to sell it, or, in other words, to inquire at what point a desirous purchaser and a not unwilling vendor would come together.

To arrive at the value of the land at that date, we have, as I conceive, to suppose it sold then, not by means of a forced sale, but by voluntary bargaining between the plaintiff and a purchaser, willing to trade but neither of them so anxious to do so that he would overlook any ordinary business consideration. We must further suppose both to be perfectly acquainted with the land, and cognizant of all circumstances which might affect its value, either advantageously or prejudicially, including its situation, character, quality, proximity to conveniences or inconveniences, its surrounding features, the then present demand for land, and the likelihood, as then appearing to persons best capable of forming an opinion, of a rise or fall for what reasons so ever in the amount which one would otherwise be willing to fix as the value of the property.” (underline added)

33.Gordon N Cruden then drew his conclusion at p111 that:

“The law therefore presumes that both parties are informed and willing but not eager buyers or sellers.” We agree. Borrowing from section 11(1)(a) of the Lands Resumption Ordinance, Cap 124, in determining open market value, we have to take into consideration the nature and existing condition of the property, and the probable duration of the buildings in their existing state, and the state of repair thereof.

34.Similarly, in Kannix Limited & Another v Coreluxe Developments Limited & Others, LDCS 8000/2018 (unreported, dated 25 March 2020), the Tribunal said at §26 that:

“With a view to assess the enforcement risk, a willing buyer would review the possibility of rectification and/or legalization, prevailing government policy, response of the neighbourhood on enforcement of deed of mutual covenants and etc. …”

35.Adopting the market reality approach as explained in Join Union, supra, Cheer Capital Limited v Unibase Investment Limited & Others, LDCS 5000 & 6000/2013 (unreported, 12 June 2015) at §§57-66, and more particularly in Gainfield Investment Limited & Others v Legend Time Limited & Others, LDCS 16000/2014 (unreported, 17 October 2016) at §§56-61[2], we accept that there should be values attached to these appurtenances, even taking into account possible enforcement action by the public authorities eg the Building Authority as well as the incorporated owners[3], if any,  and the co-owners[4].

36.We therefore adopt the demarcation of areas by Dr T Wong pursuant to the Joint Statement dated 24 September 2019 for the G/F and M/F of Nos 73 & 75 Lion Rock Road as follows[5]:

		73 Lion Rock Road	75 Lion Rock Road
G/F:	Saleable Area	92.41 m2	84.16 m2
	Storage/Kitchen/ Utility Area	25.25 m2	7.89 m2
	Covered Yard	4.81 m2	11.28 m2
	Concrete Roofed Yard	NA	7.92 m2
	Open Yard	1.69 m2	10.44 m2
M/F:	Authorized Cockloft	48.87 m2	25.27 m2
	Unauthorized Additional Cockloft	20.60 m2	64.13 m2

37.Although Mr A Chan assigned no value to those unauthorized structures, the two experts assigned different conversion value (with reference to the unit value of G/F) to such different accommodations[6]:

	Mr A Chan	Dr T Wong
Storage/Kitchen/Utility Area	1/5*	Value as shop area
Open Yard	1/6
Covered Yard	1/5 (only as fallback)	1/3
Concrete Roofed Yard	1/5 (only as fallback)	1/2
Unauthorized Additional Cockloft	1/6 (only as fallback)	1/6

* This has been amended from ¼ pursuant to the letter from Messrs So, Lung and Associates dated 25 November 2019.

38.According to the Code of Measuring Practice published by the Hong Kong Institute of Surveyors[7], “(t)he Saleable Area of a unit comprises the floor area exclusively allocated to that unit including balcony and other similar features but excluding common areas such as staircases, lift shafts, lobbies and communal toilets. It shall be the area contained within the enclosing walls of the unit measured up to the exterior face of an external wall or the centre line of a separating wall between adjoining units, as the case may be….” For shops, “(c)ocklofts, flat roofs, yards or open wells included in shop premises shall be separately measured and stated.” Also, “(t)oilets, storerooms, … or similar provisions not forming an integral part of the main shop accommodation shall be separately measured and stated.”[8]

39.Bearing in mind the approach adopted in Wing Hong and Join Union, we are of the opinion that the saleable area of the subject premises should include “Storage/Kitchen/Utility Area” because according to the approved General Building Plans and the A&A plan as the case may be, such “Storage/Kitchen/Utility Area” does merge with the main shop accommodation. We therefore agree with Dr T Wong that such “Storage/Kitchen/Utility Area” should be valued as the shop proper.

40.Similarly, we agree with Dr T Wong’s assignment to the various conversion factors above.

41.The table below shows the comparables to be adopted for valuation on direct sales comparison basis (with prefix “KF” standing for comparables adopted by Mr A Chan while prefix “CB” stands for those by Dr T Wong):[9]

Comp Ref:	Address	Age	Transaction Date	Consideration	Saleable Floor Area (m2)	Frontage (m)	Headroom (m)	Depth (m)	Effective Unit Price (/m2)
Ref Unit	G/F& Cockloft, 75 Lion Rock Road	1954	25 Jun 18		92.05 + C/L: 25.27 etc	5.88	2.90	19.05
KF1/ CB1	G/F & C/F, 62 Nga Tsin Wai Road	1980	26 Apr 18	$37,000,000	104.85 + C/L: 47.88	4.49	3.79 (weighted average: 3.26)*	21.34	$316,727
KF2/ CB2	Shop A, G/F, 19-21 Nga Tsin Long Road	1976	31 Jan 18	$29,600,000	79.64 + Yard: 2.33	4.32	4.53	18.29	$369,861
KF3	Shop 1 & 2, G/F, Loong Pont House, 61-63 Lion Rock Road	1979	31 Aug 17	$13,388,000	28.93 + C/L: 16.49	4.00 + 7.32 on arcade	5.13 (weighted average: 3.77)*	7.32	$405,083
KF4/ CB4	G/F, 11-13 Hau Wong Road	1970	23 Mar 17	$56,375,000	169.13 + Yard: 10.03	8.80	3.94	18.29	$330,064
KF5	G/F, 31 Lung Kong Road	1967	9 Feb 17	$19,800,000	65.59 + Toilet in yard:3.9 + Yard: 6.89	3.88	3.63	17.53	$292,424
CB6	Shop 12 & C/L and Shop 13, G/F Victory Building, 104-114 Lion Rock Road	1974	14 Sep 18	$40,000,000	92.15 + C/L: 17.64 + Yard: 9.34	6.02	5.11 (weighted average: 4.68)*	15.82	$407,664
CB7	G/F, 26 Hau Wong Road	1973	11 Jun 18	$35,000,000	89.56 + Yard: 3.41	4.65	3.66	18.29	$388,328

* Mr A Chan agreed the headroom for area without Cockloft but disagrees the weighted average approach adopted by Dr T Wong.

42.Mr A Chan and Dr T Wong had the following agreements/ disagreements on adjustments[10]:

	Mr A Chan	Dr T Wong
Time	On the basis of the Private Retail Price Index of the Rating and Valuation Department
Age	1% for every 10 years difference	0.1% per annum
Frontage	2% for every 1 m difference	Based on difference in ratings as reflected by the Saleable area served by each metre of frontage (ie Saleable Area/Frontage) of the Ground Floor Reference Unit and comparable units. The adjustments are made based on 2% for every 1 point difference rounded to the nearest 1%)
Headroom	2% for every 1 m difference (rounded to the nearest integer)	2% for every 1 m difference (rounded to the nearest 0.1%)
Layout	With reference to the actual shape of the premises	N/A
Size	2% for every 10 sq m difference but: 0 m2 -9.99 m2: 0% 10 m2 – 19.99m2: 2% 20m2 -29.99m2: 4% … 50m2 – 50.99m2: 10%	0.2% for every 1 sq m difference in the Converted Area
Adjustment Method	Multiplication

Choice of G/F Comparables

43.The subject premises are situated on the western side of Lion Rock Road, one of the local access roads to a regional shopping centre, Kowloon City Plaza, which abuts Carpenter Road in the Kowloon City district Kowloon City district itself is a relatively confined areas bounded on the west by Grampian Road and on the east by Sa Po Road with shopping activities particularly concentrated in the areas around Kowloon City Plaza and the wet market  inside the Kowloon City Municipal Services Building. The latter is bounded on the north by Carpenter Road, ie the road abutted by Kowloon City Plaza, on the east by Nga Tsin Long Road, on the south by Nga Tsin Wai Road and on the west by Hau Wong Road which is one block to the east of Lion Rock Road.

44.Comparable KF1/CB1 is situated at the further east of the wet market mentioned above. Mr A Chan adopts a location adjustment of +10% whereas Dr T Wong adopts +15%. We consider +15% more appropriate.

45.Comparable KF2/CB2 is situated at the further south of the wet market closer to the junction of Nga Tsin Long Road and Prince Edward Road East which is a main distributor in the district. However, vehicles cannot reach this section of Nga Tsin Long Road direct but has to drive into the Kowloon City district via other roads and then turn into Nam Kok Road which lies in parallel one street to the east. Mr A Chan adopts a location adjustment of +10% whereas Dr T Wong adopts +25%. We consider +25% more appropriate.

46.The selection of good comparables is important for direct comparison analysis. The sale that requires the least significant or a lower total adjustment (ie the absolute adjustment based on the sum of the adjustments regardless of sign) is often the best comparable. Leaving aside the common comparables in the meantime,  KF3 is considered a good comparable because of its proximity to the subject. However, it is noted that the size of KF3 is less than 1/3^rd of the subject premises and the adjustment is further complicated by its having an additional frontage to the arcade. Therefore, if there are other good comparables that could be agreed by the two experts, we would disregard KF3.

47.Comparable KF4/CB4 is situated close to the junction of Hau Wong Road and Prince Edward Road East. Both Mr A Chan and Dr T Wong adopts +10%. We agree with this adjustment.

48.Comparable KF5 is situated even further away from the wet market at Lung Kong Road which is one street to the east of Nam Kok Road. This street is relatively quieter than the location of the subject and does not appear to be a good comparable in terms of location and character.

49.Comparable CB6 is situated opposite to the subject across Lion Rock Road. Mr A Chan agreed to include this comparable as Comparable 1A subsequent to the Application Report. The two experts agreed that no location adjustment is required.

50.Comparable CB7 is situated close to the wet market near the junction of Hau Wong Road and Nga Tsin Wai Road. Mr A Chan agreed to include this comparable as Comparable 1B subsequent to the Application Report. Mr A Chan adopted a location adjustment of +10% whereas Dr T Wong adopted +5%. We consider +5% more appropriate.

Other Adjustments on G/F Comparables

51.During trial, Dr T Wong agreed with most of the other adjustments by Mr A Chan save that he added a further adjustment for depth and layout which we consider unnecessary in view of the similar depths and shapes of the comparables adopted[11]. As regards the adjustment for age, we prefer the threshold approach adopted by Mr A Chan, ie 1% for every 10 years’ difference instead of 0.1% per every year’s difference. For size and headroom, we take the adjustments by Dr T Wong as all his comparables are adopted – the differences between the two experts on size and headroom are insignificant.

Conclusion on EUV for G/F & Cockloft

52.Our assessment of the EUV of G/F & Cockloft, 75 Lion Rock Road is as follows:

Comp Ref:	Effective Unit Price (/m2)	Adjustments							Adjusted Unit Price (/m2)
		Time	Location	Size	Age	Frontage	Headroom	Total
KF1/ CB1	$316,727	0.5%	15.0%	-0.2%	-3.0%	3.0%	-0.7%	14.43%	$362,431
KF2/ CB2	$369,861	1.5%	25.0%	-7.6%	-2.0%	3.0%	-3.3%	14.43%	$423,232
KF4/ CB4	$330,064	7.8%	10.0%	10.4%	-2.0%	-6.0%	-2.1%	18.06%	$389,674
KF1A/ CB6	$407,664	-1.3%	0.0%	-4.0%	-2.0%	0.0%	-3.6%	-10.49%	$364,900
KF1B/ CB7	$388,328	0.0%	5.0%	-5.6%	-2.0%	2.0%	-1.5%	-2.41%	$378,969
							Average:		$383,841

53.Our assessment of the EUV of G/F & Cockloft, 75 Lion Rock Road is as follows:

Effective Area: 118.52 sq m x $383,841/sq m = $45,492,859       Say  $45,493,000

54.And our assessment of the EUV of G/F & Cockloft, 73 Lion Rock Road is as follows:

Effective Area: 135.20 sq m x $383,841/sq m x Size adjustment -3.2% x -0.4%[12] = $50,033,741        Say $50,034,000

Assessment of EUV of Upper Floor Domestic Units

55.The two experts rely on the following comparables for the assessment of EUV of the domestic units on the upper floors (with prefix “KFU” stands for comparables adopted by Mr A Chan while prefix “CBU” stands for those adopted by Dr T Wong):

Comp Ref:	Address	Age	Transaction Date	Consideration	Saleable Floor Area (m2)	Headroom (m)	View	Effective Unit Price (/m2)
Ref Unit	3/F, 73 Lion Rock Road	1954	25 Jun 18		92.62	3.20	Building
KFU1/ CBU1	Unit A, 2/F, 2-8 Fuk Lo Tsun Road	1964	7 Jun 18	$6,280,000	53.40	2.90	Building	$117,603
KFU2/ CBU2	4/F, 40A Nga Tsin Long Road	1964	7 Jun 18	$5,500,000	46.62	2.90	Close Building	$117,975
KFU3/ CBU3	Unit B, 3/F, 74-80 Nga Tsin Long Road	1966	22 May 18	$4,200,000	34.41	2.87	Open Park	$122,058
KFU4	Flat C, 2/F, 20 Tak Ku Ling Road	1964	18 May 18	$4,600,000	43.13	2.90	Close Building	$106,654
KFU5	1/F, 17 Kai Tak Road	1969	14 May 18	$6,180,000	60.00 + Flat Roof: 9.03*	2.90	Building	$100,471
KFU6	4/F, 72 South Wall Road	1963	10 May 18	$3,500,000	33.60	2.90	Building	$104,167
KFU7/ CBU7	4/F, 4 Lion Rock Road	1966	25 Apr 18	$6,960,000	66.99	2.90	Building	$103,896
KFU8/ CBU8	4/F, 2A Fuk Lo Tsun Road	1962	11 Dec 17	$5,200,000	50.64	2.90	Building	$102,686
KFU9/ CBU9	Rear Portion, 4/F, 90 Nga Tsin Wai Road	1965	10 Nov 17	$3,230,000	34.29	2.90	Building	$94,197
KFU10	Unit D, 3/F, 43-47 South Wall Road	1967	4 Nov 17	$3,280,000	30.51	2.90	Building	$107,506
KFU11/ CBU11	Rear Portion, 3/F, 9A Hau Wong Road	1966	13 Oct 17	$3,940,000	41.25	2.90	Close Building	$95,515
KFU12/ CBU12	Unit F, 3/F, 2-8 Fuk Lo Tsun Road	1964	11 Oct 17	$3,480,000	35.16	2.90	Building	$98,976
CBU13	2/F, 78 Junction Road	1952	2 Jun 18	$8,340,000	76.77	3.20	Open School	$108,636
CBU14	4/F, 3 Junction Road	1958	4 Feb 18	$8,950,000	94.61	3.20	Building	$94,599
CBU15	2/F, 10A Nga Tsin Long Road	1964	30 Dec 17	$3,000,000	29.55 + Flat Roof 13.82*	2.90	Close Building	$94,192

* Unit Value of Flat Roof is assumed to be 1/6^th that of the floor proper.

56.They have also the following agreements/ disagreements on adjustments[13]:

	Mr A Chan	Dr T Wong
Time	On the basis of the Private Domestic Price Index by Class (Territory-Wide) (Classes A, B & C) of the Rating and Valuation Department
Age	1% per annum
Floor Level	2% for every 1 floor difference	2% for every level difference + a further adjustment of -1% for those comparables which are situated in normal ceiling height  on G/F with no cockloft or mezzanine floor provision.
Top Floor	N/A	+3%
Headroom	2% for every 1 m difference (rounded to the nearest integer)	2% for every 1 m difference (rounded to the nearest 0.1%)
View	Reference Unit: Building View Open View: -5% Building View: 0% Close Building View: 4%	Reference Unit: Building View Open Park View: -7.5% Open School View: -5% Building View: 0% Congested Building View: 4%
Side Window	Reference Unit: Balcony with side window to adjacent unit & rear window Side window facing service lane/ adjacent unit/open space: 0% No Side window/ side window facing lightwell: 3%	Reference Unit: No side window Comparable with side window facing open space: -2%
Size	2% for every 10 sq m difference but: 0 m2 -9.99 m2: 0% 10 m2 – 19.99m2: 2% 20m2 -29.99m2: 4% … 50m2 – 59.99m2: 10%	0.2% for every 1 sq m difference in the Converted Area
Adjustment Method	Multiplication

Choice of Upper Floor Comparables

57.Although all the comparables above are situated within the Kowloon City district, shopping activities concentrate particularly at the areas around Kowloon City Plaza as well as the wet market situated inside the Kowloon City Municipal Services Building. Beyond those areas, the environment appears to be derelict and lacking vitality notwithstanding that there are shops on ground level underneath the residential towers or the tenement buildings . The same distinction is observed in respect of the character of the living environment. For this reason, we agree with Dr T Wong that comparables KFU4, KFU5, KFU6 and KFU 10 are not appropriate.

Other Adjustments on Upper Floor Comparables

58.By reason of the foregoing, we accept all the comparables adopted by Dr T Wong as well as his adjustments save that we agree with Mr A Chan on his adjustment for side window and his adoption of unit value for flat roof at 1/6^th that of the floor proper. It is noted that the differences between the two experts on the other adjustments are insignificant anyway.

Conclusion on EUV

59.Our assessment of the EUV of 3/F, 73 Lion Rock Road is as follows[14]:

Comp Ref:	Effective Unit Price (/m2)	Adjustments										Adjusted Unit Price (/m2)
		Time	Location	Size	Floor Level	Top Floor	Age	View	Headroom	Side Window	Total
KFU1/ CBU1	$117,603	0.0%	-4.0%	-7.8%	-3.0%	0.0%	-10.0%	0.0%	0.6%	0.0%	-22.27%	$91,413
KFU2/ CBU2	$117,975	0.0%	-3.0%	-9.2%	1.0%	0.0%	-10.0%	4.0%	0.6%	0.0%	-16.24%	$98,816
KFU3/ CBU3	$122,058	2.0%	-1.0%	-11.6%	0.0%	0.0%	-12.0%	-7.5%	0.7%	3.0%	-24.63%	$91,995
KFU7/ CBU7	$103,896	3.8%	-4.0%	-5.0%	1.0%	0.0%	-12.0%	0.0%	0.6%	0.0%	-15.36%	$87,938
KFU8/ CBU8	$102,686	11.1%	-4.0%	-8.2%	1.0%	0.0%	-8.0%	0.0%	0.6%	3.0%	-5.73%	$96,802
KFU9/ CBU9	$94,197	12.9%	-4.0%	-11.6%	1.0%	0.0%	-11.0%	4.0%	0.6%	0.0%	-9.89%	$84,881
KFU11/ CBU11	$95,515	13.8%	-4.0%	-10.2%	0.0%	0.0%	-12.0%	4.0%	0.6%	0.0%	-9.68%	$86,269
KFU12/ CBU12	$98,976	13.8%	-4.0%	-11.4%	-1.0%	0.0%	-10.0%	4.0%	0.6%	0.0%	-9.77%	$89,306
CBU13	$108,636	0.0%	-2.0%	-3.0%	-3.0%	0.0%	2.0%	-5.0%	0.0%	0.0%	-10.65%	$97,066
CBU14	$94,599	7.4%	-4.0%	0.2%	1.0%	3.0%	-9.0%	0.0%	0.0%	-2.0%	-4.16%	$90,664
CBU15	$94,192	11.1%	-4.0%	-11.8%	-3.0%	0.0%	-10.0%	4.0%	0.6%	0.0%	-14.08%	$80,930
										Average:		$90,553

60.Our calculation of the EUV of the upper floor domestic units is shown as follows:

Unit	73 Lion Rock Road	Effective Area (m2)	Reference Unit Rate (/m2)	Adjustments						Adjusted Unit Price (/m2)	Valuation
				Floor Level	View	Top Floor	Size	Internal Condition	Total
G/F & C/L		135.2	$383,841				-3.2%	-0.4%	-3.587%	$370,073	$50,034,000
1/F		96.80	$90,553	4.0%	0.0%	0.0%	-0.8%	2.5%	5.747%	$95,757	$9,269,000
2/F		96.80	$90,553	2.0%	0.0%	0.0%	-0.8%	0.0%	1.184%	$91,625	$8,869,000
3/F		92.62	$90,553	0.0%	0.0%	0.0%	0.0%	0.0%	0.000%	$90,553	$8,387,000
4/F		86.07	$90,553	-2.0%	0.0%	-3.0%	1.2%	-2.5%	-6.204%	$84,935	$7,310,000
G/F & C/L	75 Lion Rock Road	118.52	$383,841							$383,841	$45,493,000
1/F		96.80	$90,553	4.0%	0.0%	0.0%	-0.8%	0.0%	3.168%	$93,421	$9,043,000
2/F		96.80	$90,553	2.0%	0.0%	0.0%	-0.8%	-5.0%	-3.875%	$87,044	$8,426,000
Unit A, 3/F		24.33	$90,553	0.0%	0.0%	0.0%	13.6%	0.0%	13.60%	$102,868	$2,503,000
Unit B, 3/F		22.45	$90,553	0.0%	-4.0%	0.0%	14.0%	0.0%	9.440%	$99,101	$2,225,000
Unit C, 3/F		41.99	$90,553	0.0%	-4.0%	0.0%	10.0%	0.0%	5.600%	$95,624	$4,015,000
4/F		86.07	$90,553	-2.0%	0.0%	-3.0%	1.2%	-2.5%	-6.204%	$84,935	$7,310,000
										Total	$162,884,000

61.The total EUV of the Buildings is $162,884,000 and the pro rata shares of R1’s/R2’s and R3’s interests are 30.7176% and 29.9297% respectively.

Whether Redevelopment of the Lot is Justified

62.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 the Buildings is justified and that the applicant has taken "reasonable steps" to acquire all undivided shares of the Lot. The only challenge raised by the respondents in the present application is whether redevelopment is justified and the applicant is put to strict proof thereof.

63.In his opening submission, Mr Li 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 Limited v Lee Tong Hing & Others, LDCS 16000/2010 (unreported, dated 29 November 2011) (“Charmlink”) on the factors that the Tribunal should consider in deciding whether redevelopment is justified due to age and state of repair.

64.In Top Sail, the Tribunal stated:

“23. ……, we are of the view that when the requirement of “the age” of the Buildings is considered, we should not restrict our consideration to just the physical age of the Buildings.…… we are of the view that the absence of a specific physical age in the Ordinance indicates that the Tribunal has discretion to determine at what stage a building should be redeveloped after considering all the relevant factors concerning the age of the building in question.

24. The physical age of a building is clearly one of the considerations…... The physical conditions of a building and the amount that would be required to maintain the building are other factors that the Tribunal should consider, as they would affect the decision on whether the life of a building should be ended or prolonged. The obsolete design of a building should also be considered as it has an important impact on whether it is too old to serve a modern society.”

65.Such a discretion by the Tribunal was followed in Charmlink:

“30. We are of the view that the Tribunal has discretion to determine at what stage a building should be redeveloped after considering all the relevant factors concerning the age of the building in question. The relevant factors in the present case are that the Building is over 50 years old and it has passed its designed life. It is also obsolescent in design and not economical to maintain. All these factors point to the fact that the Building has come to an end of its physical as well as economical life. Thus, we find that redevelopment is justified on the ground of the age of the Building.

31. …… It is also within the Tribunal’s discretion to determine in what conditions a building should be redeveloped after considering all the relevant factors concerning the state of repair of the building in question. With the clear evidence from the two experts that the Building is in a poor state of repair and in fact untenantable without substantial repair works to be carried out over a long period of time, we have no hesitation in finding that redevelopment is justified by the state of repair of the Building.”

66.Parties are not in dispute that the principles set out in Top Sail and Charmlink are guidelines for the Tribunal in the exercise of its discretion. 

67.The applicant adduced the expert evidence of two experts namely, Mr Benson Wong who is an Authorised Person and a building surveyor, and Mr So who is a structural engineer. Their expertise was not disputed.

68.The salient and relevant considerations are as follows:

(1)  The Buildings are 65 years old well exceeding the design life of 50 years;

(2)  The Buildings suffer from physical obsolescence and functional obsolescence;

(3)  The Buildings are aged and do not have standard provisions which are expected nowadays and/or the provisions do not meet the present day standard;

(4)  Mr Benson Wong’s opinion is that the Buildings are in poor state of repair and the total repair costs were estimated to be $8,812,241 which was about 55% of the costs of building the superstructure of a new similar building. The repair will also take 15 months to complete;

(5)  Mr Benson Wong considered that there will be need for future repair and maintenance and he concluded that redevelopment of the Lot is justified due to the age and state of repair of the Building;

(6)  On structural assessment, Mr So pointed out that the Buildings exceed their design working life of 50 years. The Buildings were designed under the London County Council Construction By-Laws which were far less stringent than the 2004 Code of Practice for Structural Use of Concrete and 2013 Code of Practice for Structural Use of Concrete. There was the consideration of lack of robustness of the Buildings and failure to meet the current fire resistance construction requirement. Mr So found numerous defects in structure by visual inspection and tests done by A Quality Test consult Limited, an independent laboratory.

69.The respondents have not adduced any evidence, factual or opinion, in relation to the “age” and “state of repair” of the Buildings. Throughout the trial, they have not suggested that the Buildings should be retained.  Having considered the evidence before the Tribunal, we are satisfied that redevelopment of the Buildings is justified due to the age and state of repair.

Section 4(2)(b) – Whether Applicant has taken reasonable steps

70.The applicant is under an obligation to take reasonable steps to negotiate on terms that are fair and reasonable for the purchase of the interests of the respondents under Section 4(2)(b) of the Ordinance.

71.The applicant has made the following offers to the respondents through its solicitors to acquire the respondents’ units or interests they own:

Date of offer	R1/R2’s Unit	R3’s Unit
15 September 2018	$48,300,000	$44,600,000

*   These offers included the advice letters of KFP setting out the relevant valuation assessments and calculations of the share of the respondents’.

72.The Court of Final Appeal in Capital Well Ltd v Bond Star Development Ltd (2005) 8 HKCFAR 578, [2005] 4 HKLRD 363 (“Capital Well”) has emphasized at §33 that:

“In making that assessment (whether an offer is reasonable) the Tribunal is not conducting a valuation exercise. It does not need to adjudicate upon any disputes about the correct valuation principles to be applied. It does not itself arrive at any conclusion as to what figure represents the correct valuation. It merely needs to be satisfied that, on the evidence available, the offer falls within the range of what may broadly be regarded as fair and reasonable compensation for the interest in question.”[15]

73.Mr Lee, in his closing submission, stated that the respondents no longer oppose the order for sale and no longer dispute whether the applicant has taken reasonable steps to acquire all the undivided shares in the Lot on terms that are fair and reasonable in accordance with section 4(2)(b) of the Ordinance.

74.On the evidence available, we are satisfied that the applicant has taken reasonable steps to acquire all the undivided shares in the Lot including negotiating for the purchase of such of those shares as are owned by R1/R2 and R3 on terms that are fair and reasonable.

Disputes on the estimation of the RDV of the Lot

Optimum Hypothetical Development Model

75.As no suitable redevelopment site comparables could be adduced as evidence for this Tribunal to consider, both Mr A Chan and Dr T Wong agreed to resort to the residual valuation method in determining the RDV.  This can be 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.

76.Although the valuation experts previously had different opinion on the optimum hypothetical form of development on the Lot, by their Joint Statement dated 15 October 2019, Dr T Wong agreed with Mr A Chan that the optimum hypothetical form of development on the Lot should comprise a 24-storey composite building over one level of basement for plant room with two units of retail shopsand plant room on G/F & one unit of retail shop, club house and plant room on 1/F and two residential units on each upper floors. They have also agreed on other parameters including the saleable areas per floor and even the total gross floor area (“GFA”) for the retail and residential portions. Their agreements or disagreements are set out in the table below:[16]

		Mr A Chan	Dr T Wong
Site Area		261.24 sq m
Form of Optimal Development		24-storey composite building  over one level of basement for plant room with retail shops (2 units)and plant room on G/F & retail shop  (1 unit), club house and plant room on 1/F and residential units on upper floors (each having 2 units per floor).
Area	G/F Shop	168.24 sq m (Saleable Area)
	1/F Shop	85.24 sq m (Saleable Area)
	2/F Flat Roof	177.30 sq m
	Value of 2/F Flat Roof	1/6 of 2/F unit rate	1/4 of 2/F unit rate
	Upper Floor Residential	1109.75 sq m (Saleable Area)
	Top Roof	39.10 sq m
	Value of Top Roof	1/8 of 23/F unit rate	1/6 of 23/F unit rate
	Total GFA	2,214.23 sq m
GDV	U/F Residential	$337,851,150
Marketing Cost		2%
Demolition Cost for the Buildings		$2,052,767
Demolition Period		0.5 year	0.25 year*
Construction Cost		$80,882,810 (on GFA)
Construction Period		2 years
Professional Fee		6%
Developer’s Profit		25%	10%
Interest Rate		5.125%	4%
Land Value		$183,300,000	$253,000,000
Accommodation Value		$82,783/m2	$114,261/m2

* Dr T Wong agreed at trial that the demolition period be 0.5 year.

77.Although the two experts agreed on the respective size for the common entrance lobby (13 sq m) and domestic entrance lobby (63 sq m), they could not agree on the layout plan for the G/F because the Conditions of Exchange No 4942[17] restricts the use and development of the Lot to “(n)ot more than 2 houses each having a frontage of not less than 20 feet shall be erected on (the Lot)”.[18]

78.According to the Practice Note issue no. 3/2000 dated April 2000 (“PN 3/2000”) and no. 3/2000A dated 25 June 2014 (“PN 3/2000A”) published by Lands Administration Office of Lands Department for developments subject to land grant restrictions of the number of houses, Lands Department accepts that one house is a building with one main entrance, together with such means of escape as may be required under the Buildings Ordinance.

79.In that regard, Mr A Chan considered that there cannot be separate entrances to the two shops on G/F. Dr T Wong considered otherwise and said during cross-examination that he had sought legal advice on this without, rightly or wrongly, producing evidence of such legal advice or explaining the legal basis to back up his opinion.

80.Mr Lee, in support of Dr T Wong, referred to and relied on the following conditions of the Conditions of Exchange No 4942:-

(1)  General Condition 7

“7. (a) The lessee of the new lot shall build and finish, fit for occupation, before the expiration or 18 calendar months from the Lot on which possession shall be given to the lessee, in a good substantial and workmanlike manner, one or more good and permanent buildings upon some part of the new lot with such materials as may be approved by the Director of Public Works[19], and in other respects in accordance with the provisions of all Ordinances, Bye-laws and Regulations relating to Buildings or Sanitation as shall or may at any time be in force in the Colony, and shall expend thereon a sum of not less $60,000 in rateable improvements and shall maintain all buildings now standing or hereafter erected on the lot in good and tenantable repair and condition throughout the tenancy and in such repair and condition deliver up the same at the expiration or sooner determination of the tenancy.

(b) The fulfillment by the lessee of his obligations under the General and Special Condition(s) shall be deemed to be a condition precedent to the grant or continuance of tenancy hereunder and in the event of any default by the lessee in complying therewith such default shall be deemed to be a continuing breach and the subsequent acceptance by or on behalf of the Crown of any Crown Rent or Rates or other payment whatsoever shall not (except where the Crown has notice of such breach and has expressly acquiesced therein) be deemed to constitute any waiver or relinquishment or otherwise prejudice the enforcement of the Crown’s right of re-entry for or on account of such default or any other rights remedies or claims of the Crown in respect thereof under these conditions which shall continue in force and shall apply also in respect of default by the lessee in the fulfilment of his obligations under the General and Special Condition(s) within any extended or substituted period as if it had been the period originally provided.”

(2)  Special Condition (2):-

“(2) The new lot shall not be used for industrial purposes and no factory building shall be erected thereon.”

(3)  Special Condition (17):-

“(17) Not more than 2 houses each having a frontage of not less than 20 feet shall be erected on the new lot.”

81.Mr Lee also relied on the following passages in Fully Profit (Asia) Limited v Secretary for Justice (2013) 16 HKCFAR 351 which concerned the interpretation of “house” in a Government lease more particularly Conditions of Exchange similar to subject for redevelopment of lots also in the Kowloon City district:

“5. I highlight some aspects of the Conditions of Exchange:-

(1) By General Condition 7(a), the lessee was able to build one or more buildings on the Mother Lots.

(2) The only restrictions on the buildings to be built were two-fold: first, any building could not be used for industrial purposes, therefore no factory building could be built (Special Condition (3)); and secondly, in the event houses were built, no more than 20 houses could be built on Lot No. 3665 and no more than eight houses could be built on Lot No. 3666 (Special Condition (6)).

(3) The Conditions of Exchange use the terms “building” (or “buildings”) and “houses”. In their context, it is difficult to see how they can be used interchangeably. A house may be a type of building, but not all buildings must be houses.”

82.By analogy, Mr Lee submitted that General Condition 7 of the Conditions of Exchange No 4942 allowed the lessee to build one or more good permanent buildings and the lessee can build buildings or houses. The only restriction was that the building as built could not be industrial building because of Special Condition (2) of the Conditions of Exchange No 4942. That being the case, if houses are built, there should not be more than two houses. On this basis, it is Mr Lee’s argument that there is no design restriction as buildings or houses can be built. Mr Lee distinguished the present case from Fully Profit on the ground that houses only came to be built after the Conditions of Exchange No 4942 whereas in Fully Profit, the Government Leases was granted on the basis that houses had been erected on the lots.

83.Mr Lee’s argument above actually follows what Mr Edward Chan SC submitted in Fully Profit for the plaintiff that nothing in the Government Leases prohibits the building of a 26-storey composite building which straddles across the five lots.  The only prohibition was against industrial user, the building of a factory and, if houses were to be built, building more than one house on each Lot. With this, Ma CJ in Fully Profit did not agree:[20]

“(1) First, on a general note, it seems extremely surprising that while a limit is placed on the type and number of houses that can be built on each individual Lot, yet there is no limitation in the event of a redevelopment either on the type or number of other buildings that can be erected. I have already referred to Mr Chan’s submission regarding swimming pools, hospitals and schools.

(2)  Secondly, the context of the restrictive covenants militates against the construction contended for by the plaintiff.  Relevant to this discussion are the Conditions of Exchange.  Under the Conditions, as we have seen, the lessee was entitled to build one or more buildings on the Mother Lots (provided they were not for industrial use and were not factory buildings) and within this entitlement, to build houses.  The lessee having chosen to build houses on Mother Lot No. 3665[21], it is in this context against which the restrictive covenants have to be viewed.  …”

84.In Wah Yick Enterprises Co. Ltd. v. Building Authority (1999) 2 HKCFAR 170, in which Litton PJ said at page 176G-177C as follows:

““Meaning of ‘house’

At the hearing before us, and in the courts below, submissions were made concerning the meaning of the word house.  We were taken through a number of English cases where courts have sought to construe the meaning of house or dwelling house in the context of the instruments in which those words appeared.  Little assistance can be derived from those cases. A search for a free-standing meaning of the word house, valid for all time in all circumstances, is fruitless.  The word has, as Lawrence J in Annicola Investments Ltd v Minister of Housing and Local Government [1968] 1 QB 631 at p.640 remarked, a fluidity of meaning; it takes its flavour from the context in which it is used.  It is clear that, as a matter of the ordinary use of language, a residential block with one common entrance but containing a number of flats within the building envelope can be considered a house.  An example of this, in the context of restrictive covenants attaching to the grant of land located on Hong Kong Island, is Real Honest Investment Ltd v A-G [1997] 2 HKC 182, where it was common ground that an apartment block of seven storeys, with one common main entrance, 85 ft in height, consisting of 14 residential flats, was a house.  That was a result arrived at by concession by the grantor, not by adjudication in court.  The examples from English cases cited in the course of argument were old cases, decided at a time when residential tower blocks of over 30 storeys were unknown.  In this regard, it is worth noting that the Town Planning Ordinance (Cap. 131) was first passed in 1939 when Hong Kong’s population was approximately one and a half million and multi-storey buildings were few: see the observations of Leonard J in Singway Ltd v A-G [1974] HKLR 275 at p.283 to this effect.  In such a setting, a residential block might well, in ordinary parlance, be referred to as a house, whatever its internal division.  It does not follow that, in the ordinary use of language today, a 30 storey residential block can be referred to as a house: most people would simply call it a block of flats.” (emphasis added)

85.Similarly, in the First Instance decision in Fully Profit[22] at para 44, the learned Deputy Judge found the definition of “house” as follows:

“most unreal to expect a reasonable person in 1965 to understand the word “house” as including the proposed development which must have been a mega structure to him. The size, height, complexity and appearance of the building structure as well as the number of separate tenements contained therein are far removed from the ordinary notion of a “house”. In all probabilities, a person in 1965 (if asked) would describe the structure as a “high rise block of flats/apartments” or “a multi-storey building of flats/apartments”. It is interesting to note that the Multi-storey Buildings (Owners Incorporation) Ordinance was first promulgated in 1970 to regulate the management of multi-storey buildings erected in Hong Kong. It is thus most likely that the term “Multi-storey building” would have been in common use several years prior to 1970. In my judgment, the word “house”, when used in the subject covenants, was not wide enough to encapsulate a building structure of such size, height, complexity, appearance and number of separate tenements as envisaged in the Plaintiff’s proposed development. Although the exact delineation between what is and what is not a “house” may not be easy to draw, I have no hesitation in finding that the Plaintiff’s proposed development falls clearly outside the description of “a house”.”

86.We agree with this observation particularly when the Conditions of Exchange No 4942 was granted in September 1953 instead of 1965.

87.In this regard, Mr Li submitted that the primary question here is the position of the Government with respect to the development plan for lot that contains the same house restriction as the Conditions of Exchange No 4942. It must be noted that PN 3/2000 was issued in April 2000 well before the Court decisions in Fully Profit. The position of the Government is clear:-

“This practice note is issued to assist the concerned parties in preparing building plan submissions for developments which are subject to a restriction in the government lease or land grant on the number of houses which may be erected on the affected land.

I will henceforth accept that a building with one main entrance and one secondary entrance, together with such means of escape (MoE) as may be required under the Buildings Ordinance to serve the buildings (providing such MoE are designed and constructed to be for exit purposes only and are openable only from the inside) is one house.

For the avoidance of doubt, a multi-storey residential/commercial development with shops on the ground floor, each shop having its own separate access to and from the street, would not comply with the definition of “one house” nor would a terrace of town houses each with its own separate access. A joint development, having the characteristics of one house but constructed over two lots, the leases of which each contain a clause that the owner “shall not erect other than one house”, will not be permitted. It should also be noted that free-standing outbuildings are also “houses”. Thus a proposed development on a lot with a “one house” restriction comprising a building meeting the criteria set out in paragraph 2 above but with, for example, a free-standing guardhouse or E&M room, would breach the one house restriction.”

88.As said in the penultimate paragraph of PN 3/2000, it applies to lots where the lease conditions refer to “house’ or “houses” without qualification. To avoid the problem of possible dispute as to what is a “house” and a “building”, the Government will approve plan of development of lot containing “house” restriction to erect building provided that the building only has one main entrance and one secondary entrance. A development with each shop having its own separate access to and from the street as proposed by Dr T Wong would not be approved.

89.The Court of Final Appeal in Fully Profit does not change the application of PN 3/2000. This can be gathered from PN 3/2000A which was issued on 25 June 2014 subsequent to the judgment in Fully Profit, referred to the judgment and went on to clarify that PN 3/2000 would still be applicable in suitable situations:-

“2.   The Judgment held that in the context of the Government lease concerned, the meaning of the word “house” must be taken to mean the type and characteristics of the house existing on the lot concerned at the time the Government lease was entered into. Therefore, in considering building plan submissions referred to in paragraph 1 above, apart from the guidelines set out in PN 3/2000, Lands Department (“LandsD”) will also make reference to the type and characteristics of the house which was actually standing on the lot concerned at the time the Government lease was entered into, particularly the building height, is not permitted under the “house” restriction, and a lease modification subject to payment of premium and administrative fee would be required unless paragraph 5 below applies.

3.  …

4.  For cases where (i) no house existed on the lot concerned at the time the Government lease was entered into; or (ii) no Government lease has been executed and the house was only erected on the lot subsequent to entering into the original Conditions of Grant/Sale/ Exchange except those sub-divided lots mentioned in paragraph 3 above, unless there is evidence to establish the context in interpreting the word “house” (such as correspondence between Government and the lot owner, approved building plans, pre-existing houses, etc), Landsd will continue to make reference to the guidelines set out in PN 3/2000 in considering compliance with the “house” restriction in the Government lease or land grant.”

90.While PN 3/2000 and PN 3/2000A or even all Practice Notes issued by the Lands Department are not binding on the court, what is important in the present context is that these Practice Notes state the position of the Government, a contracting party to the Conditions of Exchange No 4942. The proposed 24-storey composite building is definitely not a “house” and would attract payment of a premium if there were no PN 3/2000 and PN 3/2000A. And so long as PN 3/2000 and PN 3/2000A apply, Dr T Wong’s hypothetical model that there are separate entrances to the two shops on G/F (plus another entrance to the upper floors) would not be acceptable by the Government under Special Condition (17) without payment of a premium.

91.In this regard, we accept the G/F layout proposed by Mr A Chan[23] that the entrances to the two shops would open to a funnel shape entrance corridor leading to the lift lobby to the upper floors[24]. Thus, each of the two shops will have a slanting return frontage of 4.36m.

Assessment of the Value for the hypothetical shop units on G/F

92.In the Joint Witness Statement dated 29 October 2019, the two experts had the following agreement/disagreement on the adjustments for the ancillary areas of the comparables:[25]

	Mr A Chan	Dr T Wong
Yard	1/6
Toilet in Yard	1/4	1/2
Kitchen	1/4	Value as Shop Area
Cockloft	1/4

93.Firstly, we agree with Dr T Wong that the area of a kitchen (if any) should be valued as part of the shop; there are many instances where the kitchen/cooking area of a restaurant is located right at the entrances of a shop. As regards toilets, save for those where communal toilets are provided, to apply for a restaurant licence, at least one toilet compartment, one urinal and one wash-hand basin shall be provided on the premises for use by the customers and staff. If there is no toilet at the yard, a toilet has to be provided elsewhere in the shop proper. We consider that the value of a toilet in yard should be as much as half of the value of the shop proper.

94.As both two experts agreed to adopt the same set of comparables for assessing both the EUV and the GDV of the hypothetical shop units, our comments in assessing the EUV similarly apply save that we would take into account the return frontage of the two hypothetical shops and would therefore adopt the adjustment proposed by Dr T Wong. We, however, would not deduct the so-called exposure allowance proposed by Mr A Chan for the subject hypothetical shops lacking direct street access; we consider that the recess of entrance is minor.

95.In addition, they introduced a new comparable as follows[26]:

Comp Ref:	Address	Age	Transaction Date	Consideration	Saleable Floor Area (m2)	Frontage (m)	Headroom (m)	Depth (m)	Effective Unit Price (/m2)
KF/CB	G/F, 1A Nga Tsin Long Road	1958	4 Jun 19	$29,800,000	64.49 + Toilet in yd 1.41 + Yard: 14.76	3.89	4.27	13.72	$440,437

96.Taking into account this new comparable, our assessment (which more or less follows Exhibit R2 page 6) is therefore as follows:

Comp Ref:	Effective Unit Price (/m2)	Adjustments							Adjusted Unit Price (/m2)
		Time	Location	Size	Age	Frontage	Headroom	Total
KF/CB	$440,437	-3.2%	10.0%	-3.2%	6.0%	4.0%	0.5%	14.20%	$502,979
KF1/ CB1	$316,727	-5.4%	15.0%	-6.4%	4.0%	3.0%	2.5%	11.80%	$354,101
KF2/ CB2	$369,861	-4.4%	25.0%	-0.8%	4.0%	3.0%	-0.1%	26.86%	$469,206
KF4/ CB4	$330,064	1.5%	10.0%	17.2%	5.0%	-6.0%	1.1%	30.57%	$430,965
KF1A/ CB6	$407,664	-7.1%	0.0%	2.8%	5.0%	0.0%	-0.4%	-0.12%	$407,175
KF1B/ CB7	$388,328	-5.8%	5.0%	1.2%	5.0%	3.0%	1.7%	10.10%	$427,549
							Average:		$431,996
							Say		$432,000

Assessment of the Value for the hypothetical shop units on 1/F

97.Both experts agreed that the unit value of 1/F would be equal to 1/3^rd of that for G/F. As we find that the unit rate for G/F is $432,000/sq m, the unit value of 1/F would be $144,000/sq m.

Assessment of the Value for U/F (Residential)

98.As regards the domestic portion, the two experts agreed to adopt the transactions at High Place (No 33 Carpenter Road), The Avery (No 16 Hau Wong Road) and Ava 55 (55 Kai Tak Road). They had the following agreements/ disagreements on adjustments[27]:

	Mr A Chan	Dr T Wong
Time	On the basis of the Class A Index in “Private Domestic Price Index by Class (Territory-Wide)” of the Rating and Valuation Department
Location (& Accessibility as suggested by Dr T Wong	High Place: 5% The Avery: 0% Ava 55: 5%	High Place: 5% The Avery: -4% Ava 55: 5%
Floor Level	0.5% for every 1 level difference
Size	2% for every 10 sq m difference but: 0 m2 -9.99 m2: 0% 10 m2 – 19.99m2: 2% 20m2 -29.99m2: 4% … 50m2 – 59.99m2: 10%	0.2% for every 1 sq m difference in the Converted Area
Age	1% for every 1 year difference	1% per annum (Extra upward adjustment of +5% for comparables in High Place and The Avery)
Headroom	2% for every 1 m difference (rounded to nearest integer)	2% for every 1 m difference (rounded to nearest 0.1%)
View	Open View: 0% Building View: 5%	View of Reference Unit: Open City View Mix of Building and Open View: +2.5% Building View: +5% Congested Building View: +7.5%
Facilities & CPS	High Place: 0% The Avery: 0% Ava 55: 3%
Adjustment Method	Multiplication

99.The first major difference in opinion between the two experts is the adjustment on location for The Avery. Having conducted the joint site inspection, we prefer Mr A Chan’s nil adjustment.

100.The next difference is on building age adjustment where Dr T Wong allowed an extra upward adjustment of 5% for comparables in High Place and The Avery. While the occupation permits for these two developments were both dated in 2014, the real question to ask is whether 1% for every one year’s difference (ie a total of 5%) is appropriate. We consider that Dr T Wong’s adjustments is more compatible with the market.

101.Another difference is on adjustment for view. We have not been able to inspect the corresponding comparables and verify the “view” designated by the two experts. In any event, the demarcation proposed by Dr T Wong appears subjective. We prefer a more broad brush approach  and would accept the adjustments on view as proposed by Mr A Chan.

102.The remaining differences in opinion between the two experts are minor and insignificant. Mr A Chan’s adjustments are adopted. Dr T Wong did not adopt some of Mr A Chan’s comparables because they are of smaller sizes, below 20 sq m. Nevertheless, units of smaller sizes even below 20 sq m are not uncommon and the reference unit is just 25.22 sq m. We are prepared to adopt all the comparables proposed by Mr A Chan for analysis purpose.

103.On the other hand, we would exclude Dr T Wong’s comparable at Unit D, 17/F, The Avery because its sale took place in January 2018 which is dated when compared with the others. We would also disregard the presale comparable at Unit C, 7/F, AVA 55. The Tribunal in Gainfield Investment Limited, supra, stated as follows:

“187. It is noted that at least sales of units in The Paseo and AVA 62 are pre-sale transactions. In Million Add Development Ltd v Secretary for Transport, LDMR 3/1994 (unreported, dated 4 February 1997), the Tribunal rejected the use of the pre-sale comparables, notwithstanding having acknowledged that they were actual market transactions, because:

“proper analysis would have to take into account a variety of factors, several of which would not easily be quantified. Allowance would have to be made for loss of interest on pre-payments; uncertainties over quality and completion dates; and varying market conditions over the relevant period... We consider it extremely difficult to make reliable adjustments for the presale factors....”

188. More recently in Good Faith Properties Limited and Others v Cibean Development Company Limited, LDCS 42000/2011 (unreported, dated 31 May 2013) (“Good Faith”), the Tribunal remarked that:

“185. .... It may sound peculiar to someone who is not familiar with the basic assumption of residual valuation that if pre-sales (even if they are close to the relevant valuation date) are used, difficult adjustments would have to be made because in the market, pre-sale transactions are usually completed with stage payment, i.e. without the need for the purchasers to pay up the full amount of purchase price (hence the gearing ratio of the investment is different from the purchase of a completed development). It is this factor that Mr. Chan sought to argue that presale prices could most likely be inflated by the vendor/developer as the purchaser does not need to pay the full price today.””

104.In respect of value for flat roof, top roof/roof, the conversion factor between the two experts were 1/6 v ¼ and 1/8 v 1/6 respectively. Based on the size and usefulness of these ancillary areas, Mr A Chan’s adjustments of 1/6 and 1/8 are adopted

105.Our calculation of the value of the reference unit on the upper floor is as follows with units having sizes below 20 sq m being shaded:

	Reference Unit: Unit on 15/F of hypothetical development  with saleable area of 25.22 sq m
Unit	Unit Price (/m2)	Adjustments									Adj Unit Price (/m2)
		Time	Location	Age	Floor*	Size	Headroom	View	Facilities	Total
	High Place
Unit B, 19/F	$248,820	-0.7%	5%	10.0%	-1%	0%	-1%	0%	0%	12.41%	$279,699
Unit D, 8/F	$235,822	-0.4%	5%	10.0%	4%	0%	0%	5%	0%	25.62%	$296,240
Unit D, 17/F	$225,682	0.4%	5%	10.0%	1%	0%	-1%	5%	0%	21.75%	$274,768
Unit C, 18/F	$254,589	0.4%	5%	10.0%	0%	0%	-1%	0%	0%	14.80%	$292,268
Unit D, 18/F	$230,681	0.4%	5%	10.0%	0%	0%	-1%	0%	0%	14.80%	$264,822
Unit A, 20/F	$290,271	0.4%	5%	10.0%	-1%	0%	-1%	0%	0%	13.65%	$329,893
Unit D, 11/F	$224,913	0.4%	5%	10.0%	3%	0%	-1%	5%	0%	24.16%	$279,252
Unit D, 5/F	$219,502	0.4%	5%	10.0%	6%	0%	0%	5%	0%	29.07%	$283,311
Unit A, 9/F	$241,561	2.6%	5%	10.0%	4%	0%	0%	0%	0%	23.24%	$297,700
									Average:		$288,661
								Average with the 3 shaded ones excluded:			$279,682
		The Avery
Unit D, 25/F	$248,203	-0.9%	0%	10.0%	-3%	0%	0%	5%	0%	11.03%	$275,580
Unit A, 19/F	$211,790	-1.1%	0%	10.0%	-1%	0%	0%	0%	0%	7.70%	$228,098
Unit A, 16/F	$227,674	-1.3%	0%	10.0%	1%	0%	0%	0%	0%	9.66%	$249,667
Unit D, 10F	$238,620	2.9%	0%	10.0%	3%	0%	0%	5%	0%	22.41%	$292,095
Unit B, 3/F	$208,633	3.6%	0%	10.0%	6%	0%	-1%	5%	0%	25.57%	$261,980
Unit D, 18/F	$248,203	-0.7%	0%	10.0%	0%	0%	0%	5%	0%	14.69%	$284,664
Unit B, 16/F	$217,376	0.4%	0%	10.0%	1%	0%	0%	5%	0%	17.12%	$254,591
Unit A, 25/F	$211,790	0.4%	0%	10.0%	-3%	0%	0%	0%	0%	7.13%	$226,891
Unit D, 21/F	$242,453	2.6%	0%	10.0%	-2%	0%	0%	5%	0%	16.13%	$281,561
Unit C, 19/F	$236,128	2.6%	0%	10.0%	-1%	0%	0%	5%	0%	17.32%	$277,025
Unit D, 7/F	$233,349	4.5%	0%	10.0%	5%	0%	0%	5%	0%	26.73%	$295,723
Unit C, 8/F	$229,995	4.5%	0%	10.0%	4%	0%	0%	5%	0%	25.53%	$288,713
									Average:		$268,049
		AVA 55
Unit B, 27/F	$235,156	-0.9%	5%	0%	-4%	0%	-1%	0%	3%	1.86%	$239,530

* 4/F, 13/F, 14/F and 24/F are omitted in the developments.

106.From the above, it appears that the single transaction adopted in AVA 55 is out of line. As a result, we only take the average of High Place and The Avery which is equal to $278,355/m².

107.The total value of the residential floors is calculated as follows:[28]

Floor	Saleable Area  per unit (m2)	View	Unit Value of Reference Unit	Adjustments			Adjusted Unit Value	Market Value
				Floor	View	Total
Roof
23/F	25.222	Open	$278,355	4.0%	0.0%	4.0%	$289,489	$14,603,000
22/F	25.222	Open	$278,355	3.5%	0.0%	3.5%	$288,097	$14,533,000
21/F	25.222	Open	$278,355	3.0%	0.0%	3.0%	$286,706	$14,463,000
20/F	25.222	Open	$278,355	2.5%	0.0%	2.5%	$285,314	$14,392,000
19/F	25.222	Open	$278,355	2.0%	0.0%	2.0%	$283,922	$14,322,000
18/F	25.222	Open	$278,355	1.5%	0.0%	1.5%	$282,530	$14,252,000
17/F	25.222	Open	$278,355	1.0%	0.0%	1.0%	$281,139	$14,182,000
16/F	25.222	Open	$278,355	0.5%	0.0%	0.5%	$279,747	$14,112,000
15/F	25.222	Open	$278,355	0.0%	0.0%	0.0%	$278,355	$14,041,000
14/F	25.222	Open	$278,355	-0.5%	0.0%	-0.5%	$276,963	$13,971,000
13/F	25.222	Open	$278,355	-1.0%	0.0%	-1.0%	$275,571	$13,901,000
12/F	25.222	Open	$278,355	-1.5%	0.0%	-1.5%	$274,180	$13,831,000
11/F	25.222	Open	$278,355	-2.0%	0.0%	-2.0%	$272,788	$13,761,000
10/F	25.222	Open	$278,355	-2.5%	0.0%	-2.5%	$271,396	$13,690,000
9/F	25.222	Open	$278,355	-3.0%	0.0%	-3.0%	$270,004	$13,620,000
8/F	25.222	Open	$278,355	-3.5%	0.0%	-3.5%	$268,613	$13,550,000
7/F	25.222	Open	$278,355	-4.0%	0.0%	-4.0%	$267,221	$13,480,000
6/F	25.222	Open	$278,355	-4.5%	0.0%	-4.5%	$265,829	$13,409,000
5/F	25.222	Building	$278,355	-5.0%	-5.0%	-9.8%	$251,215	$12,672,000
4/F	25.222	Building	$278,355	-5.5%	-5.0%	-10.2%	$249,893	$12,606,000
3/F	25.222	Building	$278,355	-6.0%	-5.0%	-10.7%	$248,571	$12,539,000
2/F	25.222	Building	$278,355	-6.5%	-5.0%	-11.2%	$247,249	$12,472,000
							Total:	$302,402,000

108.We assess that the unit value for the flat roof on 2/F as well as that for the top roof should be both 1/6^th of that for 2/F and 23/F respectively.

Development Profit

109.The experts disagreed on the developer’s profit on costs. Mr A Chan suggested 25% while Dr T Wong suggested 10%. Mr A Chan originally gave a profit level of 20% but then adjusted it to 25% at trial in view of the deteriorating socio and economic situation.

110.The HKIS Guidance Notes on Valuation of Development Lands contains the following provisions:

“3.6.4 Developer’s profit needs to reflect:

• The nature of the development and related risks. These include marketing risks for sales and lettings, risks of construction difficulties and cost overruns, and delays in obtaining relevant development approvals.

• Competition and market demand for the type of development scheme, plus:

• The development duration, since lengthening the development period will escalate the necessary return on outlays and capital.

3.6.5 Straightforward developments catering to strong market demand will serve to reduce risk, and thus profit rate expectation.

111.Bearing in mind the relatively small size of the Lot (261.24 sq m) and the straightforward hypothetical development being proposed, we are prepared to adopt 15% on costs as the developer’s profit.

Interest Rate

112.Mr A Chan and Dr T Wong also differed on the interest rate applicable to discount the development value. The Tribunal recently saw similar interest rate disputes in Sarford Development Limited & Others v Super Stars Properties Limited, LDCS 14000/2018 (unreported, dated 27 March 2020) and Kannix, supra where the representatives of the corresponding developers conceded that they could borrow at 4% per annum for development.

113.As the Lot will be open for auction when an order for sale is granted, developers who can borrow at 4% will compete with each other. It is more likely than not that 4% should be the proper interest rate to be adopted.

Finding on RDV and the Reserve Price

114.Subject to what we have stated above, we shall follow Mr A Chan’s residual valuation model as contained at Appendix 1 of the Joint Statement dated 29 October 2019[29] on the determination of the RDV which is reproduced at Appendix 1 to this judgment. We determine the land value of the Lot at $223,372,680 (ie accommodation value of $100,881/m²).

115.We shall adopt the estimated RDV of $223,372,680 as the Reserve Price for the auction of the Lot.

Other Incidental Matters

116.The applicant proposed to appoint Mr Andy Ngan and Ms Jenny Ma, being consultant and partner of Messrs F Zimmern & Co, Solicitors & Notaries, as the sale trustees.  Based on the information on their background and experience as set out in their letter dated 9 October 2019, we are satisfied that they are proper persons to be appointed as trustees to discharge the duties imposed on trustees under the Ordinance.  The remuneration package proposed in the said letter appears reasonable.

117.The applicant has prepared a set of draft Particulars and Conditions of Sale of the Lot[30].  Subject to any amendment that may become necessary as a result of our ruling on the arrangement of auction above, the particulars and conditions of sale of the Lot by public auction submitted by the applicants are also reasonable.

Order

118.This Tribunal make the following orders:

(1)  This Tribunal is satisfied that the redevelopment of the Lot is justified due to the “age” and “state of repair” of the Building and that the applicants have taken reasonable steps to acquire all the undivided shares in the Lot including those of the 1^st, 2^nd and 3^rd respondents;

(2)  All the undivided shares in the Lot, the subject of the Application herein, be sold by way of a public auction for the purposes of the redevelopment of the Lot under s.4(1)(b) of the Land (Compulsory Sale for Redevelopment) Ordinance (“the Ordinance”);

(3)  Mr Andy Ngan and Ms Jenny Ma of Messrs F Zimmern & Co, Solicitors & Notaries, nominated by the applicants, be appointed trustees (“the Trustees”) to discharge the duties imposed on trustees under the Ordinance in relation to sale of the Lot and the Trustees be authorized to charge such remuneration for their services in accordance with the terms set out in the letter of Messrs F Zimmern & Co, Solicitors & Notaries dated 9 October 2019.

(4)  For the purpose of the sale of the Lot by public auction under section 5(1)(a) of the Ordinance:

(i)  The sale of the Lot be on the particulars and conditions of sale substantially the same as those in the draft Particulars and Conditions of Sale to be initialed and approved by the Tribunal.

(ii)  The reserve price be set at $223,372,680.

(iii)  Subject to further extensions that the Tribunal may subsequently allow upon the application of the purchaser of the Lot or its successor in title, the redevelopment of the Lot and the Building shall be completed and made fit for occupation within a period of 6 years after the date on which the purchaser of the Lot shall become the owner of the Lot.

(iv)  Liberty to the applicants, the 1^st, 2^nd & 3^rd respondents and the Trustees to apply to the Tribunal for further direction(s) under the Ordinance.

Costs

119.In accordance with the compensation approach as determined by the Court of Appeal in Good Faith Properties Ltd and Others v Cibean Development Co Ltd [2014] 5 HKLRD 534, the respondents are entitled to costs notwithstanding the outcome of the Application.

120.Accordingly, we order that the applicant do pay the respondents’ costs in these proceedings on High Court scale with certificate for counsel, including any costs reserved, to be taxed if not agreed.

121.Last but not least, the Tribunal thanks both Counsel for their assistance.

Mr C Y Li, SC, instructed by Messrs So, Lung and Associates, for the Applicant

Mr Jonathan Lee, instructed by Messrs Cheung & Liu, for the 1^st, 2^nd & 3^rd Respondents

Appendix 1