Asia Harbour Investment Ltd v. Sino Master Group Ltd and Others
Read the full judgment text of LDCS 4000/2017 on BabelCite. This LDCS judgment was delivered on 27 November 2020.
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 following lots (hereinafter collectively referred to as “the Lots”):
Cited by 2 cases · Cites 7 cases
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LDCS 4000/2017 [2020] HKLdT 55 IN THE LANDS TRIBUNAL OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION LAND COMPULSORY SALE MAIN APPLICATION NO 4000 OF 2017 __________________________ BETWEEN
__________________________ Before: Mr Lawrence Pang, Member of the Lands Tribunal Dates of Hearing: 5 November 2020 Date of Judgment: 27 November 2020 _________________ J U D G M E N T _________________ 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 following lots (hereinafter collectively referred to as “the Lots”):
2.The 12 buildings being erected at 2-24 Gillies Avenue South (hereinafter referred collectively as “the Buildings”) occupy a corner site bound on the southwest by Hung Hom South Road and on the northwest by Gillies Avenue South. They constitute a terrace of 6 pairs of 7-storey buildings each pair sharing 2 common staircases. There is no lift service provided for any of the Buildings 3.The occupation permit for the Buildings (“OP”) was issued pursuant to the Building Ordinance (Chapter 123 of the Revised Edition, 1950) on 12 July 1956 whereby permission was granted to occupy and use the Buildings for domestic purposes. 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.According to the General Building Plans approved on 11 January 1956 (“the Approved Building Plans”), each of the Buildings comprises a ground floor (“G/F”) with front portions for shop use & rear portion for domestic use, a mezzanine floor (“M/F”) for office use and 1st Floor to 5th Floor for residential use. The total gross floor area of the Buildings is about 9,700 sq m. 6.While each building has its own Deed of Covenant which allots 2 equal and undivided shares to each floor, 1 share to the front portion and 1 share to the rear portion, the applicant has acquired ownership of the respective shares as follows[1]:
7.Ms Nancy Ngai (“Ms Ngai”), counsel for the applicant, summarized in her opening submission that at the time of the Application dated 5 June 2017, the applicant owned not less than an average of 80% of the undivided shares of each pair of the Lots. As at the date of trial on 5 November 2020, the applicant also owned not less than an average of 80% of the undivided shares of each pair of the Lots. 8.Thus there were 18 respondents at the time of commencement of the Application on 5 June 2017. Subsequently, upon the 19th respondent’s application, he was joined as one of the respondents in these proceedings. Then, the applicant successfully acquired the undivided shares or interests in the Lots owned by the respondents listed in the table below. The applicant has already discontinued the proceedings against them:
9.There are now 6 live respondents remaining on record, the particulars of which are as follows:
10.In respect of R8 in particular, substituted service of the Application was effected on 3 August 2018 pursuant to the Order of HH Judge Kot dated 12 July 2018. R8 had not shown up after the expiration of the 1-month period as specified in the Notice. Pursuant to paragraph 2 of the Order dated 12 July 2018, R8 and all persons claiming to be the minority owners of the Lots shall be bound by the proceedings as if they have been served with the Application in accordance with section 3(3)(a) of the Ordinance. Service of the Order dated 12 July 2018 and all subsequent documents in relation to the present proceedings on R8 has also been dispensed with. The Issues in the Application 11.Mr Ngai summarized the following issues as shall be determined by the Tribunal:
Whether the Applicant is entitled to make the Application 12.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. 13.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. 14.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)”. 15.As the OP for the Buildings was issued on 12 July 1956, not less than 50 years before the date of the Application, the Notice is applicable and the threshold percentage should be 80%. 16.The applicant, owning not less than an average of 80% of the undivided shares of each pair of the Lots, was entitled to file the Application under section 3(2)(b) of the Ordinance which may cover two or more lots—
EUV as at 7 April 2017 Assessment of EUV of G/F Units 17.The Application was accompanied by a valuation report dated 28 April 2017 (“Application Report”) prepared by Mr Wong Chi Wai (“Mr CW Wong”) of Grandmax Surveyors Limited which contained assessments of the EUV of all units in the Buildings on the Lots as at 7 April 2017. The Application Report was prepared not earlier than 3 months before the date of the Application, i.e. 5 June 2017 and is therefore, in my view, in compliance with section 3 of the Ordinance. 18.Under section 4(1)(a)(i), if there is a dispute between the parties on the EUV of the units in the Buildings on the Lots, the Tribunal has to determine the values. 19.Section 4(1)(a)(ii) further provides that, in the case of any minority owner of the Lots who cannot be found, the majority owner of the Lots is required to satisfy the Tribunal that the value of the minority owner’s property as assessed in the application is “(A) not less than fair and reasonable; and (B) not less than fair and reasonable when compared with the value of the majority owner’s property as assessed in the application.” 20.In the Application Report of 28 April 2017, Mr CW Wong explained the method of valuation and the process of his assessment to arrive at the EUV of each unit of the Buildings. 21.In assessing the EUV of the ground floor units, Mr CW Wong just followed the designated shop use in accordance with the Approved Building Plans of the Buildings. 22.Notwithstanding the “domestic purposes” as specified in the OP, I agree that the ground floor units in the Buildings should be valued as shops having regard to the definition of “domestic building” of the then Buildings Ordinance which allowed for wholly or partly human habitation. 23.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:
24.Hence, Mr CW Wong adopted the following methodology in his assessments:
Assessment of EUV of M/F Units 25.For the assessment of the mezzanine floor commercial portion, Mr CW Wong adopted the commercial unit on Front Portion of M/F, 24 Gillies Avenue South as the Reference Commercial Unit. He then took into account 5 upper floor commercial transactions in the vicinity. After making what he regarded as the necessary adjustments (for time, location, floor, size, building age, view and lift etc) for all these comparable transactions, he adopted the average of the adjusted unit rates of the comparables to come to the unit price of the Reference Commercial Unit. 26.After establishing the unit rate of the Reference Commercial Unit, comparisons are made to the remaining M/F units of the Buildings. Assessment of EUV of Upper Floor Domestic Units 27.In his valuation of the EUV of the domestic units on the upper floors of the Buildings, Mr CW Wong adopted a similar methodology:
28.Mr CW Wong updated the Application Report by a Supplemental Report dated 12 February 2019 in which he revised the EUV of all the units in the Buildings after taking into account the inspection of more units in the Buildings and the updated property index prepared by the Rating and Valuation Department. In this report, Mr CW Wong repeated the exercise he did in the Application Report. 29.The EUV of all units in the Buildings assessed by Mr CW Wong, as at the relevant date of valuation of 7 April 2017, are reproduced at Appendix 1 of this judgment. 30.Thus, the EUV of the live respondents’ units are shown below:
31.In the absence of any evidence to the contrary, I am satisfied that the values of the minority owners’ properties as assessed in the Application are “(A) not less than fair and reasonable; and (B) not less than fair and reasonable when compared with the value of the majority owner’s property as assessed in the application.” I accept the EUV as determined by Mr CW Wong. Whether Redevelopment of the Lots is Justified 32.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 Lots. 33.The applicant adduced the expert evidence of two experts namely, Mr Benson Wong who is an Authorised Person and a building surveyor, and Mr Wong Chi Ming who is a structural engineer. They had prepared a Condition Survey Report and a Structural Assessment Report respectively both dated 12 February 2019. Their expertise was not disputed and their evidence is not contested. 34.By an Order from this Tribunal dated 12 May 2020, the attendance of Mr Benson Wong and Mr Wong Chi Ming at trial was dispensed with. 35.In view of the above, I am 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 36.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. 37.The applicant has made the following offers to the respondents through its solicitors to acquire the respondents’ units or interests they own: [2]
38.Ms Ngai submitted that the applicant has taken reasonable steps (including negotiation with the live respondents who are “minority owenrs”) to acquire all the undivided shares in the Lots in compliance with section 4(2)(b) of the Ordinance. The purchase prices offered by the applicant in the 5 rounds of offers were made by reference to the professional valuation of Mr CW Wong[3]. All the offer prices are higher than the EUV of the respondents’ properties as assessed by Mr CW Wong. The offer prices made by the applicant in the 3rd, 4th and 5th rounds of offers are also higher than the respective apportioned RDV calculated based on the EUV as at 7 April 2017 assessed by Mr CW Wong. 39.By reference to the Affirmation of Ms Lui Wing Yan (“Ms Lui”), the manager of the applicant, dated 12 February 2019, mediation with R15, for instance, took place on 26 March 2018 of no avail. 40.At trial, Mr Lo Siu Kin (“Mr Lo”) who appeared on behalf of R15, however, referred to the applicant’s acquisition of 2/F, 2 Gillies Avenue South in the sum of $15,972,000 ie around $22,000 per sq ft which was disclosed by a newspaper report dated 23 May 2019. Mr Lo also complained that a former unit owned by R15 was acquired by the applicant in 2014 at mere $10,000 per sq ft. 41.In respect of the former, Ms Lui intimated that the applicant had to acquire that unit for the purpose of crossing the threshold of an average of 80% as required by the Ordinance before an application could be made to the Lands Tribunal for compulsory sale. See the table at §6 for Lot 1. Prior to that acquisition, the average shares of Lot 1 and Lot 2 acquired by the applicant would fall below 80%. 42.In respect of the latter, Ms Lui replied that the sale and purchase was between willing seller and willing buyer; the unit selling price could not be compared with the market value at different periods of time. R15 should not try to renegotiate many years later with the benefit of hindsight. 43.To the extent that Mr Lo referred to the acquisition policy of the Urban Renewal Authority (“URA”), Ms Lui responded that the applicant was not a Government organization and there is no requirement for a private developer to follow the Government policy in compulsory land acquisition. 44.I agree with Ms Lui. Indeed, in Top Harmony Limited v Cheung Yuet Sheung & Others, LDCS 39000/2018 (unreported, dated 15 October 2020), the Tribunal was faced with similar arguments by the respondents in that case. At §94 of the judgment, I had ruled that “the offers, if any, prior to the Application are not so relevant in determining whether the applicant has taken 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.” At §109 of the judgment, I also cited the meeting of the Bill Committee of the Provisional Legislative Council on Land (Compulsory Sale for Redevelopment) Bill on 24 February 1998 where it was decided that:
45.In Data Key Limited v Director of Lands [2018] 2 HKLRD 158, Hon Au J (as he then was) observed at §31 that the Government’s policy on resumption “is one that upon resuming a tenanted or vacant commercial property under the LRO, the Government will offer the owner a compensation package which consists of what the Government regards as the open market value of the property and a solatium ... The Policy is not that the owner is entitled to and will be paid a solatium whether or not the offer is accepted.” At §47 of the judgment, it was termed “an added advantage … to attract the offerees to accept the offer and hence to “facilitate clearance and to help finance their move from the property resumed””. Further, at §48, the learned judge remarked as follows:
46.Then when the Ordinance came to be effective in June 1999, 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:
47.The Court of Final Appeal stated further at §36 of the judgment that:
48.More recently, the Tribunal in Good Faith Properties, LDCS 42000/2011 (unreported, dated 31 May 2013) held at §61 of the judgment that:
49.As shall be seen from the reserve price found by this Tribunal at $2,045,000,000, the offers of purchase prices were very reasonable. Under such circumstances, I find it reasonable for the applicant to rely upon the advice of Mr CW Wong in making the offers which were fair and reasonable, given the sums offered were within the broad range between the valuation done by Mr CW Wong and the RDV value found by this Tribunal:
50.On the evidence available, therefore, I am satisfied that the applicant has taken reasonable steps to acquire all the undivided shares in the Lots including negotiating for the purchase of such of those shares as are owned by the respondents on terms that are fair and reasonable. RDV of the Lots Optimum Hypothetical Development Model 51.By reference to Mr CW Wong’s Supplemental Report dated 13 January 2020, he had determined the RDV of the Lots at $1,988,000,000 by the residual valuation method. This was done by deducting development costs (including construction costs, professional fees, finance costs etc) and developer’s profit from the estimated gross development value (“GDV”) of the completed optimum development. 52.The net developable site area of the Lots as determined by Mr CW Wong is 20,400.00 sq ft or 1,895.22 sq m. 53.Ms Ngai submitted that the reserve price for the auction of the Lots should be fixed at $1,988,000,000 accordingly. 54.I have scrutinized Mr CW Wong’s valuation of the RDV of the Lots. For instance, Mr CW Wong opined that the optimal development on the Lots would be a 23-storey commercial/residential composite building with shop units on ground floor and first floor, recreational facilities and landscape garden on 2/F and residential units on the upper floors. Details of the hypothetical development and residual valuation were set out in Enclosure 13 of Mr CW Wong’s Supplemental Report dated 13 January 2020[5]. 55.In respect of the shop units, Mr CW Wong relied on 8 transactions of comparables one of which, in particular, is situated at 7 Gillies Avenue South on the opposite side of the street. Then Mr CW Wong disregarded the adjusted unit price of 3 of the comparables which he considered too low or out of tone with the others and took the average of the adjusted unit price of the remaining comparables, arriving at $307,454 per sq m. He took the value of the hypothetical first floor at 1/3 of that the ground floor. 56.As regards the residential units, Mr CW Wong has considered the sales of units in 2 new developments nearby: they are Metro6 at 121 Bulkeley Street and Wuhu Residence at 105-113 Wuhu Street. Mr CW Wong determined an average unit price of $239,000 per sq m which appears to be reasonable. 57.Mr CW Wong also adopted the Development Cost Pro-forma promulgated by the Hong Kong Institute of Surveyors to facilitate consideration of construction costs in land value assessments. The construction cost is estimated at $601,595,529. 58.Mr CW Wong proceeded to adopt 3% as marketing & agency costs and 17.5% as developer’s profit to reflect the increasing risks in investing property development projects. He also took the prime rate of 5% as the discount rate or finance costs. 59.At trial, I pointed out that Mr CW Wong’s Supplemental Report dated 13 January 2020 was prepared some 10 months ago and in Sino Accord Investment Limited v The Personal Representative of the Estate of Shum Kar Fun, Deceased, LDCS 10000/2017 (unreported, dated 22 October 2020) which concerned an application for compulsory sale of lots in the vicinity, Mr CW Wong’s himself had carried out a residual valuation adopting different parameters. 60.Mr CW Wong agreed to adopt a revised discount rate of 4% and a developer’s profit of 15% plus stamp duty and legal costs. Finding on RDV and the Reserve Price 61.Subject to what I have stated above, I shall follow Mr CW Wong’s residual valuation model as contained in his Supplemental Report dated 13 January 2020 on the determination of the RDV[6] which is reproduced at Appendix 2 to this judgment. I determine the land value of the Lots at $2,045,000,000 (ie accommodation value of $119,892/m2). 62.I shall adopt the estimated RDV of $2,045,000,000 as the Reserve Price for the auction of the Lots. Other Incidental Matters 63.The applicant proposed to appoint Mr Chow Wing Kin Anthony and Ms Chow Suk Han Anna, both being consultants of Messrs Guantao & Chow, Solicitors & Notaries, as the sale trustees. Based on the information on their background and experience as set out in their letter dated 16 December 2019, I am 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. 64.The applicant has prepared a set of draft Particulars and Conditions of Sale of the Lots[7]. 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 Lots by public auction submitted by the applicants are also reasonable. Order 65.This Tribunal make the following orders:
Costs 66.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 reasonable costs notwithstanding the outcome of the Application. 67.Accordingly, I order that the applicant do pay the respondents’ costs in these proceedings on High Court scale, including any costs reserved, to be taxed if not agreed.
Ms Nancy Ngai, instructed by Messrs Vincent TK Cheung, Yap & Co, for the Applicant Attendance of the 5th respondent, unrepresented, was excused. The 7th, 8th, 10th and 12th respondents, not legally represented, did not appear. The 15th respondent, not legally represented, appeared in person
[1] See Annex 2 of the Opening Submission of Ms Nancy Ngai on behalf of the applicant. [2] See Annex 4 of Ms Ngai’s opening submission. [3] See Bundle B/74-95. [4] LDC, ie the Land Development Corporation, was the predecessor of the URA. [5] See Bundle C4/947-950. [6] See Bundle C4/949. [7] See Bundle F9/2272-2313. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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