Oriental Moon Ltd v. Golden Sino Link Ltd and Others
Read the full judgment text of LDCS 32000/2019 on BabelCite. This LDCS judgment was delivered on 21 November 2022.
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 Section B of Inland Lot No 444 (“the Lot”) with the building thereon (“the Building”) which has an address of Nos 19-21 Wood Road and Nos 22-30 Wing Cheung Street (formerly known as No 8 Wood Road), Wan Chai, Hong Kong.
Cited by 3 cases · Cites 21 cases
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LDCS 32000/2019 [2022] HKLdT 60 IN THE LANDS TRIBUNAL OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION LAND COMPULSORY SALE MAIN APPLICATION NO 32000 OF 2019 __________________________ BETWEEN
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_________________ 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 Section B of Inland Lot No 444 (“the Lot”) with the building thereon (“the Building”) which has an address of Nos 19-21 Wood Road and Nos 22-30 Wing Cheung Street (formerly known as No 8 Wood Road), Wan Chai, Hong Kong. 2.Standing thereon is a 6-storey building (“the Building”) with an occupation permit dated 7 January 1961 granting permission for the ground floor (G/F) for non-domestic use and the upper floors each with two flats for domestic use. According to a set of building plans approved on 24 March 1960, the G/F comprises a total of 7 shops around the corner of Wood Road and Wing Cheung Street. There is no lift service for the Building and vertical circulation within is by means of a single common staircase. 3.At the time of commencement of the Application on 18 October 2019, there were 4 respondents:
4.Recently, the applicant and R2 entered into a settlement agreement whereby R2 agreed, inter alia, to sell their unit to the applicant. By an order dated 1 March 2022 in terms of a Consent Summons by the parties, the applicant has discontinued the proceedings against R2. 5.Whereas the trial commenced on 1 March 2022, there has been a general adjournment of proceedings during the period from 7 March 2022 to 11 April 2022 (“the 2022 GAP”), owing to the 5th wave of Covid-19 pandemic. The trial was re-scheduled and recommenced on 11 August 2022. 6.In the present proceedings, the applicant was represented by Ms Nancy Ngai (“Ms Ngai”) whereas R1 and R4 were represented by Mr Wilfred Tsui (“Mr Tsui”). R3 had no legal representation but was represented by Mr Lam Chi Kwong (“Mr Lam”) who is also the Chairman of the owners’ corporation (“IO”) of the Building. Whether the Applicant is entitled to make the Application 7.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. 8.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. 9.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)”. 10.As the occupation permit for the Building was issued in January 1961, not less than 50 years before the date of the Application, the Notice is applicable and the threshold percentage should be 80%. 11.By reference to the table in §3 above, the applicant, owning some 82.7586% of the undivided shares of the Lots, was entitled to file the Application under section 3(1) of the Ordinance. The Issues in the Application 12.The applicant, R1, R2 and R4 have jointly prepared an Agreed List of issues for Trial which was filed on 24 January 2022:
13.R3 has not signed the said Agreed List of issues for Trial but by reference to its Notice of Opposition dated 22 July 2020, she was disputing the offer of compensation by the applicant. By that, she alleged that the applicant had acquired the adjoining sites and therefore the offer of compensation should reflect redevelopment of the Lot together with the adjoining sites as a whole. The Evidence 14.The applicant has filed the following documents in support of the Application:
15.R1 and R4 have relied the following documents in opposition:
16.Later, Mr Dennis Wong and Professor Chan prepared a Joint Expert Statement dated 22 June 2021 while Mr C M Wong and Professor Chan prepared a Joint Expert Statement dated 24 June 2021. Mr Ng and Mr Lee prepared their Joint Expert Statement (with consequential amendments) dated 29 December 2020 and a supplemental one (with consequential amendments) dated 11 February 2022 as well. EUV as at 30 August 2019 17.The Application was accompanied by a valuation report dated 3 September 2019 (“the Application Report”) prepared by Mr Ng in respect of the EUV of all units in the Building on the Lot as at 30 August 2019. The Application Report was prepared not earlier than 3 months before the date of the Application, i.e. 18 October 2019 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 Building on the Lot, the Tribunal has to determine the market values. In the present case, the EUV was disputed by the respondents and Mr Lee was appointed as joint expert on behalf of R1 and R4. Assessment of EUV of Ground Floor Non-Domestic Units 19.By their Joint Expert Statement dated 29 December 2020, Mr Ng and Mr Lee agreed, inter alia, the particulars of the subject units on G/F of the Building as follows:[1]
20.Mr Ng and Mr Lee could not however agree on which shop unit should be taken as the reference shop unit: Mr Ng chose Shop 1, ie the one with frontage onto Wood Road whereas Mr Lee chose Shop 4, ie the one which lies in the middle of the parade of shops with frontage onto Wing Cheung Street. 21.Having conducted the joint inspection on 2 March 2022, I prefer to adopt Shop 1 as the reference shop unit because Wood Road enjoys a better exposure; shops fronting onto Wing Cheung Street face the Vocational Training Council Tower and appear to be secondary when compared with those fronting onto Wood Road. Pedestrian flow along this section of Wing Cheung Street is broken by the many institution buildings to the east, which include Lady Trench Training Centre, Tang Shiu Kin Victoria Government Secondary School, Morrison Hill Swimming Pool etc. 22.As Mr Tsui submitted in his closing submission, the starting point of assessing the EUV would be to select a unit which is supposed to be more representative of other units in the same building so that eventually adjustments to them could be minimized. It is indeed Mr Lam’s submission that since 2016, the shopping environment along Wing Cheung Street deteriorated and it might not be fair to adopt one of those shops on Wing Cheung Street as the reference shop unit. 23.In the present case, also, Shop 1 is more comparable with those transactions sought to be adopted by two valuation experts as comparables below; otherwise, the differences in location between the reference shop unit and the comparables might be too large to become reliable.[2] 24.In assessing the EUV of the ground floor units, Mr Ng and Mr Lee relied on the following comparables:[3]
25.Subject to their differences in opinion on the choice of comparables, adjustments for location, return frontage and layout etc, Mr Ng and Mr Lee agreed on the following adjustments:[4]
26.For instance, the table below shows the various adjustments proposed by Mr Ng:[5]
27.On the basis of comparables ES1 to ES6, Mr Ng assessed the EUV for the reference shop units at $569,500 per sq m. On the other hand, Mr Lee relied on comparables ES4 to ES7 and arrived at $779,947 per sq m, ie some 37% higher. Choice of Comparables and Location Adjustments 28.Indeed, the major difference in the assessment between Mr Ng and Mr Lee lies on their choices of comparables and the respective location adjustments. 29.The Building is situated at a corner where Wing Cheung Street, Wood Road, Cross Lane and Heard Street meet. If pedestrian flow were not broken by the many institution buildings as afore-mentioned, the Building would have occupied a prominent position. In any event, Shop 2 of the Building which lies at the junction where the 4 streets meet is occupied by a real estate agent with a 7-Eleven convenience store across Wood Road. 30.Cross Lane, which runs in parallel with Wan Chai Street, a main artery of the Wan Chai district, is dominated by a variety of eateries. Comparable ES1, which is adopted by Mr Ng but not Mr Lee, is situated at the far end of Cross Lane where pedestrian flow is also broken by the rear side of Times Media Centre which fronts Wan Chai Road instead. Comparable ES1 is particularly situated opposite a refuse collection point and a public latrine across Cross Lane. Mr Ng allowed a location adjustment of +20% when compared with the reference shop unit. Mr Lee considered this comparable dated and its size particularly much larger than the reference shop unit when it is more than three times that of the reference shop unit. I agree with Mr Lee that this is not a good comparable and should be disregarded. 31.Comparable ES2 is situated just opposite comparable ES1 but slightly away from the refuse collection point. This comparable also is adopted by Mr Ng but not by Mr Lee because it was also dated, like comparable ES1, some 2½ years earlier than the relevant date of 30 August 2019. For location, Mr Ng also allowed +20% when compared with the reference shop unit but I agree with Mr Lee that this was not enough. As can be seen later in the assessing the gross development value (“GDV”) for shops for the hypothetical development, Mr Ng relied on a comparable, NS4, which is situated at the same building of comparable ES2, but further away from the refuse collection point and closer to the junction of Cross Lane and Burrows Street; Mr Ng proposed the same location adjustment of +20% when compared with the hypothetical shop unit at Wood Road but Mr Lee proposed +25% when compared with the hypothetical shop unit at Wing Cheung Street. I consider a location adjustment of +30% more appropriate for comparable ES2 when compared with the reference shop unit at Wood Road. 32.Comparable ES3 is situated between the junction of Burrows Street with Johnston Road, another main artery of the Wan Chai district and junction with Wan Chai Street. Though Burrows Street itself is not particularly busier when compared with the subject, this comparable also has a size some three times that of the reference shop unit. It is not a good comparable as well. Mr Lee also did not adopt it as a comparable because it was dated 2 years earlier than the relevant date of 30 August 2019. 33.Comparable ES4 is situated at a section of Cross Lane very close to the Building and for this reason adopted by both Mr Ng and Mr Lee as a comparable. Mr Ng adopted an adjustment of -30% when compared with the reference shop unit at Wood Road but Mr Lee applied nil when compared with his reference shop unit at Wing Cheung Street. 34.As I had observed during the joint inspection on 2 March 2022 and pointed out at trial, there is a cluster of eateries along this section of Cross Lane where people tend to be attracted. On the other hand, pedestrian flow towards Wing Cheung Street would be discouraged by the presence of so many institutional buildings and facilities unless the latter are their destination. I agreed to an adjustment of -30% when compared with the reference shop unit at Wood Road. 35.At this juncture, I would like to refer to the following as stated in Modern Methods of Valuation by Eric Shapiro, David Mackmin and Gary Sams, 12th Edn, 2019, Routledge, at p 327:
36.Comparable ES5, being situated at a corner location next to comparable ES4, is even closer to the Building. Again Mr Ng allowed an adjustment for location at -30% when compared with the reference shop unit at Wood Road but Mr Lee adopted -5% when compared with his reference shop unit at Wing Cheung Street. I agreed to an adjustment of -30% when compared with the reference shop unit at Wood Road. 37.Comparable ES6, though adopted by both Mr Ng and Mr Lee, is situated at a recessed position off Wan Chai Road. It is a relatively quiet location and Mr Ng applied an adjustment of +20% when compared with the reference shop unit at Wood Road but Mr Lee allowed more at +30% when compared with his reference shop unit at Wing Cheung Street. I am prepared to adopt +30% when compared with the reference shop unit at Wood Road. 38.Comparable ES7 is situated on Wan Chai Road itself where the retail potential is completely different, with a wide range of retail shops and all forms of public transport facilities traversing along. Whereas shops can be placed into a hierarchy based on the services they provide, at the bottom of the hierarchy are small shops selling low order, convenience goods or the daily necessities like the ones at Wing Cheung Street. At the top are the shops selling high order goods (e.g. branded commodities or jeweleries) which are found along Wan Chai Road. More particularly, this comparable ES7 is situated opposite a busy pedestrian crossing across Wan Chai Road. While Mr Lee had made an adjustment as much as -30% (which I consider inadequate) when compared with his reference shop unit at Wing Cheung Street, I agree with Mr Ng that it should not be regarded as comparable at all. 39.Having analyzed above, I note that Mr Ng had also conducted a further analysis on the basis of the rental of the following units to check his application of location adjustments:[6]
40.Adopting the same adjustment factors save for location, Mr Ng carried out an analysis to compare the difference in location as follows:
41.Thus, Mr Ng arrived at location adjustments more significant than the 30% he proposed for ES4 above. 42.In response, Mr Lee stated that there would be many factors for consideration in the mind of a tenant in looking for a trading place and deliberating on what rental he should pay and these factors were not always the same as those in mind of an investor in buying a property.[7] While I agree this as a general statement, the capital value of a property has a close relation with its rental value because:
43.At page 32, under the heading of (b) The Income approach or investment method, of the Modern Methods of Valuation, supra, it is stated as follows:
44.When the above was pointed out to Mr Lee, he emphasized that the tenant of properties within the Building would likely pay less in view of the active acquisition activities happening in the immediate neighbourhood because of the tenant’s concern for continuity of tenancy (and business) when the tenancy expired. However, as it is noted in the analysis above, all the tenancies were only for a term of 3 years; there could be no guarantee or certainty that the tenancy would be renewed even if there be no active acquisition activities. 45.Indeed, unlike an acquisition scheme initiated by the Urban Renewal Authority (“URA”), for instance, there could be no definite scheme of acquisition by developers until the very late. To a certain extent, developers are seeking acquisition everywhere in the territory. 46.In the present case, the applicant, according to the land registry record, acquired only Flat 4B and Flat 5A in 2010. There was no further acquisition until 2018. Indeed, the applicant signed the Agreement for Sale and Purchase of the shops in the Building on the following dates:
47.And as pointed out by Ms Ngai, there was no early termination clause in the tenancy agreements in respect of Shop 1 or Shop 4 of the Building and the respective tenants could surely complete the tenancy agreements until they expired. 48.Again, Mr Lee was referred to a recent compulsory sale application Smart Host Limited v Acewell Investments Limited, LDCS 29000/2020 (unreported, dated 11 July 2022) where the rentals being paid for the property under the compulsory sale application were compared with the Private Retail – Rental Index published by RVD:
49.The rentals being paid for the property appeared not to be significantly affected. But of course, such scenario might vary from case to case and caution should be taken when such an analysis for location comparison is carried out. 50.In any event, Mr Ng did not apply a location adjustment as much as 70%+ but his analysis supports that Mr Lee’s proposed adjustments for location were grossly inadequate. Return/ Double Frontage 51.Where a retail unit occupies a corner position it may have frontage or glazing on both sides of the elevation, increasing its attraction to the passers-by and therefore value. It is referred to as having the benefit of return frontage. 52.Return frontages may vary from those of a few metres onto narrow streets to a corner shop in a modern shopping mall with full frontages to both malls. Thus, the critical factors suggesting additional value are the size and visibility of the return frontage. The addition, if any, will logically bear a relationship to the main frontage. For comparable ES2, Mr Ng applied an deduction of -5% to reflect the return frontage. However, upon our joint site inspection on 2 March 2022, I found no return frontage as such though it is occupied by a Japanese restaurant; this comparable just adjoins the entrance of the shopping arcade. I do not agree to apply any adjustment for that. 53.There is indeed a return frontage for comparable ES5 as it enjoys frontages onto both Cross Lane and Heard Street. I prefer Mr Lee’s adjustment of -15% to that of Mr Ng’s -10%. Having said that I do not agree with Mr Lee that a further layout adjustment should be applied:
54.In respect of comparable ES6, both Mr Ng and Mr Lee agreed an adjustment of -5% to be applied to the return frontage onto the side lane. This time, Mr Lee allowed an addition of 5% for the awkward shape of this comparable at its rear which I agree. 55.Having reviewed the above, my analysis of the EUV for the reference shop unit is as follows:
56.From the analysis above, it demonstrates that the location adjustments for ES4 and ES5 are in the proper range or the adjusted unit prices from these two comparables would stand out starkly when compared with the others. I am content to adopt $634,000 per sq m which is the average of $645,640 and $622,482 as the EUV for the reference shop unit. 57.Having made such determination, I assess the EUV of the shop premises of the Building as follows:[8]
Assessment of EUV of Upper Floor Domestic Units 58.In his valuation of the EUV of the domestic units on the upper floors of the Building, Mr Ng and Mr Lee agreed the following comparables to be adopted:[9]
59.This time, both Mr Ng and Mr Lee relied on all the 9 comparables. They arrived at a unit rate of $157,600 per sq m and $178,626 per sq m respectively, ie a difference of about 13%. Choice of Comparables and Location Adjustments 60.Although Mr Ng and Mr Lee agreed the above comparables would be adopted, save for comparables ED3, ED4 and ED6, all of them are located in other bustling areas in Wan Chai, for instance, much closer to the Mass Transit Railway station there and to the commercial district in Admiralty. 61.As remarked by the Tribunal in Urban Parking Limited v Commissioner of Rating and Valuation, LDRA 377 & 378/2002 (unreported, 10 September 2003):
62.Comparables ED1 and ED9, for instance, which share a common staircase of a pair of buildings are situated close to the Wan Chai MTR station across Johnston Road. However, both Mr Ng and Mr Lee made no adjustment for location. 63.Comparables ED2 and ED8 are situated right within the market place of Wan Chai. Mr Ng made no adjustment on location while Mr Lee allowed an adjustment of +5% and +10% respectively for each of them. I consider +5% appropriate for both of them. 64.Comparable ED3, like the Building, is situated at a quieter place of Wan Chai adjoining St James’ Settlement Community Centre. Again Mr Ng made no adjustment on location but Mr Lee allowed an adjustment of +5%. I agree with Mr Ng this time. 65.Comparable ED4 is situated opposite to comparable ES3, sandwiched between the junction of Burrows Street with Wan Chai Road and that with Johnston Road. Again Mr Ng made no adjustment on location and Mr Lee allowed an adjustment of +5%. I agree with Mr Lee 66.Comparables ED5 and ED7 are situated at a building even closer to the Wan Chai MTR station than ED1. They lie opposite to a relatively new urban renewal development across the street – Amoy Street which runs in parallel to Swatow Street. Although both Mr Ng and Mr Lee made no adjustment for location, I allow an adjustment of -5%. 67.Though situated in an area close to the Building, comparable ED6 lies within another market place of Wan Chai. This time even Mr Ng made a location adjustment of +5% but I prefer Mr Lee’s +10%. 68.Like those for the assessment of the EUV of the reference shop unit, Mr Ng and Mr Lee happened to have agreed on the following adjustments:[10]
69.In addition to the above, Mr Ng allowed +3% for both view and light & ventilation for comparable ED8 which faces a service lane; on the other hand, Mr Lee made various adjustments for view and light & ventilation for all the comparables[11]. Having carried out the joint site inspection on 2 March 2022, I agree with Mr Lee. 70.Thus, my analysis of the EUV for the reference domestic unit is as follows:[12]
71.Having regard to the above, I am prepared to adopt $170,000 per sq m as the unit value of the reference domestic unit, Flat B on 1/F. Except for noise, Mr Ng and Mr Lee were able to agree on all other adjustments for the other domestic units in the Building. Mr Lee had allowed -3% for all Flat A units as they front onto Wing Cheung Street. However, Wing Cheung Street is not a busy street. I agree with Mr Ng that noise should not make any difference. I determine therefore the corresponding EUV for all the domestic units of the Building as follows:[13]
Total EUV 72.The total EUV of the Building is therefore
and the pro rata shares of the respondents are shown as follows:
Whether Redevelopment of the Lot is Justified 73.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 Building is justified and that the applicant has taken "reasonable steps" to acquire all undivided shares of the Lot. 74.In her opening submission, Ms Ngai referred to the guidelines laid down in, for instance, Top Sail International Limited v Cheng Kai Ming, LDCS 18000/2010 (unreported, dated 15 November 2011 and Charmlink Limited v Lee Tong Hing & Others, LDCS 16000/2010 (unreported, dated 29 November 2011) on the factors that the Tribunal should consider in deciding whether redevelopment is justified due to age and state of repair. 75.More recently, in Pacific Base Holdings Limited & Others v Lee Hop Biu & Others, LDCS 14000/2017 (unreported, dated 4 June 2020)[14], the Tribunal stated in §119 of the judgment that:-
76.Then in Fancy Million Limited & Others v Year Glory Limited & Others, LDCS 15000/2018 (unreported, 23 November 2021), the Tribunal had the following to say:-
77.Lately, in Century Supreme International Limited v Kam Chi Kit Charles and Hui Pui Kuen & Others, LDCS 24000/2018 (unreported, 21 January 2022), the Tribunal repeated its observation above as follows:
78.In his opening on 1 March 2022, Mr Tsui said he had no quarrel with the above principles. Structural Condition 79.Both Mr C M Wong and Professor Chan had carried out a lot of tests in their structural assessment reports. The results of grading* of the two experts after the open-up inspection of slabs, beams and columns can be directly combined as the tests (for slabs/beams) were carried out by the same laboratory:[15]
80.From the above analysis, both Mr C M Wong and Professor Chan agreed that most rebars for slabs and beams were suffering from partly to moderate corrosion[16]. Professor Chan agreed that for a building of over 50 years of age, this is not unusual.[17] The similar result for columns is not shown here as the corrosion of the rebars in slabs and beams were found to be relatively worse than that in columns. 81.The following table shows the results of analysis of the comparison of actual cover against design cover in the structural elements:[18]
82.From the above analysis, both Mr C M Wong and Professor Chan agreed that 16%, 73% and 14% of the test spots in slabs, beams and columns respectively show that the actual cover is less than the design cover. Although in overall speaking, 37% of the spots have actual concrete cover less than the design cover, I agree with Mr C M Wong that this 37% is misleading as 73% of the beam sample had actual concrete cover less than the design cover. While Professor Chan recommended the application of cementitious protective coatings to reinforce the protection, I share Mr C M Wong’s concern that the existing concrete cover has already been carbonated (which is irreversible[19]) and the concrete itself has inherently high chloride contents. See below. 83.The combined results on carbonation depth are as follows:[20]
84.From the above analysis, both Mr C M Wong and Professor Chan agreed that, for 80% of the samples in slabs, 100% of the samples in beams and 20% of the samples in columns, carbonation has exceeded the actual cover to the outermost rebars. The protection of the passive layer of the concrete cover has been lost and thus the rebars are susceptible to corrosion. Again the beams have suffered the most in carbonation. 85.Chloride ions in the concrete are a major threat to the steel reinforcement as they are capable of severely reducing the protective oxide layer covering the steel reinforcement, causing corrosion. This can lead to cracking of concrete due to the expansive nature of the corrosion, as well as failures of structural steel due to loss of the steel integrity. The combined results on chloride content test are as follows:[21]
86.From the above analysis, both Mr C M Wong and Professor Chan agreed that 35% of the spots checked in slabs and beams are found to have chloride content higher than the current maximum allowable value in the Code of Practice for Structural Use of Concrete 2013. The risk of corrosion of the rebars in some of the slabs and beams due to chloride attack is high though Professor Chan insisted that it would no longer be any problem if no water permeates into the concrete in future. 87.The following table summarizes the combined results of in-situ concrete strength:[22]
88.From the above analysis, both Mr C M Wong and Professor Chan agreed that the concrete for slabs and columns complies with the design specification but 33% of the beam samples marginally failed to satisfy the original design intent.[23] 89.With regard to the above, both Mr C M Wong and Professor Chan agreed that the cost for patch repair of the cracks and spalling was $68,000 but this figure did not include the cost for the application of anti-carbonation coating. If anti-carbonation coating is applied to slabs and beams which are both structural members, the estimated cost was $600,000. 90.Notwithstanding the above, Professor Chan was of the opinion that proper repair and maintenance work would continue the proper functioning of structural elements of the Building for many decades to come.[24] In his opinion, there are a countless number of buildings of similar ages in Hong Kong which are safe and sound, of which the Building is one; the general condition of the Building is better than that of many buildings in Hong Kong aged 50 or more. More particularly, according to Professor Chan, anti-carbonation paint can be applied effectively at little cost to protect atmospherically exposed reinforced concrete structures from further attack by acid gases, chloride ions, oxygen and water. A thin surface film would be produced consolidating and stabilising porous substrates. Professor Chan referred to one catalogue of such anti-carbonation paint which was extensively applied to South Court at 4-6 Sau Chuk Yuen Road, Kowloon City in 2016.[25] On the other hand, Professor Chan admitted that he only had experience in applying similar anti-carbonation paint once to a canopy of an industrial building[26] some 20 years ago instead of to a whole building. He also explained that in many refurbishment projects that he came across, the degree of carbonation was seldom checked and therefore, it is not common to apply this anti-carbonation paint. 91.Even Mr C M Wong concluded that the structural elements of the Building are currently in a mediocre condition despite it is aged more than 60 years.[27] Having reviewed the evidence, I also agree with Professor Chan that the application of anti-carbonation paint can reduce the possibility of rusting and resume the protection to the reinforcement bars of the Building. I consider the cost of $600,000 mild and affordable but I do not agree that nuisance to residents due to the application of anti-carbonation paint should be minimal as suggested by Professor Chan. These many units are currently vacant because the applicant owns them and is now applying for compulsory sale order. Otherwise, the currently vacant units would have been let out and occupied. Why should the applicant’s interest be prejudiced wholly owing to the prospective scheme? 92.On the other hand, I cannot agree with Professor Chan that the anti-carbonation paint or the epoxy paint over it would only be applied to the structural elements but not the external walls themselves because, in Professor Chan’s opinion, the external walls are not structural walls. Unfortunately, as pointed out by Ms Ngai, by reference to the section plan of the Building[28], the external walls comprise 4” reinforced concrete. Concrete is by design a porous material. If the anti-carbonation paint or epoxy paint over it be not applied to it, water may permeate into the concrete and pass to the structural elements by hydrostatic pressure, water vapor gradient or capillary action etc. Water can also enter at cracks, structural defects or at improperly designed or installed joints. Professor Chan explained that such permeation would not be possible if the external walls are properly maintained with no cracks. Atlas, this can only be an ideal situation which cannot happen in the real world. 93.As regards the above, Professor Chan was referred to various photos as contained in his Structural Engineer’s Investigation Report dated 20 April 2021 which showed signs of water seepage[29]. Professor Chan tried to dismiss them as results of poor workmanship. 94.At this juncture, I would like to point out that soon after Mr C M Wong carried out his inspection of the Building from August 2020 to October 2020, the IO of the Building had carried out the following repairs or maintenance:[30]
95.I am also surprised that Professor Chan did not observe any leakage, cracks or rust stains at the cantilever structures (ie the canopy over the pavement at Wing Cheung Street). Maybe this was owing to that Professor Chan carried out his inspection only in February 2021, some half year later than Mr C M Wong who had recorded at least three serious cracks or spalling on the cantilever beams[31]. 96.Mr C M Wong was also cross-examined a lot on the ductility of the Building. Ductility for columns and beams, as explained by Mr C M Wong who happened to be one of the committee members in drafting the Code of Practice for Structural Use of Concrete 2004, is a relatively new concept introduced to Hong Kong in withstanding lateral loading. Prior to that, there was no requirement for closer and stronger transverse re-bars reinforcements in beam-column joints to achieve better concrete confinement. Mr C M Wong affirmed confidently that buildings erected before 2004 would not have made such provisions. Ductility helps to redistribute loads from an overloaded and yielded structural member to the other parts of the structure so that even when a member has been overloaded, it will not cause immediate collapse of a building. 97.Similarly, robustness was introduced to Hong Kong in the Code of Practice for Structural Use of Concrete 2013 (“the 2013 Code”) which requires that “a structure should be designed and constructed so that it is inherently robust and not unreasonably susceptible to the effects of accidents or misuse, and disproportionate collapse.” However, requirements in the new Code for robustness design often pose no additional requirements in monolithic reinforced concrete design where ultimate wind loads normally applied to the structure according to the local Wind Code can cover the notional loads. 98.Unfortunately, according to Mr C M Wong, ductility and robustness were not considered when the Building was designed in 1961. Also the Building is now over 60 years’ old which has well passed the design working life[32] of 50 years as suggested by the 2013 Code. Mr C M Wong believed that the corrosion of the reinforcement bars in the Building has already entered the propagation phase. Therefore, extensive maintenance and repair works would be required in the near future. 99.Professor Chan agreed that no building completed before those codes could meet such requirements. Indeed, Professor Chan gave an example that the designed concrete cover before the 2013 Code was in force was only 50% of the required value in the 2013 Code[33] though he added that in the old code, a higher safety factor may have to be adopted say by installing more or thicker reinforcement bars. 100.Professor Chan tried to explain that buildings which did not meet current design standards do not necessarily mean that the buildings are not safe for living. In reply to questions during cross-examination, Professor Chan added that it was wrong to compare the old building design under the then London County Council By-laws 1938 with the 2013 Code, because the ingredients in the two specifications were totally different; and it was more wrong to pick just a few parameters from the 2013 Code and suggested that the Building, which was designed under the old regime, was inferior. 101.Professor Chan even intimated that from his enquiry with a member of the Technical Committee tasked to develop the 2013 Code, the so-called 50 years’ design working life was just a pluck from the air, without any scientific base, therefore irrelevant for the Tribunal’s consideration. 102.However, I am not impressed by Professor Chan’s explanation above. Why should the engineers or the industry work out the new code if the old regime has been performing so well? I agree with Mr C M Wong that it has been a process of learning by experience though he answered to Mr Tsui that it was not a matter of good or bad (「唔係好定唔好嘅分別」). And in respect of the design working life of 50 years, I also agree with Mr C M Wong that this is only a concept for the industry to follow. I appreciate that as a concept, there may not be any scientific calculation, but anyhow this is a benchmark, if not the minimum standard, for the industry to attend to during construction. Certainly, using Mr Tsui’s own words in his closing submission, “one should not rest on one’s laurels.” 103.Indeed, this benchmark of 50 years was adopted by the Government when the Land (Compulsory Sale for Redevelopment (Specification of Lower Percentage) Notice was pursued in lowering 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)”. See the Legislative Council Brief on Land (Compulsory Sale for Redevelopment (Specification of Lower Percentage) Notice in January 2010.[34] Building Conditions 104.By their joint statement dated 22 June 2022, Mr Dennis Wong and Professor Chan had different opinion on whether the building façade of the Building is in a poor condition or otherwise. According to Mr Dennis Wong, sporadic patches of debonded render, spalled concrete, cracks and stain marks were identified on the facades. Professor Chan rebutted that only three out of the 27 infrared survey photos recorded the suspected locations of debonding and peeling off of paint. He also queried if the hammer tapping test conducted by Mr Dennis Wong in the absence of any scaffolding could safely conclude that the condition of the building façade was poor.[35] However, Mr Dennis Wong explained that owing to the design of the Building, he could reach the façade of the exterior walls either through the balcony, the windows or from the roof[36]. Professor Chan could not say for sure if Mr Dennis Wong’s findings were wrong; all he could say was that a more proper hammer tapping test should be carried out on scaffolding. I am persuaded that Mr Dennis Wong had the experience in hammer tapping and agree with him that it was unrealistic to erect scaffolding only for the purpose of performing the hammer tapping test for the present case. 105.In Table 6 of his Condition Survey Report dated 6 November 2020[37], which was also repeated and broken down at its Appendix 8a[38], Mr Dennis Wong set out his Estimated Cost of Essential Repair in the sum of $8,275,714.00. On the other hand, Professor Chan set out his revised figures at Appendix A of his Rebuttal Report dated 21 May 2021[39]:
106.Professor Chan commented that the area required for patch repair was much greater than the estimated area found in the Rapid Infrared Thermographic Survey (“RITS”). Mr Dennis Wong explained that only approximately 50% of the external walls was scanned by the RITS and the elevation facing the adjoining building (ie 17 Wood Road) could not be surveyed due to obstructions at the time of inspection. As a result, the actual extent of defective areas on the external walls should be more than the defects detected by RITS. Mr Dennis Wong opined that it was supported by the hammer tapping test to various accessible locations he conducted; some hollow spots that were identified were not identified as defective area in the RITS. 107.On the other hand, the stairhood were repaired by the IO of the Building after Mr Dennis Wong’s inspection. Professor Chan opined therefore the repair costs for the roof should be $115,400 instead but following the joint inspection on 2 March 2022, he admitted he was misled that the repair was carried out on the roof itself. 108.To compare with the cost for constructing a new superstructure of similar area, Mr Dennis Wong made reference to the Quarterly Hong Kong Construction Cost Report published by Rider Levett Bucknall Limited (“RLB”) issued in June 2020 (High Rise & Ordinary Quality of Residential Building) and arrived at $22,227.06 per sq m of construction area. Mr Dennis Wong stated the RLB’s cost data have allowed the cost for the provision of building services and fitting-out work to the flat units. In the opinion of Professor Chan, however, this figure had not included building services installation[41]. By reference to the Arcadis Construction Cost Handbook 2020 on ‘Apartment, high rise, high end’, Professor Chan proposed a range from $27,000 to $35,000 per sq m, inclusive of building services installation.[42] It was later clarified that the cost data from Arcadis included air-conditioning, kitchen cabinets and home appliances[43]. When comparing like-to-like with the Building, I prefer to adopt $25,000 per sq m. 109.Notwithstanding the above, both Mr Dennis Wong and Professor Chan agreed that there were various fire safety concerns in the Building. These include the following:
110.According to Mr Dennis Wong, the insufficient fire service installations can be compromised by installing a fire service water tank of size of 500 litres. Besides, fire extinguishers may be acceptable in place of a hose reel system if substantial difficulties are encountered.[44] 111.But for the staircase, Professor Chan acknowledged that the deficiency could only be overcome by removing portion of the finishes and plaster at the soffit of the staircase and steps of the staircase could be re-casted to a thinner thickness to achieve a higher headroom. However, during the rectification works, a temporary staircase occupying spaces from Shop 4, G/F and Flat B on 1/F will have to be provided to discharge the occupants in case of fire. Whereas this may be technically possible in theory, I envisage that it can unlikely be achieved in real life: why should the owners of Shop 4, G/F and Flat B on 1/F be ready to surrender part of their premises for the construction of a temporary staircase. During oral evidence, Professor Chan accepted that his earlier suggestion might not be practical; in any event, he opined that the risk of fire escape consequential from not meeting the statutory requirement is not high as few people would be as high as 2m; the beam and the edge of the ceiling concerned could be painted with the common black and yellow strips pattern as a warning sign against bumping of the head. 112.During cross-examination, Professor Chan proposed that increasing the thickness of the fire-rated doors, costing about $5,000 each, as the main doors of all domestic units can mitigate the problem of not having the protected lobby. 113.And to resolve the kerb level problem on the roof, Professor Chan suggested the removal of the kerb and provision of drainage channel on the main roof to drive away rain water in order to prevent rain water from flowing into the staircase. Certainly, according to para 2(b) of the Practice Note for Authorised Persons, Registered Structural Engineers and Registered Geotechnical Engineers APP-125[45], the drainage channels should have a gradient of not less than 1 in 80 away from the adjoining internal floor. To fulfil such requirement, the roof floor could be raised to provide room for the gradient. However, Professor Chan had not provided any proof that the extra loading from the raised roof floor would not adversely affect the integrity of the roof slab save that he proposed light weight concrete could be used. Professor Chan had not provided any cost estimate of this additional work and he had also had reservation on the workmanship in aerating the concrete. It appears that Professor Chan’s proposal is only for the purpose of doing something for the sake of doing it. 114.In any event, according to Professor Chan, who professes also as a fire engineer, most of the fire safety concerns can be rectified. However, as regards his suggestion of removing the metal gate at G/F entrance in order to solve the fire exit width problem, I do not envisage this is realistic in today’s life; Professor Chan proposed that this only doorway may be structurally widened to take care of the minimum exit width requirement. 115.Anyhow, Mr Dennis Wong and Professor Chan agreed that the Buildings Department or the Fire Services Department would unlikely issue any direction to demand rectification of the fire escape deficiencies because it is impractical to carry out the remedial works in reality. Professor Chan was not even bothered to allow any additional costs for the rectification works 116.And because the Building is served by a single common staircase, there is no barrier free access (BFA) such as ramps and lifts provided for the elderly and disabled persons to gain ingress and egress between the public streets and the shop/ residential units in the Building. Professor Chan admitted that as the Building is already 60-year old with a physically site constraint, the Design Manual of Barrier Free Access 2008 is difficult to adopt.[46] Tribunal’s Deliberation 117.As stated above, the Building was built in January 1961, ie about 60 years old. Although in Professor Chan’s opinion, the general condition of the Building is better than that of many buildings in Hong Kong aged 50 or more, he agreed that most rebars for slabs and beams of the Building were suffering from partly to moderate corrosion as graded by the same independent laboratory. Thus, I agree that the margin of safety of the structural elements concerned has been reduced though I have no dispute with Professor Chan’s opinion that the Building is safe and sound. And as stated in §§81-82 above, overall speaking, 37% of the tested spots have actual concrete cover less than the design cover. I cannot agree that the 37% is not significant. Both Mr C M Wong and Professor Chan agreed that, for 80% of the samples in slabs, 100% of the samples in beams and 20% of the samples in columns, carbonation has exceeded the actual cover to the outermost rebars. The protection of the passive layer of the concrete cover has been lost and thus the rebars are susceptible to corrosion. I agree with Mr C M Wong that such weakness in concrete cover is not reversible. 118.Mr Tsui may have gone too far in emphasising that, as put by Professor Chan, there is no obvious structural distress at the Building. In Pacific Base Holdings Limited & Others v Lee Hop Biu & Others, supra, the Tribunal stated in §119 of the judgment that:-
119.Then when this case was appealed to the Court of Appeal[47], the latter, having reviewed the Chinese version of Section 4(2)(a)(i) of the Ordinance, affirmed at §29 of the judgment that the Tribunal is required to consider if the lot is ripe for redevelopment by reason of the age and state of repair of the existing development on the lot. 120.Then at §36 of the judgment, the Court of Appeal stated further that “given the public interest in the facilitation of urban renewal and the interest of the majority owners in the realization of the redevelopment potential of their proprietary interests in the lot, it is plain to us that the scheme under the (Ordinance) serves legitimate aims”. The Court of Appeal at §46 also agreed that the Tribunal is not going to usurp the role of the Building Authority under the Buildings Ordinance, say on health or safety. 121.Then Mr Tsui saw fit to draw my attention to the Tribunal’s remark in Century Supreme, supra, at §65:
122.However, the Building has only one common staircase which also serves as the only means of escape in case of fire outbreak. Even Professor Chan admitted that his proposed remedial measures on fire safety just focused on the actual needs of the Building owing to its design constraint. In my view, those are only compromising measures. 123.At trial, Professor Chan even expressed himself that after renovation, maybe he would be content to reside in the Building. With respect, he did not distinguish which unit he was willing to reside. Would it be the 1/F or the 5/F that he was willing to walk up to everyday? 124.At one point, I was impressed by the catalogue provided by Professor Chan as regards application of the anti-carbonation coating in the repair and maintenance of South Court at Sau Chuk Yuen Road which is also a multi-owned residential building. South Court, which was completed in 1973, is however relatively new when compared with the Building and is situated at a relatively high-class residential area. Although South Court also consists of 6 storeys with 6 units on each floor, it is served by a lift. More details of the refurbishment project are unknown but South Court has up to 36 residential units (when compared with 17 units in the Building) to share the renovation costs. 125.In addition, as I note the job references cited in the catalogue, there appears that anti-carbonation coating had never been applied in any refurbishment project approved by the URA. Professor Chan agreed. In such regard, I agree with Mr C M Wong’s concern about whether such anti-carbonation coating can be applied extensively and effectively on the outside of the Building, ie to provide “an unbroken coating” subject to extensive weathering. All the photos shown by the catalogue suggested that the anti-carbonation coating was applied on the undersides or shaded sides of structures. As well, that “The primer should be allowed to dry for a minimum of two hours (at 200C) before continuing” may be hard to achieve in an external environment. 126.Indeed, in his Structural Engineer’s Investigation Report dated 20 April 2021, Professor Chan was contradicting himself when he, on the one hand, said no immediate repair works were considered necessary but, on the other hand, the following actions were recommended to continue the proper functioning of structural elements:[48]
127.Professor Chan also admitted after the joint inspection on 2 March 2022 that the main roof of the Building had not been repaired[49]. Even if anti-carbonation coating is to be applied, the originally agreed $600,000 which took care of the cost to the beam and slab may not be adequate. According to Mr Dennis Wong, an additional cost in the sum of $350,000 should be added to provide new floor finishes after the application of anti-carbonation coat. 128.As regards the costs for the preliminaries and the contingency given by Professor Chan, Mr Dennis Wong considered Professor Chan having under-estimated the labour costs required, in particular for vertical transportation of materials and debris. In Mr Dennis Wong’s opinion, among the costs of preliminaries, it is necessary to pay premium for Employees’ Compensation Insurance, Contractor’s Risk Insurance, Bank Guarantee and Construction Levies and Pneumoconiosis Compensation Levies. Indeed, as I had pointed out at trial, Mr Dennis Wong’s opinion on preliminaries is worked out item by item instead of a mere percentage. I agree with Ms Ngai in her closing submission that Mr Dennis Wong’s repair cost estimate is more specific, comprehensive and reliable. 129.Thus, based on the original repair costs estimated by Mr Dennis Wong and the estimated cost of constructing a similar superstructure at $25,000 per sq m as stated in §108 above, the repair costs amount to some 35% of the cost of constructing a similar superstructure[50]. 130.Having reviewed the evidence before the Tribunal, I am satisfied that redevelopment of the Building is justified due to the age and state of repair. Section 4(2)(b) – Whether Applicant has taken reasonable steps 131.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. 132.It is not disputed that the applicant has made the following offers intending to purchase the interest of the respondents in respect of units they own:
133.Ms Ngai submitted that all the offers made by the applicant fell within the range of fair and reasonable compensation for the interest owned by R1, R3 and R4 on the following grounds:
134.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:
135.The Court of Final Appeal stated further at §36 of the judgment that:
136.Mr Lam on behalf of R3, for instance, complained that the applicant acquired Shop 1 on G/F and Flat B, 3/F of the Building in May 2018 at $25,000,000 and $30,000,000 respectively and that he should be similarly offered. R3 conceded that the applicant, in acquiring those units at those vast sum, attempted to achieve the required threshold of 80% of the interest of the Lot so as to commence the Application. 137.It is trite that the applicant might be willing to pay a premium higher than the proportionate share of the redevelopment value of the Lots “as the last bit in the jigsaw to assemble the development site” which can be equated to the “ransom power”. As held by the English Upper Tribunal (Lands Chamber) in Michael v Salford City Council [2016] UKUT 370 (LC), this premium value “ignores the effect that this would have an impact on the viability of the reference land under the residual method. I am not satisfied that the claimant has shown that (such a premium) is warranted.”[51] 138.There is no requirement under the Ordinance that the offers to the minority owners after the commencement of the Application has to be commensurate with each one and another. I am of the similar view that the insistence by the respondents on receiving the similar premium would have the effect of deterring majority owners from making more generous early offers. That would run against the legislative intent of the Ordinance to encourage negotiation and settlement among the majority owner and the minority owners. 139.In any event, the acquisition price of Shop 1 on G/F was reasonably commensurate with the EUV assessed above at $17,422,000, bearing in the mind shop prices as a whole in Hong Kong had dropped from an index of 588.9 to 533.4, about 10%. I am not persuaded by Mr Lam’s suggestion that R3’s Shop 4 is larger than Shop 1 when the two valuation experts agreed that Shop 1 is marginally larger than Shop 4. 140.On the evidence available, therefore, and bearing in mind that the applicant has successfully acquired the interest of R2 after commencement of the proceedings, I am 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, R3 and R4 on terms that are fair and reasonable. RDV of the Lots Optimum Hypothetical Development Model 141.The area of the Lot is small; it is only some 205.13 sq m or thereabouts. Notwithstanding this, the Lot is situated at the corner of Wood Road and Wing Cheung Street rendering it to be classified as a Class B site under the Building (Planning) Regulations. 142.That said, there was a dispute between Mr Ng and Mr Lee on whether a setback of 8.08 sq m from Wood Road is required under the Practice Note for Authorized Persons, Registered Structural Engineers and Registered Geotechnical Engineers APP-152 (“the PNAP”) issued by the Building Authority in January 2016. Under para 7 of the PNAP, buildings fronting a street less than 15m wide should be set back in order to improve air ventilation, enhance the environmental quality at pedestrian level and mitigate street canyon effect. Since this section of Wood Road is only 12.6m wide, Mr Ng proposed a 1.2m setback. 143.However, Mr Lee assumed a cross-ventilated communal podium garden can be provided with a clear height of not less than 4.5m, no setback would be required under para 7(b) of the PNAP which reads as follows:
144.Examples of this latter provision as extracted from the PNAP is attached at the end of this judgment as Appendix 1. 145.Mr Ng opined that as all new buildings along this portion of Wood Road would be set back, this alternative arrangement proposed by Mr Lee would not be acceptable by the Building Authority. However, as submitted by Mr Tsui, the PNAP as stated does not suggest that the Building Authority has a discretion[52]. Therefore, in the absence of further authority, I accept this alternative arrangement proposed by Mr Lee[53]. In any event, I consider the hypothetical shops assumed by Mr Ng in the range from 18.86 sq m to 33.65 sq m with the median at 30.29 sq m too small for a new development at Wing Cheung Street. 146.Because of this, I am prepared to adopt Mr Lee’s proposal of 4 hypothetical shops and his reference shop unit on Wing Cheung Street[54]. 147.Both Mr Ng and Mr Lee adopted 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. GDV for Shops 148.In their assessment of the GDV for shops on G/F of the hypothetical development, both Mr Ng and Mr Lee had referred to the following comparables:[55]
149.Mr Ng made the adjustments to his comparables and arrived at an adjusted rate of $573,300 per sq m while Mr Lee arrived at $824,280 per sq m. Choice of Comparables and Location Adjustments 150.In the assessment of the EUV for the reference shop unit, comparable ES7 has been disregarded for its prominent location at Wan Chai Road. For the similar reasons, I am going to disregard the three comparables on Wan Chai Road above, ie NS7, NS8 and NS9 which were relied on by Mr Lee. Comparables NS8, in particular, is being partly occupied by a jewellery which demonstrates the character in location, as I emphasized at trial, is highly superior to the subject location. 151.On the other hand, though lying on Wan Chai Road as well, comparable NS6 is situated at a position where pedestrian flow is broken by a basketball court and is in closer proximity to the Building/ the Lot. Mr Ng adopted a location adjustment of -25% when compared with the hypothetical shop on Wood Road whereas Mr Lee also adopted a location adjustment of -25% when compared with the hypothetical shop on Wing Cheung Street. I am prepared to adopt -30% when compared with the hypothetical shop on Wing Cheung Street. 152.Comparables NS1 and NS2 are situated around the corner of comparables ES4 and ES5 but abutting Heard Street, which section is a pedestrian precinct with railing towards its end at the junction with Wan Chai Road. As submitted by Mr Lam in his closing submission, this section of Heard Street accommodates a variety of trades including a doctor’s clinic, a book store and a number of eatery outlets, creating a more bustling environment. In comparison, Wing Cheung Street comprises shops only on G/F of the Building with no shop unit on the opposite side of the street which is occupied by the Vocational Training Council Tower. I am prepared to adopt Mr Ng’s proposed adjustment for location at -20% while I note that he applied -30% to ES4 and ES5 in assessing the EUV. But whereas Mr Ng’s reference unit is on Wood Road, I am prepared to adopt a location adjustment of -25% for a hypothetical shop on Wing Cheung Street. 153.Comparable NS3 is situated at a corner position at the junction of Burrows Street and Cross Lane. Mr Ng applied a location adjustment of -10% but Mr Lee refused to adopt it as a comparable because of its relatively large size. I agree with Mr Lee. 154.Comparable NS4 were relied upon by both Mr Ng and Mr Lee. The property is situated close to comparable ES2 but further away from the refuse collection point and closer to the junction of Cross Lane and Burrows Street. I prefer Mr Lee’s location adjustment of 25% to Mr Ng’s 20%. 155.Comparable NS5 is situated at a more bustling location on Morrison Hill Road with a return frontage onto Wing Ning Street, a pedestrian precinct. Mr Ng proposed a location adjustment of -10% which I consider inadequate if he had applied an adjustment of -25% to comparable NS6 as discussed above. In addition, I agree with Mr Lee that in view of its relatively large size, it should be disregarded as a comparable. Layout 156.Both Mr Ng and Mr Lee agreed that there should be an adjustment of +5% for layout in respect of NS1 and NS2 and +10% in respect of NS6. 157.Their opinion differed in respect of NS4 for the reason that the toilet for it was located outside the unit. I agree with Mr Lee on his proposed adjustment of +5% likewise. Building Conditions 158.Mr Lee postulated that, in the next few years, there would be redevelopment of Nos 1 and 1A Wood Road, redevelopment of Nos 13-17 Wood Road and the Lot in the immediate vicinity of Wan Chai. As usual, Mr Lee proposed an additional adjustment for improved business environment upon redevelopment of the Lot. However, the government institution and community buildings in the vicinity will remain and as pointed out in §29 above, if pedestrian flow were not broken by the many institution buildings as afore-mentioned, the Building would have already occupied a prominent position. I do not consider there being any significant improvement when the Lot is redeveloped. 159.As a result, my analysis of the comparables is shown as follows:[56]
160.From the above, it is obvious that the total adjustment for NS4 is too large. This is not a good comparable and should be discarded. 161.Thus, although the average adjusted unit rate of the remaining 3 comparables is around $587,000 per sq m, it is highly affected by the low adjusted unit rate for NS1 which is indeed situated next to NS2 which appears to be the best comparable. I am prepared to adopt $625,000 per sq m as the unit rate of the hypothetical shop on Wing Cheung Street and the determination of the GDV of the ground floor units is as follows:[57]
GDV for Upper Floors 162.As regards the residential portion, Mr Ng and Mr Lee were able to agree that the GDV would be in the sum of $399,000,000. 163.Save for the marketing cost, the demolition costs of the Building and the professional fees for the hypothetical development, Mr Ng and Mr Lee could not however agree on the other parameters in the residual valuation:[58]
Construction Cost 164.In respect of the construction cost, both Mr Ng and Mr Lee relied on the Building Cost Data for Private Sector Developments in Hong Kong published by RLB in January 2022. However, Mr Ng assumed the proposed hypothetical development will have High to Very High Quality and saw fit to divide the hypothetical development into two parts, one for the retail podium at $28.800 per sq m and the other for the upper floors residential portion at $32,800 per sq m. Mr Lee, on the other hand, adopted $22,000 per sq m and $30,200 per sq m respectively. 165.I agree with Mr Ng’s comment that the construction cost adopted by Mr Lee for the retail portion at $22,000 per sq m appears to be low in comparison with the domestic portion of $30,200 per sq m. This is particularly the case when the hypothetical development will comprise a residential cum retail development with only retail provision on the lowest 2 floors where the E&M requirement would be more substantial. Whereas the construction costs keep on rising, I prefer to adopt Mr Ng’s figures and arrive at $90,000,000 approximately. Construction Period 166.While Mr Ng and Mr Lee agreed the construction period for the hypothetical development will be about 1.75 years, they have different opinion on the demolition period: Mr Ng adopted 0.75 year whereas Mr Lee adopted 0.5 year. At trial, Mr Lee conceded that 0.75 year would be more realistic when the existing building consists of asbestos. Developer’s Profit 167.Developer’s profit is normally included as a percentage of the costs involved, or sometimes as a percentage of the GDV. The level of profit should represent the return that a hypothetical developer will require for undertaking the project and should be commensurate with the risk involved. By para 3.6.4 of the HKIS Guidance Notes on Valuation of Development Land published in 2016, the related risks include marketing risks for sales and lettings, risks of construction difficulties and cost overruns, and delays in obtaining relevant development approvals. 168.In a residual valuation, developer’s profit is included in a broad brush nature in the absence of a fully researched risk analysis. Thus, the level of return is only meaningful as a comparative figure but must be related to the risky nature of the hypothetical development and to the length of the project. 169.In the present case, because of the small scale of development, Mr Ng envisaged a development period of 2.5 years. And therefore a developer’s profit of 15% is equivalent to an annual return of 6%. This is the gross profit to a developer before meeting the developer’s general overheads and tax.[59] To the contrary, if a developer’s profit of 12.5% is adopted as suggested by Mr Lee, the annual return is merely 5% which would be regarded as inadequate if it were to include marketing risks for sales and lettings. 170.Mr Tsui had tried to argue that because the residential property market had worsened since the outbreak of 5th wave of the Covid-19 pandemic, the developer should accept a more meagre profit in order to keep its business in the market. With respect, Mr Tsui has conflated the property development process with the small or medium sized businesses which have to keep its profit margin low in order to strive to survive in a downward market. Unlike a small or medium sized business, property development is a capital intensive exercise; a property developer considering having to invest a substantial capital has the choice of investing elsewhere with relatively risk and trouble free. In that regard, particularly, when the interest rates are rising, the profit required by the developer would be rising as well. 171.I therefore agree to Mr Ng’s 15%. 172.Indeed, in the most recent compulsory sale application where a high-rise residential development up to 1,820 sq m was proposed, Gain Union Limited v Leung Chi Man, LDCS 5000/2021 (unreported, dated 21 September 2022), the Tribunal adopted a developer’s profit of 15% plus stamp duty and legal costs. Residual Valuation 173.Thus, subject to the discussions above, I carry out a revised residual valuation on the basis of Mr Lee’s valuation as shown in the Appendix 2 of this judgment[60]. 174.I arrive at the RDV of the Lot at $302,400,000 or an accommodation value of about $153,062 per sq m. Inland Lot No 9061 175.After the 2022 GAP, there was a public tender of Inland Lot No. 9061 (“IL 9061”) by the Hong Kong Government, the result of which was announced on 21 June 2022.
176.Mr Ng made a direct comparison between the Lot and this public sale to test the reliability of his assessed RDV of the Lot by residual valuation but Mr Lee held a different view both on its comparability as well as the adjustments:[61]
Lease Term 177.Firstly, Mr Lee referred to the lease term for IL 9061 being only 50 years from 19 July 2022 whereas for the Lot, it is 999 years from 26 December 1860, ie its lease will last until 2859 unexpired. In this regard, Mr Lee was drawn to the attention of a press release of the Government dated 15 August 2022[62], indicating that the Government has a clear policy for handling matters related to the extension of expiring land leases all along. 178.According to Article 123 of the Basic Law, where leases of land without a right of renewal expire after the establishment of the Hong Kong Special Administrative Region (HKSAR), they shall be dealt with in accordance with laws and policies formulated by the Region on its own. According to the policy statement promulgated by the HKSAR Government in July 1997, leases not containing a right of renewal (excluding short term tenancies and special purpose leases) may, upon expiry and at the sole discretion of the Government, be extended for a term of 50 years without payment of an additional premium, but an annual rent shall be charged equivalent to three per cent of the rateable value of the property, adjusted in step with any changes in rateable value thereafter. 179.The press release continued: “While the extension of non-renewable leases is not automatic, the Government follows due process in exercising its ‘sole discretion’ prudently. … As a matter of fact, the Lands Department has extended most non-renewable leases since the policy was first promulgated in July 1997.” 180.In spite of the above, Mr Lee gave evidence that some real estate agents or developers do from time to time distinguish those residential units that are held on leases for 999 years in their marketing materials. Mr Tsui caught on the word “not automatic” in the above press release and submitted that there is still a degree of uncertainty. 181.Notwithstanding the above, Mr Lee could submit no evidence that there exists any discount on value for residential units not being held on leases for 999 years. Mr Ng said he could not find such discount existing. Neither do I have such an observation. 182.On the other hand, Mr Lee suggested, and Mr Tsui submitted that, there must be some difference in the eyes of sophisticated buyers, pointing to the payment of three per cent of the rateable value for properties not being held for 999 years. For the sake of the present analysis, I allow a +3% adjustment for the difference in lease term. Size of Site 183.Mr Lee commented that IL 9061 is some 6 times that of the Lot. Such a large size attracts developers having a certain financial clout, making the properties belonging to different markets. As a comparable, such a great quantum difference alone defies any accurate application of appropriate adjustment rate. 184.Mr Lee initially did not agree that a site of such a large size allows a flexibility in design and greater efficiency. Whereas IL 9061 was sold with the benefit of and subject to the Town Planning Board’s permission No A/H5/417 granted under section 16 of the Town Planning Ordinance on 28 January 2022, the planning application shows a typical floor plan of an indicative scheme. At the request of the bench, Mr Ng did calculate a domestic efficiency ratio of 87.5% while Mr Lee arrived at 80.9%[63]. 185.Mr Lee defended his GFA[64] calculations by reference to the meaning of “gross floor area” in the Code of Measuring Practice issued by the Hong Kong Institute of Surveyors in 1999, which in effect, refers to the definition in Building (Planning) Regulation 23(3) which provides as follows:
186.With respect to Mr Lee, even a General Practice Surveyor, not being an Authorized Person, should have appreciated those areas as stated in Reg 23(3)(b) would not have been taken into account by the Building Authority in practice. Mr Lee’s calculation had wrongly included the air-conditioning platform and his calculation paid no regard to the Joint Practice Notes Nos 1 & 2 issued by the Buildings Department, Lands Department and Planning Department lately revised in September 2019 and July 2022 respectively whereby “not more than 50% of the area of the balcony (utility platform) is to be exempted from GFA and SC calculations”. Mr Lee even chose to ignore the definition of gross floor area in Special Condition (40) of the Conditions of Sale for IL 9061 which was produced by himself as Exhibit R6(b) and the GFA as stated in the planning application itself[65]. That is, Mr Lee had inflated the denominator of his efficiency calculation. 187.Mr Tsui had tried to come to Mr Lee’s rescue by pointing out that the latter exemption of balconies or utility platforms from gross floor area would only be “favourably considered where such provision meets the following criteria...” However, professionals in the trade would be capable of playing by the rules and it is unrealistic to expect that the area of the balcony (utility platform) proposed cannot get exemptions. 188.To my surprise, as pointed out by Ms Ngai, when Mr Lee himself calculated the efficiency ratio of each typical domestic floor for the hypothetical development on the Lot where he arrived at 69.65%, he did not forget “not more than 50% of the area of the balcony (utility platform) is to be exempted from GFA and SC calculations”[66]. 189.In Chapter 6 of Valuation of Development Land in Hong Kong, by P J Roberts, 1975, Hong Kong University Press, at pp 47-49, it was stated as follows:
190.Thus, bearing in mind vast difference in site size between the Lot and IL 9061, I agree with Mr Lee that it might not be meaningful to carry out a comparison analysis but I consider the theorem: ‘The greater the ratio between saleable floor space and gross floor area, the higher will be the accommodation value’ still applicable. Mr Lee’s suggestion of making +15% adjustment for the size of site/efficiency ratio is plainly wrong and I agree that Mr Ng’s proposed adjustment of -25% is reasonable. Adjustment for Time 191.According to Mr Lee, on the basis of the RVD Private Domestic Price Index (Territory-Wide) (Class A), there should be +4% adjustment for time. 192.The table below shows the RVD Private Domestic Price Index (Territory-Wide) (Class A) since the beginning of 2022:
193.With respect, I fail to see how Mr Lee could come up with a positive adjustment and as much as 4%. Location/Environment 194.Mr Lee explained his adjustment for location of +10%, stating that IL 9061 is “located near the junction between Queen’s Road East and Kennedy Road, two of the trunk roads in the area”. With respect, Mr Lee did not take the trouble to identify the location of IL 9061 by reference to the Conditions of Sale which contains a site plan despite that it was he himself who produced the Conditions of Sale as exhibit. 195.To be exact, IL 9061 is situated on Kennedy Street, not Kennedy Road and set back from Queen’s Road East, with an electricity sub-station (“ESS”) in between. As regards Mr Lee’s suggestion that IL 9061 “neighbours with Ruttonjee Hospital and Wan Chai Market Building and Wan Chai Road which is an established wet market street”, it is manifestly untrue; Ruttonjee Hospital is hiding some 100 metres away on the opposite side of Queen’s Road East and lying in between is Hong Kong Jockey Club Garden. And if Mr Lee’s memory had not faded, he should have been reminded that the Wan Chai Market Building has become a Grade III Historic Building and the old Wan Chai Market has moved into the new market complex on the lower levels of "The Zenith", a newly built residential development located further away from the market building along Wan Chai Road, in September 2008. Surmounting the retained Wan Chai Market Building thereon is another new residential building, “One Wan Chai”, sale transactions of which were adopted by himself as comparables in determining the GDV of the domestic portion of the hypothetical development on the Lot[68]. 196.In terms of accessibility, Mr Lee has failed to mention that IL 9061 is situated within 10-minute walking distance from the Wan Chai MTR station but the Lot is situated further away from either the Wan Chai MTR station or the Causeway Bay MTR station. 197.I consider Mr Ng having been conservative by not making any downwards adjustment for location. Adjustment for View 198.I trust Mr Lee had committed the same mistake above when he proposed a positive adjustment for view for the reason that the view likely commanded by the hypothetical development on the Lot “is more pleasant than hospital and wet market”. In making his comment, Mr Lee also failed to take note of the photomontages as contained in the planning application for I L 9061. Adjustment for Clubhouse Facilities 199.Modern government leases governing residential developments or the residential portion of composite developments usually contain a condition permitting recreational facilities and facilities ancillary thereto to be provided within the lot for the common use by the residents and their bona fide visitors. Such facilities, usually called clubhouses, if provided indoors at appropriate scale and composition, may be allowed to be exempted from calculation of gross floor area. Mr Lee made no adjustment for its provision. 200.Under Practice Note No 4/2000(B) issued by the Lands Department on 24 May 2013, the GFA of the clubhouse including voids, plant rooms (including filtration plant room for swimming pool), covered walkways, covered courts, etc serving solely the clubhouse should not exceed the limitation in a sliding scale as indicated in the table below for consideration of GFA exemption:
201.Similar provisions can be found in Practice Notes for Authorized Persons, Registered Structural Engineers and Registered Geotechnical Engineers APP 104 and APP 151 issued by the Building Authority[69]. 202.Indeed, similar restrictions can be found in Special Condition 40(d)(i)(II) of the Conditions of Sale for IL 9061. Thus, for a maximum domestic portion of 9,571 sq m, the clubhouse that can be provided in IL 9061 would be about 478 sq m whereas for the hypothetical development on the Lot, the clubhouse would only be about 1,671.27 sq m[70] x 5% = 83.5 sq m which is relatively small. 203.Certainly, the larger clubhouse would enhance the attraction and unit price of the proposed development on IL 9061. I agree therefore with Mr Ng’s adjustment of -3%. Adjustment for Stamp Duty 204.Mr Lee also made no adjustment for the stamp duty payable in purchasing the Lot in the proposed auction. 205.At trial, Mr Lee conceded that he was not aware that the prospective buyer of land from Government either under auction or tender, he/she is not required to pay stamp duty. With respect, such has been stated clearly in para 3.9.4 of the HKIS Guidance Notes on Valuation of Development Land published in 2016. Sale by Tender 206.At trial and during cross-examination, Mr Lee kept on saying that the consideration paid for IL 9061 at $1,962,168,000 did not represent market value which, according to him, should be higher because developers would try to keep their bids as low as possible. 207.While in real life people tend to pay less for any commodities, in a competitive free market, I am not persuaded that this can be the case or the developer cannot successfully buy any land. 208.I am doubtful if Mr Lee was serious when he tried to compare a bidding by tender with a “before and after negotiation” with the Lands Department on paying a premium for lease modification or land exchange. In the latter, the developer could choose not to pay the premium when the negotiation outcome is not so favourable but the developer still keeps the land. On the other hand, in a competitive bidding by tender, those who bid low would lose the site. This is demonstrated below by announcement by Government on the other unsuccessful bids for IL 9061. 209.By reference to the press release issued by the Lands Department on 20 July 2022[71], the Government had received altogether 21 tenders for IL 9061. Apart from the successful bid in the sum of $1,962,168,000, the tender amounts submitted by the unsuccessful tenderers in descending order are as follows:
210.Thus, the successful bid was some 15% higher than the second bid and I see no reason to doubt that $1,962,168,000 or an AV of $181,783 per sq m did not represent the market value of IL 9061. There is indeed no evidence of any undervalue. 211.The Lands Department has been stating in public that it perceives its role as a protector of the public purse. For more than a century, the Hong Kong Government had used to dispose of government land for private development by public auction. The Government’s basic land policy was to sell leases to the highest bidder at public auction. However, there has been lack of belief and trust in the operation of an open market for the sale of government land when the property market was weak. Following the financial crisis in the autumn of 2011, all government land sales have been by tender rather than by auction.[72] The last auction sale took place on 3 November 2010 and was in respect of a residential lot at Inverness Road, Kowloon Tong. And by a Press Release dated 24 February 2011, the Secretary for Development announced that, to kick-start the government-initiated sale programme in 2011-12, the Government would tender two Hung Hom sites, namely 5-23 Lee Kung Street and the site at the junction of Bulkeley Street and Gillies Avenue South, in April 2011[73]. 212.In Man Fong Hang v Man Ping Nam & Others, HCA 7935/1998 (unreported, 11 December 2003), the registered managers of a Wui were accused of breach of duty by not selling land by tender or public auction. The managers explained that sale by tender was not that common for sale of Tso or Wui's land in the New Territories. Notwithstanding that, Hon Lam J (as he then was) found the managers were in breach of their duty to fetch a proper price for the Wui’s land, which decision was overruled by the Court of Final Appeal on 27 October 2006[74]. The Court of Final Appeal remarked at §47 that “market”, which used generally to denote a place of multiple transactions, would seem wholly inappropriate for the sale of that particular piece of land with extreme restrictions on development, lying (as to two-thirds) within the Frontier Closed Area, with squatters in occupation over portions of the land. This is not the case here for IL 9061. 213.In the present trial, Mr Lee had also tried to make a distinction between price and value, an evidence also summoned by the valuer in Man Fong Hang but was dismissed by Hon Lam J (as he then was) as follows at §238:
214.And at §257 of the judgment of the Court of First Instance, it is of interest to note that Hon Lam J (as he then was) refused to allow another 5% adjustment to reflect there could be competition between developers. 215.In Re Inland Lot No 476, HCMP 1273/2009 (unreported, 12 March 2010) which was an application for an order for sale of certain property under section 6 of the Partition Ordinance, Cap 352. The plaintiff wanted to try to sell first by private tender with a reserve price of $60,000,000, so as to save costs, and if that failed to achieve a sale, to sell by public auction with a reserve price of $55,000,000. The plaintiff submitted that sale by private tender was a cost saving and effective means of sale. The defendant wanted a sale by public auction with a reserve price of $62,000,000, and if that failed to achieve a sale, to sell by another public auction with a reserve price of $60,000,000. Despite the difference between the parties, it appears that they had not differed on the reserve price by public auction or otherwise. 216.In Re Man Sham Chung Wui, CACV 39/2010 (which was reported as [2011] 1 HKLRD 427), there was a dispute as to whether the members of the Wui could resolve to sell its property on a majority vote. In the end, the Court of Appeal agreed to a proposed sale to the highest bidder by open tender with a reserved price. 217.Similarly, in Wong Arlene Bei Ling & Others v Pao Zen Kwok Peter, HCMP 1406/2018 (unreported, 31 December 2021), the Court of First Instance approved at §16 that the object of putting up a property for sale by tender was to secure or provoke the best price that potential purchasers would be prepared to offer. 218.More recently, in Century Supreme International, supra, the Tribunal had the following observation:
219.All in all, I agree that $1,962,168,000 or an AV of $181,783 per sq m represented the market value of IL 9061 and can be adjusted “to ensure that any assessment, arrived at from a residual approach, does not vary widely from the range of sale prices paid, at around the date of valuation”. My adjustments are as follows:
220.This $125,556 is some 18% lower than $153,062 arrived at §174 above. In Hofei Estates Limited v. Secretary for City and New Territories Administration, LDLR 1/1982 [1980-1982] CPR 486, the Tribunal remarhed at §§14-16 as follows:
221.In view of the above, I consider Mr Lee’s assessment of the RDV of the Lot at $365,100,000 or an AV of $184,773 per sq m having been unreasonably exaggerated. I agree with Ms Ngai that IL9061 is much superior to the Lot in many aspects. It is unreasonable for Mr Lee to have arrive at a valuation more than the AV at which IL9061 was sold by Government. 222.I determined the RDV of the Lot at $300,000,000 or an accommodation value of about $151,847 per sq m which shall be adopted as the Reserve Price for the auction of the Lot. 223.Contrary to Mr Lam’s suggestion, I cannot take into consideration the fact that the applicant had acquired the adjoining sites because pursuant to Schedule 2 to the Ordinance, reserve price can only take into account the redevelopment potential of the Lot on its own. Proportionality 224.In his closing submission, Mr Tsui suggested a new factor of proportionality that the Tribunal should consider before being satisfied that redevelopment of the Lot is justified. 225.Mr Tsui submitted that the EUV calculated by Mr Ng was $213,170,000 which was some 75% of his RDV of $281,600,000. On the other hand, the EUV of Mr Lee at $264,939,000, if accepted by the Tribunal, would be 94.1% of Mr Ng’s RDV. Given the economic benefit of redeveloping the Lot on either basis was non-substantial, commercially the applicant should not have found it justifiable to make the Application. 226.Following the valuation analysis above, I find the EUV of the Building at $233,831,000 and the RDV at $300,000,000; Mr Lee had highly inflated the EUV of the Building. The percentage of EUV to RDV is about 78% but this is not a consideration under the Ordinance. 227.In the first Provisional Legislative Council’s meeting on the Land (Compulsory Sale for Redevelopment) Bill (“the Bill”), the predecessor of the Ordinance, on 10 February 1998, the Chairman of the Bills Committee stressed that “the Bill was introduced with a view to facilitating private sector participation in expediting urban renewal”[76]. This echoes the URA’s practice of initiating redevelopment schemes which might not be considered profitable by the private sector. 228.Indeed, as the then Chairman of the Land Development Corporation (“LDC”), the predecessor of the URA, put it in the Bills Committee Meeting on the Bill on 19 February 1998, the objective of the Bill was to expedite urban renewal. “He related to members the many obstacles experienced by LDC over the past ten years in undertaking redevelopment projects including title problems, resistance from individual owners, rehousing problem and costs of compensation. The difficulties in settling disputes over valuation which was subjective to a certain extent warranted particular attention. … LDC projects aimed at achieving comprehensive development, whereas the Bill was intended to facilitate ad hoc redevelopment of smaller lots…”[77] 229.Certainly, the market value of the Building, ie the EUV in the present case reflects its age and state of repair to a large extent. When the Building was new, it was supposed to be developed to its highest and best use and therefore its market value should be the highest in its life, absent inflation and any catastrophe. As the Building aged, either physically or functionally, or its state of repair worsened for whatever reason, its market value would depreciate. After many years, it would come to a stage when its market value would drop below the value of the land for redevelopment. But this process can be long and once it arrived, it would be hard to reverse. Indeed, even the URA cannot wait until buildings have reached such a stage and sought redevelopment to arrest the urban decay. 230.In the present case, I find the EUV of the Building at $233,831,000. Even assuming a modest repair cost of $6,000,000 after which the market value of the Building would have increased by 8% (which is very optimistic because the residential units would enjoy the most benefits of the repair and their EUV was about $136,000,000 only), the resultant figure, say $250,000,000 would be far below the RDV at $300,000,000. 231.If I follow Mr Tsui’s approach, the repair cost of $6,000,000 would account for some 2.6% of the EUV of the Building. Certainly whether this spending would achieve good value for money is in doubt (despite my optimistic assumption of 8% above). Incidentally, for instance, a 6-storey building completed in June 1973 at 24-26 Hau Wong Road, Kowloon City was renovated and put onto the market in June this year. No unit could be sold until the owner lowered the unit price by 11.8% to 23.8% recently as reported by the Hong Kong Daily Times on 9 September 2022[78]. More importantly, according to the transaction register, the transaction prices of the six units ranged from $3.2 million to $4.85 million, and the price per sq m ranged from $91,850 to $123,130. These price range is much lower than those of the EUV of the domestic units in the Building and comparatively more affordable. Even so, the benefits of repair to such an old 6-storey building are hard to predict. 232.In the present case, it is obvious the applicant is not prepared to spend the repair cost or it would not have made the Application. Neither could the respondents say that they would be prepared to spend such a vast sum of money. Mr Ng Wai Lun, one of the directors of R1, and R4 stated in their witness statement dated 22 February 2021 that they were quite prepare to a pay cost of $76,200[79] (as opposed to something like $6,000,000); similarly, Mr Lam, in his closing submission, admitted that all along, as the Chairman of the IO, he had been trying to spend the minimum amount or the residents might think otherwise; indeed, the other residents rather sold their units to the applicant[80]. That submission by Mr Tsui that the IO had successfully organized repairs to the Building in December 2020 cannot assist him when the figure spent betrays him. See §94 above. 233.All in all, and with respect, the proportionality test submitted by Mr Tsui has no place in the Ordinance because section 4(2)(a) specifically disregard whether or not the majority owner proposes to or is capable of undertaking the redevelopment. Other Incidental Matters 234.The applicant proposed to appoint Mr Anthony Chow and Ms Anna Chow, being consultants of Messrs Guantao & Chow, Solicitors and Notaries, as the sale trustees. Based on the information on their background and experience as set out in their letter dated 9 February 2022[81], 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. 235.The applicant has prepared a set of draft Particulars and Conditions of Sale of the Lot[82]. 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 applicant are also reasonable. Order 236.This Tribunal make the following orders:
Costs 237.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, I order that the applicant do pay R1, R3 and R4 the costs of the Application, with Certificate for Counsel, to be taxed on the High Court scale if not agreed. 238.Last but not least, the Tribunal thank Counsel for their assistance.
Ms Nancy Ngai, instructed by Messrs Lo & Lo, for the Applicant Mr Wilfred Tsui, instructed by Messrs H Y Leung & Co LLP for the 1st and 4th Respondents 3rd Respondent, not legally represented, is represented by Lam Chee Kwong in person
[1] See Exhibit A1(e). [2] In Tin Kung Investment Limited v Secretary for Transport, LDRW 16/2001 (unreported, 29 June 2004), the Lands Tribunal remarked at §3 as follows:
[3] See Bundle E1/2338. [4] See Bundle E1/2339. [5] See Exhibit A1(a). [6] See Exhibit A10. [7] See Exhibit R7(a). [8] See also Exhibit A1(e). [9] See Bundle E1/2340. [10] See Bundle E1/2339. [11] See Bundle E2/2357. [12] See Exhibit A1(c). [13] See also Exhibit A1(f). [14] One of the respondent appealed on another ground but the Court of Appeal, CACV 426/2020 (unreported, dated 31 May 2021) while dismissing the appeal, did not disturb the reasoning as cited of the Tribunal. [15] See Bundle D3/2078. [16] See Bundle D3/2079. [17] See Bundle D3/1886. [18] See Bundle D3/2080. [19] Professor Chan initially tried to dispute that the carbonation process is irreversible but later explained what he meant was that the carbonation process could be stopped by the application of the anti-carbonation coating. [20] See Bundle D3/2081. [21] See Bundle D3/2082. [22] See Bundle D3/2083. [23] During cross-examination, Mr C M Wong was challenged by Mr Tsui on his small sample size of 4 only notwithstanding Professor Chan had a sample size of 2 only. But it is a reality in practice because a core of concrete would be cut from the structure to perform the test. It would cause substantial damage to the Building if many cores of concrete were cut out. But even with this size of sampling, Mr C M Wong replied that it would give a level of confidence that ranges between ±20%. With respect, Mr Tsui had interpreted this as ±20% of the average value of all the 6 samples for the beam and worked out a range of 13.92 MPa to 20.88 MPa. Indeed, if only Mr C M Wong’s 4 samples are adopted for calculation, its mean is 13.5 MPa (instead of 17.4 MPa), ±20% means a range of 10.8 MPa and 16.2 MPa. But if a confidence level of 95% is adopted and the sample standard deviation being about 0.913, the range should be 13.5 ±1.96 x 0.913 = 11.7 MPa and 15.3 MPa. Certainly, setting suitable and adequate number of tests can be achieved through compromising between accuracy, cost, effort, and damage. Test results are related solely to the test locations from which test sample were taken. That is why engineering judgment is needed to specify test number and locations and relevance of results to the entire member. Below shows typical coefficient of variation of test results and maximum accuracies of in-situ strength prediction for principal methods (https://theconstructor.org/practical-guide/concrete-in-situ-test-results/15480/):
[24] See Bundle D3/2069 & 2089. [25] See Exhibit R1. [26] Professor Chan could only remember the industrial building was situated in San Po Kong, Kowloon and not the name of it, which he acknowledged may have been demolished already. [27] See Bundle D3/2104. [28] See Bundle D1/1297 & 1302. [29] See Bundle D3/1932, 1933, 1939, 1940 & 1953. [30] See Bundle B/342-346 for the invoices dated 18 December 2020. [31] See Bundle D3/2055-2056. [32] Design working life is defined as the period of time during which a structure that has undergone normal maintenance is unlikely to require major repairs. The structure shall be designed such that deterioration over its design working life does not impair the performance of the structure below that intended, having due regard to its environment and the anticipated level of maintenance. [33] See D3/2067-2068. [34] https://www.legco.gov.hk/yr09-10/english/subleg/brief/6_brf.pdf [35] See Bundle C3/1226. [36] See photos in Bundle C1/610, 615-617. [37] See Bundle C1/413. [38] See Bundle C1/531. [39] See Bundle C3/1215. [40] See Exhibit R3. [41] Whereas the footnote of the of the RLB’s cost data stated: “The building costs exclude furniture, fittings and equipment …, site formation and external works, finance and legal expenses …”, the figure of $22,227.06 per sq m is much higher than the $14,600-16,100 per sq m range for the ‘High Rise, Ordinary Quality’. [42] See Bundle C3/1228. [43] See Exhibit AR1. [44] See Bundle C3/1221. [45] See Exhibit R4. [46] See Bundle C3/1224. [47] CACV 426/2020 (unreported, dated 31 May 2021). [48] See Bundle D3/1887-1888. [49] See photos on the roof in Bundle C1/560-575. [50] It is noted that even if Professor Chan’s estimate be adopted, the percentage would still be around 25%. [51] See §§127-128 of the judgment. [52] In this regard, Ms Ngai submitted in her closing submission that in Asia Bright Enterprises Limited & Another v Choi Muk Kan & Others, LDCS 11000/2019 (unreported, dated 15 October 2021), there was a dispute on whether “the Green Area” would be included as part of the development area where the Building Authority retains a discretion. However, as I pointed out during Ms Ngai’s closing submission, the PNAP as stated does not suggest that the Building Authority has a discretion. [53] Mr Ngai submitted that the development site at Nos 1 & 1A Wood Road had provided for a setback. This is however neither here or there as that site is a Class A site and any setback would just mean losing the rear portion of the G/F shop spaces. The consideration of the Lot is different as it is a Class B site. Any setback in area would mean losing the part of the G/F space that fronts onto Wing Cheung Street. [54] This latter adoption of the reference shop unit on Wing Cheung Street is needed because I have rejected Mr Ng’s setback proposal and also there is no definite design or particulars of the hypothetical shop fronting onto Wood Road. [55] See Bundle E2/2622. [56] See Bundle E2/2634. [57] See Bundle E2/2635. [58] See Bundle E2/2626-2627. [59] See Eric Shapiro, David Mackmin and Gary Sams, Modern Methods of Valuation, 12th Edn, 2019, Routledege at p222 and, Richard Hayward, Valuation: Principles into Practice. 6th Edn, 2009, Estates Gazette at 366. [60] See Bundle E2/2636. [61] See Exhibit A8 and R6(a). [62] See Exhibit A13. [63] 10,794 sq m has been specified as the maximum total GFA under the Conditions of Sale for IL 9061, comprising a plot ratio of 7.8 for the residential portion and a plot ratio of 1 for commercial purpose. Mr Lee initially doubted if such a high plot ratio for the domestic portion could be achieved without realizing that IL 9061 was sold with the benefit of and subject to the Town Planning Board’s permission No A/H5/417 granted under section 16 of the Town Planning Ordinance on 28 January 2022. [64] The acronym for “gross floor area”. [65] See Exhibit A14. [66] See E2/2514. [67] These non-statutory old Density Control Areas and Areas of Special Control have been superseded by the respective Outline Zoning Plans where the maximum permissible plot ratio, site coverage, building height or any combination of them are specified in the ‘Remarks’ column of the Notes to each statutory plan. [68] See Bundle E2/2524. [69] See Exhibit A17. [70] See Bundle E2/2631. [71] See Exhibit A16. [72] See Roger Nissim, Land Administration and Practice in Hong Kong, 5th Edition, 2022, Hong Kong University Press, p42. [73] Prior to that, the Lands Department announced on 23 July 2010 that the site at the junction of On Yiu Street, On Kwan Street and On Lai Street, Shek Mun, Sha Tin, New Territories, Sha Tin Town Lot No. 433, would be disposed of by public tender. [74] [2006] 4 HKLRD 484; (2006) 9 HKCFAR 674. [75] Of course, according to the Court of Final Appeal, this sub-sale to a subsidiary of Henderson Land Development Co Ltd (which happens to be the holding company of the applicant in the present proceedings) was not a good comparable at all as, for instance, there was no evidence on the cost of obtaining vacant possession of this 3.3 million sq. ft. piece of land. See §§52 & 55 and of the Court of Final Appeal’s judgment. [76] https://www.legco.gov.hk/yr97-98/english/bc/bc06/minutes/bc061002.htm [77] https://www.legco.gov.hk/yr97-98/english/bc/bc06/minutes/bc061902.htm [78] https://ps.hket.com/article/3350625 [79] See Bundle B/333. [80] Hearing time at 11:25-26 on 9 September 2022. [81] See Bundle B/351.82. [82] See Bundle B/351.84 - 351.113. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cases cited in this judgment
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Further hearings and rulings under LDCS 32000/2019