Bright Full Ltd and Other v. Hing May Properties Ltd
Read the full judgment text of LDCS 36000/2019 on BabelCite. This LDCS judgment was delivered on 6 January 2023.
1. This is the applicants’ application for an order for sale, for the purposes of redevelopment under the Land (Compulsory Sale for Redevelopment) Ordinance, Cap 545 (“the Ordinance”), of all the undivided shares of and in the Remaining Portion of Rural Building Lot No 648 (“the Lot”) on which there exist a terrace of 5 townhouses, Houses A to E, which are collectively known as Provident Villas (“the Villas”) having an address of No 29 Sassoon Road, Pok Fu Lam, Hong Kong.
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LDCS 36000/2019 [2023] HKLdT 1 IN THE LANDS TRIBUNAL OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION LAND COMPULSORY SALE MAIN APPLICATION NO 36000 OF 2019 _________________
_________________ Before: Deputy District Judge Roy Yu, Presiding Officer of the Lands Tribunal and Mr Lawrence Pang, Member of the Lands Tribunal Dates of Trial: 17 – 21 October 2022 and 24 – 26 October 2022 Date of Joint Inspection: 18 October 2022 Date of Respondent’s Closing Submission: 17 November 2022 Date of Applicants’ Closing Submission: 24 November 2022 Date of Judgment: 6 January 2023 _________________ J U D G M E N T __________________ Background 1.This is the applicants’ application for an order for sale, for the purposes of redevelopment under the Land (Compulsory Sale for Redevelopment) Ordinance, Cap 545 (“the Ordinance”), of all the undivided shares of and in the Remaining Portion of Rural Building Lot No 648 (“the Lot”) on which there exist a terrace of 5 townhouses, Houses A to E, which are collectively known as Provident Villas (“the Villas”) having an address of No 29 Sassoon Road, Pok Fu Lam, Hong Kong. 2.Each of the 5 houses is of 3-storey high, built over a covered carport and has its own private garden. There is a communal swimming pool located off the gardens of House C and House D. The Villas is constructed on a hillside terrain abutting the junction of Sassoon Road and Victoria Road where a roundabout is located. Stone Manor, the residence of the late Dr Henry Fok Ying Tung and descendants, is situated on the opposite side of the junction at No 33 Sassoon Road. 3.Occupation permit (“OP”) of the Villas was issued on 23 November 1981[1] which permitted “5 Nos 3-storey houses for domestic use over carpark with ancillary accommodation for non-domestic use” and “1 single-storey watchman office for non-domestic use”. 4.By a Deed of Mutual Covenant vide memorial 2419188 dated 10 May 1983[2], each of the houses is allotted 1/5th equal and undivided share in the Lot. The single respondent is the registered owner of House C which, as claimed by the respondent, was the only house in the Villas which was occupied as at the relevant date[3]. The other 4 houses owned by the applicants, all affiliated companies of CK Asset Holdings Limited or “Cheung Kong”, have been left vacant for some years since 2017 to September 2018. 5.At trial, the applicants are represented by Mr C Y Li, SC (“Mr Li”), leading Mr Jeremy Kwong and Mr Chester Kwan whereas the respondent is represented by Mr Ross M Y Yuen (“Mr Yuen”). Issues for Determination by the Tribunal 6.By reference to the Amended Notice of Opposition dated 13 July 2021[4] and the Agreed List of Issues dated 12 August 2022[5], the issues to be decided by the Tribunal in this case are: -
The Evidence 7.For the purpose of the present proceedings, the applicants and the respondent have produced the following expert reports:
8.At the Pre-Trial Review on 26 August 2022, the respondent informed the Tribunal that Mr Albert Chan could not attend the trial due to health reasons and had resigned as the building surveying expert for the respondent. Leave was granted for Mr Albert Chan’s expert reports (including his opinion in the Joint Statement with Mr Benson Wong) to be adduced as hearsay evidence without calling him to give oral evidence at trial. Section 3 of the Ordinance – Ownership of the applicants 9.Section 3(1) of the Ordinance requires the applicants to have not less than 90% of the undivided shares in a lot before they can make an application. 10.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. 11.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:-
12.Insofar as each house of the Villas is allotted with 1/5th or 20% undivided shares of the Lot, ie more than 10% of all the undivided shares in the Lot, the Notice is applicable and the threshold percentage should be 80%. 13.At the time of filing of the Notice of Application on 29 November 2019, the 4 applicants together owned 80% of the undivided shares in the Lot. We agree therefore that the applicants were entitled to make the Application under section 3(1) of the Ordinance. Existing use values (“EUV”) of all units as at 31 August 2019 14.By virtue of their 1st joint statement dated 29 September 2021, Mr Varty and Ms Sat agreed the following particulars of the 5 houses in the Villas:[6]
15.Mr Varty and Ms Sat also agreed on House A as the reference unit, its particulars and the adjusted unit rate as follows:[7]
16.Mr Varty and Ms Sat further agreed on the following adjustments to be applied:
17.However, while Mr Varty considered there being no appreciable difference in “view” among the houses, Ms Sat was content to applied the following adjustment for “view”:
18.Thus, the difference in value because of view between House C and House E would be as much as 8%. This is equivalent to a difference in value of over $7,000,000. House C and House D are situated next to each other but had, according to Ms Sat, a difference in value of 6%, ie some $5,300,000 because of view. Ms Sat could not give any rational explanation other than to keep repeating that the seaview of certain houses was partially blocked by a particular tree. 19.On the other hand, having conducted the joint inspection on 18 October 2022, Mr Varty was content to revise his observation of the view of House E (which was heavily blocked by the tree in front) and agreed to an adjustment of -5%. Having said that, we are of the view that while the views being enjoyed by Houses A to D are not identical, they face the same general direction and the difference in seaview being enjoyed by them is slight if not negligible. Thus, bearing in mind that 2% difference is meaning some $1,800,000 in absolute value, we are going to adopt the following adjustments:
20.Mr Varty and Ms Sat also failed to agree on the adjustments for “internal condition” of the houses:
21.In this regard, Mr Li pointed out that there was a difference in time of inspection between the two valuation experts: Mr Varty inspected the Houses A, B, D & E in August 2019 immediately prior to the EUV valuation date, ie 31 August 2019 whereas Ms Sat inspected the houses 15 months later on 17 November 2020. Indeed, in the 1st joint statement with Mr Varty, Ms Sat revised her internal condition adjustment for House D from -10% to -5% when she realized the different dates of inspection. Then during cross-examination, Ms Sat conceded further that the internal condition for House D should be “Poor/Fair” instead of “Very Poor” and the adjustment applied was revised accordingly from -5% to -2%. 22.Mr Varty and Ms Sat had their own definition of grades of conditions:
23.That is, on the basis of the above grading, Ms Sat had given 4 different grades of internal conditions for the 5 houses, with a 10% difference between House C and House D. On the basis of the agreed unit rate about $293,000 per sq m and an effective house area of more than 300 sq m, this 10% difference amounts to $8,800,000. Even after the further concession by Ms Sat, there was still a 7% difference between House C and House D amounting to more than $6,000,000. 24.It is submitted by Mr Li that it is unthinkable that a prospective purchaser of House C would pay $7,000,000 premium more just because of the internal decoration as it exists. “This is especially so in the case of houses, as a purchaser of this kind of house would invariably carry out internal decorations anyway to suit his/her own personal taste. In other words, the purchasers of old buildings in general, and luxury houses of this kind in particular, would simply not be concerned about the internal condition as it exists.”[11] 25.Also, Mr Varty accepted that the condition of the houses (save for House C) had deteriorated as compared with what he saw at the time of inspection. 26.By reference to the Supplemental Witness Statement dated 14 October 2022 by Mr Chung Siu Hung (“Mr Chung”), the Director and beneficial owner of the respondent, at §12:
27.Bearing the above in mind, and having reviewed the photographs of the houses taken by Mr Varty on 16 August 2019[12], we agree with Mr Varty’s adjustments for internal conditions. 28.Thus, our assessment of the EUV of the Villas as at 31 August 2019 is calculated as follows:
29.Therefore, in accordance with Part 3 of Schedule 1 to the Ordinance, the pro rata share of the respondent’s interest is 20.5331%. RDV of the Lot as at 18 August 2022 30.Both Mr Varty for the applicants and Ms Sat for the respondent agreed to resort to the residual valuation method in determining the RDV. This can be done by deducting development cost (including construction costs, professional fees, finance costs etc) and developer’s profit from the estimated gross development value (“GDV”) of the completed optimum development. 31.By virtue of their 2nd joint statement dated 16 September 2022, Mr Varty and Ms Sat agreed the valuation date for the RDV at 18 August 2022. A summary of their respective assessments is shown below:[13]
32.In their first round of RDV reports, both experts proposed a hypothetical model of four 3-storey houses. However, Mr Varty proposed a private swimming pool for each house, whereas Ms Sat proposed a communal swimming pool. 33.In their 2nd joint statement, Mr Varty agreed with Ms Sat on the hypothetical development model as follows:[14]
34.However, there is great difference in the adjusted unit rate of the reference house due to difference in the comparables adopted and the different adjustments applied thereto. Mr Varty arrived at $589,891 per sq m whereas Ms Sat arrived at $844,776 per sq m in the assessment of the GDV. Choice of House Comparables and Location Adjustments 35.More particularly, Mr Varty and Ms Sat adopted the following comparables:[15]
36.In Union Carbide Asia Ltd v Hong Kong Lands Co Ltd [1982] HKDCLR 75 at §§43-44, the Tribunal remarked that:
37.Comparables RC1 and RC2 were adopted by Mr Varty only. Ms Sat refused to adopt them as comparables because they are not houses but duplex apartments. Indeed, in Mass Transit Railway Corporation & Others v Hsu & Sons Limited [1982] HKDCLR 93, 103B, the Tribunal accepted the experts’ evidence that:
38.We accept the same observation is applicable in the present case when the unit rate for these two transactions (rather than as comparables) were less than 20% or 30% respectively from the lowest unit rate for comparable RC8, for instance. They should not be much relied upon because of their house type and considerable size differences when compared with the hypothetical unit. We agree with Ms Sat that these two transactions should be disregarded as comparables. 39.Comparable RC4 was also adopted by Mr Varty only. Ms Sat refused to adopt it as a comparable because it is situated within a large scale residential estate with club house facilities, actually in another locality. While we agree with Ms Sat that any adjustment that is applicable thereto is dubious for this difference, we are prepared to keep this as a comparable for the time being because we are aware of Mr Varty’s concern that most of the other comparables were outdated. 40.Comparables RC6, RC7 and RC8 are common comparables adopted by both valuation experts. These houses comprise three of the five terraced townhouses within the same development like the Villas. This development is situated at a relatively secluded location off the Pokfulam Road at the outskirt of the Pok Fu Lam Country Park. RC7 and RC8 are situated at the different ends of the terrace and therefore semi-detached houses like House A or House E of the Villas. 41.In terms of location, we refuted Ms Sat’s argument that this development is close to busy traffic along Pok Fu Lam Road. We are not persuaded that the nullah running some distance beyond the boundary of the development could create much nuisance as suggested by Ms Sat who alleged basically of the noise arising from the fall of water from the hill. We agreed with Mr Varty that this development is situated at the better location and adopted his proposed adjustment of -5%. 42.Comparable RC9 is another common comparable adopted by the two valuation experts. It comprises one of the nine detached townhouses within a development on Shouson Hill Road West[17], a very popular high-end residential locality that overlooks the toll gate of Aberdeen Tunnel and Gleneagles Hong Kong Hospital. This has been traditionally a luxury residential area with a range of single detached houses belonging to wealthy families. However, the former exclusiveness has decreased with the gradual redevelopment of single dwellings to blocks of townhouses. 43.On the other hand, as stated by Mr Chung, Sassoon Road is the home to the Li Ka Shing Faculty of Medicine of the University of Hong Kong. Indeed, the Lot is situated next to certain campus buildings of the University of Hong Kong further uphill. Mr Varty and Ms Sat suggested adjustments of -25% and -5% respectively. 44.As a matter of valuation practice, comparables needing large adjustment should be avoided, especially when such an adjustment is based essentially on intuition, impression or more euphemistically called professional judgment. Here Mr Varty suggested an adjustment for location as much as -25% accounting for the difference in the quality of living environment, accessibility, and general popularity and prestige of the area. In support of his suggestion, Mr Varty had carried out altogether three pairing analysis in support of his proposed adjustment for location between Pokfulam Peak and the Shouson Hill Road locality. The first pairing analysis is reproduced below:[18]
45.Further, adopting 92E, Pokfulam Peak (ie RC7) and 92A, Pokfulam Peak (ie RC8) as the basis of reference, Mr Varty arrived at locational differences of -25.3%[19] and -23.9%[20] respectively. 46.At first glance, Mr Varty had applied a lot of other adjustments in order to derive a resultant adjustment as his location adjustment. The so many other adjustments required may cast doubt on the reliability of his analysis. Fortunately, as we shall see, many of the adjustments were either agreed with Ms Sat or preferred by us. The only exception is that of view. For instance, Mr Varty agreed that the view of RC7 is likely blocked by trees in front and accepted the adjustment proposed by Ms Sat, ie a concession up to 5%. In addition, we have reservation on whether the proposed adjustment on view as much as 10% is appropriate or could be smaller. 47.Ms Sat cast doubt on Mr Varty’s analysis because it was confined to 1 development each at Pok Fu Lam and Shouson Hill, namely Pokfulam Peak and Shouson Peak respectively. However, they are exactly the comparables adopted by both experts where the task is to find out the approximate or appropriate adjustment for location between them. While the result may not be ideal, we prefer an adjustment of -20% for location for comparables in the Shouson Hill Road locality. 48.Again, comparable RC10 was initially adopted by Mr Varty only. It comprises one of the 31 townhouse units within another development that is served by a club house fitted with swimming pool and gymnasium facilities in the Shouson Hill Road locality[21]. Ms Sat did not adopt this transaction as a comparable for the reason only that, when compared with the hypothetical house, it provides no lift service inside the house. However, we consider this factor duly adjustable with fairly ease. Indeed, this house is within the same development as comparables RC11 and RC 12 which are common comparables agreed by both experts. We see no reason why RC10 should be singularly excluded just for the reason that it does not have lift inside the house. During trial, Ms Sat adopted this comparable as a fallback. We are content to adopt an adjustment for location at -20% for these comparables. 49.Further, Mr Varty and Ms Sat had the following agreement/ disagreements on other factors of adjustment:[22]
50.On the basis of the above, the following table shows the various adjustments applied by Mr Varty (whereas those applied by Ms Sat, if different, are shown in parenthesis):[25]
Size/Quantum 51.The differences between Mr Varty and Ms Sat on quantum adjustments are owing to rounding and are minor. For the sake of this assessment, we simply adopt Mr Varty’s adjustments. Facilities 52.Mr Varty applied adjustments of 2% and 5% for the lacking of communal swimming pool or other facilities in Comparables RC1 and RC2. While both these comparables are located within the same development, we are at a loss as to the reason why there should be a difference between the two. Certainly when they are not adopted as comparables, this difference between 2% and 5% is no longer the issue; the respondent did not even bother to comment on it. 53.Similarly, Mr Varty applied an adjustment of -2% to Comparable RC4 because the development Bel-Air comprises an estate type of residential estate which comprises a range of clubhouse facilities as well as communal swimming pool. Again, the respondent did not bother to comment on it but for the time being, in view of Mr Varty having applied adjustments between 2% and 5%, we consider an adjustment of -4% more appropriate. 54.As regards comparables RC6, RC7 and RC8 all within a luxury development called Pokfulam Peak where each of the 5 houses thereat has its own private swimming pool, we prefer Mr Varty’s proposed adjustments which were also conceded by Ms Sat at trial. 55.Comparable RC9 also comprises one of the detached townhouses within an estate with clubhouse and private swimming pool. Both Mr Varty and Ms Sat agreed the adjustment at -4%. 56.Comparables RC10, RC11 and RC12 are all situated within another luxury townhouses estate with clubhouse and communal swimming pool. Comparables RC11 and RC12 each have its private swimming pool as well. Again, Mr Varty and Ms Sat agreed the adjustments at -2%, -4% and -4% respectively. Lift 57.Mr Varty made allowance of +1% for the benefit of having an internal lift but Ms Sat allowed +5%. Mr Varty explained that 1% would be equivalent to 346.31 sq m x say $600,000 per sq m x 1% = $2,000,000 and above and the installation of an internal lift would have to sacrifice some saleable for making such provision. 58.On the other hand, Ms Sat explained that she adopted the analogy of buildings where the top floor units in high-rise buildings are inaccessible by lifts. With respect, such an analogy is totally different in scenario in the present case as regards the installation of an internal lift in a luxury house. Ms Sat tried to rescue her position by suggesting that with an ageing population, the popularity of having a lift within a house has grown tremendously. While accepting that a lift has practical use in a house, we are afraid that Ms Sat had missed the point that the major reason for installation of an internal lift is to provide a feeling of sumptuousness rather than for the reason of the ageing occupants. 5% adjustment would mean something like $12 million. It makes no sense to suggest that just by installing a lift inside his/her house, owner could increase the value of the house by $12 million. In such regard, we agree that Ms Sat’s 5% is excessive and we are content to follow Mr Varty’s 1%. Management 59.Mr Varty made allowance of -2% for the more extensive management services being provided at Bel-Air On the Peak, ie comparable RC4. We consider this reasonable. View 60.There is quite a difference in opinion between Mr Varty and Ms Sat on the view which might be enjoyed by the hypothetical development and Comparables RC6, RC7 and RC8 all at Pokfulam Peak: Mr Varty proposed an adjustment of +5%[26] while Ms Sat proposed +12%. 61.Certainly we were unable to go inside the comparables and verify the difference. The photo taken by Ms Sat as included in the Inspection Bundle did not assist much as the photo was taken at some distance away at a level lower than the development. We were however informed by Mr Varty that there is a trail behind Pokfulam Peak on the hill where photos might be taken. In any event, Mr Varty supplemented with 2 photos taken by a drone immediately in front of the houses at Pokfulam Peak which show the view that might possibly be enjoyed by the comparables.[27] Having reviewed the photos, Mr Varty agreed that the view of RC7 is likely blocked by trees in front and accepted the adjustment proposed by Ms Sat; Comparables RC6 and RC8 likely enjoy an open view. We are prepared to adopt an adjustment of +7% for the latter. 62.There is also a difference in adjustment for comparable RC10: Mr Varty proposed an adjustment of +15% while Ms Sat proposed +12%. We prefer the adjustment proposed by Ms Sat. House Type 63.While Mr Varty accepted that “where other factors are similar, single unit houses will usually command higher rents than town houses and town houses”, he pointed out that the Tribunal in Mass Transit Railway Corporation & Others v Hsu & Sons Limited, supra, did not spell out the difference in value. 64.While the applicants’ predecessor in title happened to obtain the approval from the Building Authority for a proposed redevelopment of 4 blocks of 3 storeys over 1 podium level of residence back in October 2010, no sketch plans for the hypothetical development were provided by the parties save a sketch layout prepared by Ms Sat at trial[28]. 65.By reference to this sketch, the layout of the hypothetical houses is very much in the same pattern of the existing 5 houses with a distance of up to 3 metres separated from each another. The benefit of privacy and exclusiveness of a single unit house is not as much as it should be. 66.At trial, we tried to explore the possibility of an alternative layout but Ms Sat responded that in that case, the seaview from some of the houses may have to be sacrificed. Again, Ms Sat fundamentally changed her opinion on the adjustments for RC9, RC10, RC11 and RC12 to 4%, 8%, 5% and 4% respectively. 67.Having reviewed the above, we agree with the house type adjustments proposed by Mr Varty save that for duplex. We share the view of Ms Sat that whether an adjustment of 25%[29] for duplex is adequate is in doubt but we are prepared to adopt it de bene esse. Free Furniture 68.Mr Varty and Ms Sat agreed on the adjustments for the free furniture provided by the developers in the some of the comparables. We consider them reasonable. Payment Term 69.In their joint statement dated 16 September 2022, Ms Sat agreed with Mr Varty on the adjustments for the special payment terms allowed by the developers in, for instance, comparable RC7 and RC11 where 80% of the purchase price and 70% of the purchase price respectively could be paid within 360 day or 300 days after the date of letter of acceptance.[30] Mr Varty allowed -2%. 70.However, at trial when Ms Sat presented a consolidated table for the easy reference of the Tribunal[31], she changed her mind and allowed -1% instead without any explanation. This is very undesirable. 71.Having regard to the HIBOR for 1 month as at 21 March 2018 for RC7 at 0.80857% and as at 20 May 2021 for RC11 at 0.08357%[32], we are prepared to adopt -2% for comparable RC7 and -1% for comparable RC11. 72.Thus, our assessment of the typical rate for the hypothetical development is as follows:
73.As expected, the resultant adjustments for RC1, RC2 and RC4 as proposed by Mr Varty fell well out of tone with the others and have to be disregarded. The average adjusted rate for the remaining comparables is $645,484 per sq m. 74.The adjusted result for RC9 appears, at first glance, to be out of tone as well but on review, this is the only remaining comparable that took place in the 2nd half of 2022 and is the common comparable adopted by both valuation experts. In such regard, we are prepared to adopt this as one of the comparables. 75.Of note, of the 3 common comparables from Pokfulam Peak, Ms Sat applied a lower weighting of 0.5 to House 92B (ie RC6) for the reason that the transaction was dated December 2018 and applied 0.25 weighting respectively to 92E (ie RC7) and 92A (ie RC8) which were transacted even earlier in March and January 2018 respectively. During cross-examination, Ms Sat further explained that she would rather treat these 3 comparables as 1 combined comparable so that their total weighting came up to 1. 76.With respect, we have difficulty in agreeing with Ms Sat’s rationale of treating RC6, RC7 and RC8 as a single transaction unless these 3 transactions were between related parties or for some reasons interconnected. If Ms Sat considered these 3 transactions coming from the same development and was afraid that the result would be over-biased, she should have likewise adopted the same approach to the transactions of Shouson Peak, ie RC10, RC11 and RC12. 77.On the other hand, if we follow the approach of Ms Sat treating RC6, RC7 and RC8 as a single transaction, we would arrive at a higher average of $660,470 per sq m. But for the same reason that these three transactions were dated and less weight should be placed on them, we prefer to adopt $645,484 per sq m as the unit rate for the new redevelopment. 78.Thus the value of each hypothetical house is assessed as follows:
79.The experts also agree on the following development parameters:[33]
80.However, their opinion differed on the following:
Interest Rate 81.Obviously the HIBOR has been rising nowadays and is at rates over 3.5% in October 2022. Surely we are prepared to adopt Mr Varty’s proposed 4.5%. Construction Cost 82.In fact, Mr Varty and Ms Sat agreed on the construction cost on the basis of the RLB cost data as at the 2nd quarter of 2022. However, Mr Varty suggested a further 10% for the assertion that the access roads are narrow and steep. Mr Varty was of the opinion that as a result contractors are likely to increase their bids up to 10% to allow for partial road blockage during construction works. 83.We had carried out the joint inspection on 18 October 2022 and had even walked across Sassoon Road to the opposite construction site at 30 Sassoon Road. As pointed out by us at trial, we are not persuaded that access to the Lot is restricted especially when there is a lay-by beside the entrance to the Lot[34]. Thus, we consider such 10% not being substantiated and determine the construction cost as follows:
Construction Period 84.Ms Sat estimated 24 months based on the scale and quality of development. She expressly referred to Bisney Crest where by counting from the consent to commence work in March 2016 to June 2017 when occupation permit was issued, the construction period of superstructure with a slightly larger scale took only about 15 months to build. There would be sufficient cushion of 9 months for foundation work and any eventualities. 85.As above-mentioned, we had walked across Sassoon Road to the opposite construction site at 30 Sassoon Road which appears to have approximately half of the size of the Lot. We noted a notice dated 4 May 2020 affixed on site permitting to erect hoardings, walkways or gantries issued by the Building Authority pursuant to Building (Planning) Regulation 65. In the absence of evidence to the contrary, we can safely assume that the developer of that site began to commence works soon after that date. 86.On site, we also noticed a Consent to the commencement and carrying out of building works dated 10 December 2021 issued by the Building Authority pursuant to Building (Administration) Regulation 32. According to our observation, foundation works were still in progress. We are not persuaded by Ms Sat’s explanation that there might not be much relationship between permit to erect hoardings and the time when the developer commenced building works. 87.On the basis of the above, we consider the time allowed for the construction period by Mr Varty for 27 months more realistic and should be preferred. Developer’s Profit 88.By reference to the Modern Methods of Valuation by Eric Shapiro, David Mackmin and Gary Sams, 12th Ed, 2019, Routledge at p222, the development profits as required in a residual valuation is described as follows:
89.In connection with the above, Mr Varty had prepared a table to show the time taken to sell the house units in developments which were adopted as comparable:[35]
90.From the above, it demonstrates that the houses of these developments were sold very slowly and mostly beyond a substantial period after the respective occupation permits were issued. 91.Although upon cross-examination, Ms Sat accepted that the developer’s profit could be revised to 17.5%, she insisted that there were many property transactions of value over $200 million in the past 3 months. We are not persuaded. By reference to the Private Domestic Price Index (Class E) published by RVD below, indices with parenthesis show there were fewer than 20 transactions in the corresponding months:
92.In the above regard, we are prepared to determine the developer’s profit at 20% as proposed by Mr Varty. 93.We determine the market value of the Lot at $531,300,000 (ie an accommodation value of $383,541 per sq m) as shown in the Appendix of this judgment. This is about 17% higher than the EUV assessed at $455,042,831. SECTION 4(2) OF THE ORDINANCE – JUSTIFICATION AND REASONABLE STEPS Age and State of Repair 94.Section 4(2) of the Ordinance provides that:
95.Having referred to the relevant section of the Ordinance, we would like to point out that Mr Chung’s evidences as regards personal grievance/ hardship are not within the ambit under Section 4(2) of the Ordinance and are totally irrelevant. Similarly, while urban renewal is the spirit behind the legislation, hardship is again not a matter provided in the Ordinance that we have to be satisfied before giving an order for costs. 96.On the alleged neglect in repair by the applicants, Mr Yuen had made his point in his opening submission. He refered to the judgment of this Tribunal by another panel given in Fortress Jet Limited and Ors v Tang Hoi Yip and Cheung Sau Chan Property Limited and Ors LDCS 3000/2015, in particular paragraph 41 which commented that “if the majority owners try to jack up the cost by deliberately not maintaining their units, such cost … may be disregarded.” It is sufficient for us to say that there is no evidence in support of any deliberate act. 97.Mr Yuen seeks to extend the consideration to costs arising from negligent failure to maintain the property. We do not see any justification. The consideration in Fortress Jet was on a deliberate act which, if proven, may distort the state of repair of the property. In any event, what the respondent is complaining is that the Houses of the applicants have been left vacant for years. Prima facie, it would not affect the state of repair of the Houses over the effect of natural aging, which is inevitable. Whether development of the Lot is justified due to age and/or state of repair of the Building 98.In Top Sail International Limited v Cheng Kai Ming, LDCS 18000/2010 (unreported, dated 15 November 2011), the Tribunal held that age and state of repair were two separate grounds and even though there may be considerations common to both, the Tribunal should still consider them separately. However, even though the section speaks of “age” or ‘state of repair” in disjunctive and it had been held in Intelligent House Limited v Chan Tung Shing & Others [2008] 4 HKC 421 at §165(3) that they should be separately considered:
Structural Assessments 99.Whereas the OP for the Villas was issued in November 1981, the structural design was based on Hong Kong Building (Construction) Regulations, 1976. 100.The Villas are of reinforced concrete structures. The main vertical load bearing elements consist of shear walls and the horizontal structural elements are conventional slabs and beams. 101.Mr C M Wong had carried out the following tests on the Villas:
Visual Inspection 102.Dr James Lau agreed with Mr C M Wong on the total area of defects recorded by him:[36]
103.Dr James Lau calculated that the total area of 7.87 sq m that needs to be repaired only constituted 0.24% of the total area of structural elements that were inspected by Mr C M Wong whereas the total area of defects found in House C was mere 1.24 sq m.[37] Open-up Inspection 104.Mr C M Wong inspected the conditions of 118 reinforcement bars (“rebar”), the findings of which are tabulated below:[38]
105.From the above, Mr C M Wong considered the Villas in fair conditions while Dr James Lau considered the conditions good because in his opinion, rebars with corrosion grade 1 to 2 are acceptable. Dr Lau added that the 4 rebars with corrosion grade 3 are all located on one single spot on the G/F carport ceiling under House A which comprises altogether 5 rebars. 106.Whereas Dr Lau suggested that the repair of this spot was included in Mr C M Wong’s patch repair programme, Mr C M Wong denied as no defects were noted before the open up and therefore no patch up repair for this location was included in his estimation of patch repair cost. Removal of Concrete Covers to Expose Reinforcement 107.The results of Mr C M Wong’s investigation are summarized in the following table:[39]
108.The locations of the two columns tested were one from G/F to 1/F at House B and the other from the Carport to G/F near House D. 109.Mr C M Wong did not find any major defects such as structural cracks nor large structural deformations in his inspections. He referred this to be a matter of workmanship.[40] Mr C M Wong did not recommend structural strengthening work for the structural elements. His recommendations were concerned only with patch repair of surface defects such as cracks and spalls on the concrete cover. In other words, Mr C M Wong was not worried about issues such as structural strength for individual structural elements nor structural instability of the houses.[41] 110.Mr C M Wong further explained that the comparison of the actual cover with the designed cover is mainly to assess the workmanship of the structural works. The concrete cover is one of the major parameters that affect the durability of the structure. To assess this durability, the actual cover should be compared with the cover specified in the Code of Practice for Structural Use of Concrete 2013 (the 2013 Concrete Code), which was a complete review of the Code of Practice for Structural Use of Concrete 2004. Some new features of the 2013 Concrete Code include:
111.Mr C M Wong was of the opinion that the actual covers to all exposed rebars in the slab elements were inferior to the requirement of the 2013 Concrete Code. That said, Mr C M Wong accepted that the government had never issued any papers or guidelines to draw attention of the public or the building industry that there is any concern of any old building with floor slab concrete cover below the latest standard. 112.On the other hand, Dr James Lau was of the opinion that the concrete covers in general were larger than those required in the original design. That was particularly correct for the concrete covers in shear walls, which are the major vertical bearing elements. Carbonation Depth Measurement 113.The results of Mr C M Wong’s 18 carbonation depth measurements are summarized in the following table:[42]
114.Whereas 6 spots were found having the carbonation depth going pass the depth of the concrete covers, they were particularly localized near House E. In contrast, there were a number of test results with very shallow carbonated depths. 115.In Mr C M Wong’s opinion, there were 6 out of 18 spots with carbonation depths exceeding the actual concrete cover provided. He regarded such percentage of 33% not insignificant. Mr C M Wong further noted that for all the test samples of slabs and beams at roof, carbonation had reached the rebars. 116.Dr James Lau pointed out that during patch repair, the carbonated concrete cover would be removed and replaced by new concrete cover. However, in Mr C M Wong’s proposed patch repair work, only the locations with visible defects or identified by hollow sound during hammer tapping would be repaired. 117.On the other hand, Mr C M Wong agreed that carbonation in concrete is a gradual and continuous process by which “all of a sudden” failure is unlikely. In such regard, Dr James Lau opined that by replacing the carbonated concrete covers with new and fresh concrete covers of alkaline in nature, the new alkaline concrete covers will give the repaired structural members a new lease of life. Chloride Content Tests 118.Mr C M Wong had conducted the chloride content tests on 18 locations with 4 tests per location. Of the 72 test results, none of them had a percentage value higher than 1.0 (ie high risk); only 5 tests (about 6.9%) had a percentage greater than 0.4 which can be classified as moderate risk.[43] 119.Mr C M Wong agreed that, on the basis of the above, the chance of chloride attack causing large scale rebar corrosion in the Villas is extremely low. He further agreed that the presence of chloride in the 5 samples having a moderate risk was probably caused by the contamination of salt water or by cleaning agents used by the occupants on those spots. 120.We agree with Mr Yuen’s submission that chloride content is not a concern for the Villas. Rebound Hammer Test 121.Mr C M Wong found that the concrete strengths derived by rebound hammer tests were all significantly higher than the design strength concrete of 21 MPa. Concrete strength is not a concern for the Villas. 122.In any event, both Mr C M Wong and Dr Lau agreed that the total estimated repair cost for the Villas was $105,000 out of which, $77,189 was meant for hammer tapping tests by the contractor and only $26,988 was meant for concrete repair.[44] In respect of the latter, a factor of 1.5 had already been applied to the defective areas of the structural elements as safety margin.[45] 123.In view of the above findings, we agree with Dr James Lau that the concrete in the Villas had not deteriorated much over the years and because of the high current concrete strengths as identified by Mr C M Wong, the factors of safety of the building structures and individual structural elements are higher than those required by the original design. Age 124.The Tribunal in Intelligent House v Chan Tung Shing and Others [2008] 4 HKC 421 accepted the submissions below on “age” under section 4(2)(a)(i) of the Ordinance:
125.Mr Albert Chan tended to refine the consideration of “age” in the following aspects:[46]
126.Mr Albert Chan agreed that with the advance of modern technology and the rise of public expectation, upgrading to existing facilities may be undertaken but should also be carried out progressively in a well-planned schedule by striving balance between users’ needs, scope and extent of works, costs and disturbance to occupants, etc. He objected however to describing an existing building as being ‘obsolescent” simply by direct comparison to current legislative requirements. Considerations should be made to the existing physical and functional conditions of the building and their maintenance and housekeeping standards.[47] We agree with the latter. 127.We further agree with Mr Albert Chan that external walls simply finished with plastering and painting cannot be regarded as non-acceptable or out-classed by buildings nowadays. Likewise, overall untidy appearance in elevations arising from piecemeal and individual replacement of windows cannot be criticized as obsolescence.[48] 128.On the other hand, Mr Benson Wong identified 6 main aspects of functional obsolescence, some of which have safety and hygiene implications:[49]
129.In response, Mr Albert Chan did not agree that the Villas are aged functionally. We agree with him. 130.In regard of chloride contents, as stated in §118 above, Mr C M Wong found none of the samples had a percentage value higher than 1.0 (ie high risk). Only 5 tests (about 6.9%) had a percentage greater than 0.4 which can be classified as moderate risk. And in respect of concrete cover, as stated in §114 above, the 6 spots that were found having the carbonation depth going pass the depth of the concrete covers were particularly localized near House E. In contrast, there were a number of test results with very shallow carbonated depths. 131.Mr Benson Wong referred in particular to the Code of Practice for Minimum Fire Service Installations and Equipment 2022 (“FSI Code 2022”) in stating that the Villas is obsolete. He referred to Para 4.22 of the FSI Code 2022 which requires for
132.However, with respect, we find these provisions or requirements only applicable to “Domestic Buildings - low rise (over 3 storeys in height)”. By reference to the OP for the Villas issued on 23 November 1981[50], the Villas was described as “5 Nos 3-storey houses for domestic use over carpark …”. It appears that the Building Authority did not agree that the Villas comprises over 3 storeys in height. Neither do we. 133.In such regard, Mr Benson Wong tried to refer to a relatively new development of 77/79 Peak Road which, he said, also comprises 3-storey houses over carpark but has to follow Para 4.22 of the FSI Code 2022. We have reservation on Mr Benson Wong’s allegation by reference to the layout plan and the cross-section plan he produced.[51] 134.Our reservation is affirmed by the photographs[52], the layout plans[53] and OP of the development[54] produced by the respondent in response. The OP for 77/79 Peak Road in fact describes it as:
135.Obviously by reference to (iv) above, this development should be regarded as “over 3 storeys in height” and the Villas is distinguishable. In respect of the latter, Para 4.21 of the FSI Code 2022 is applicable instead and requires only portable hand-operated approved appliance. The Villas is not functionally obsolete in terms of fire safety installation. 136.As regards Building (Planning) Regulation 41D to which Mr Benson Wong referred where emergency vehicular access (“EVA”) is required, by reference to the Practice Note for Authorized Persons and Registered Structural Engineers APP-136[55] at para 7, it is expressly emphasized that pursuant to the regulation itself “the Building Authority may exempt a building from complying with any or all of the EVA standards specified in the MOA Code if the Building Authority is satisfied that compliance with the requirements is:
137.By the Guidance Notes on Exemption / Modification Consideration of Part VI of the MOA Code, it is expressly stated that for domestic buildings of 3-storey or below, the “width of EVA may be relaxed to not less than 4.5m depending on the topographical constraint”. As confirmed by Mr Benson Wong, the driveway of the Villas is 5 metres wide[56]. 138.Having regard to the topography of the site and its surrounding environment, it does not need to take us to be the Building Authority to accept Mr Yuen’s submission that the EVA requirement will be exempted on the ground of the low fire risk. 139.As regards concrete cover, Mr Benson Wong noted that the relevant concrete cover thickness for the floor slabs of the Villas applicable at the time of Structural Plan approval was only 15mm but since then, the fire resisting construction requirements have increased the concrete cover of the floor slabs to 20mm thick which is applicable to both top and soffit surfaces of a floor slab. Therefore, in respect of the fire resistance of the structural frames, the concrete cover thickness of the existing floor slabs in the Villas do not comply with the current requirement of the Fire Code 2011 which is tabulated as follows:[57]
140.By the definition of the Fire Code 2011, FRR stands for fire resistance rating which is the period of time that a building element is capable of resisting the action of fire when tested in accordance with ISO 834, BS 476: Parts 20 to 24 or equivalent. Fire resistance ratings are designated by three terms, to represent the make up of the element of construction, i.e. X/Y/Z, where:
141.As pointed out by Mr Yuen, however, by reference to the approved building plan for the Villas dated 23 August 1979, it was approved by the Building Authority that the 15mm cover at that time could withstand a fire resistant period of 1 hour. We are persuaded that it could not be the case that the 15mm cover cannot suddenly withstand a fire resistant period of 1 hour despite the change in standard. 142.Indeed, in the Supplementary Rebuttal Report filed by Mr C M Wong dated 22 October 2022[58] which was prepared in response to Dr Lau’s late submission dated 14 October 2022[59] (which should be criticized and not encouraged), Mr C M Wong fairly explained at §2.2.6 that:
143.Thus, from the above, it appears that the main issue for the more stringent requirement of 20mm in the prevailing codes is on durability instead of on fire resistant. 144.In Hong Kong, the first code that mentioned the requirement for the design life is Code of Practice for Structural Use of Concrete 2004 (“2004 Code”). In 2013, this code was updated (“2013 Code”) but Clause 2.1.5 remains unchanged as follows:
145.§2.1.7 of the 2013 Code provides as follows:
146.Further §4.1.1 of the 2013 Code explained durability:
147.As said, the concept of design working life of concrete did not exist when the Villas was built. On the one hand, the requirement for durability was not necessarily compromised. More importantly, the 2013 Code provides for “the use of protective coatings to either the steel or the concrete, or both, to enhance the durability of vulnerable parts of the structure.” The Villas was built in November 1981; it has at least 9 years to go towards the end of the design working life. 148.Similarly, a lightning protection system or the building management systems suggested by Mr Benson Wong can be easily improved with minimal costs. We are not persuaded that the Villas is suffering from functional obsolescence. 149.Mr Benson Wong then referred to Intelligent House, supra and adopted “tenantable condition” as the necessary standard of repair that needed to be carried out at the Villas. Including the complete replacement of the external rendering, Mr Benson Wong formulated the necessary work items and assessed the costs of works as follows:[62]
150.It is the respondent’s case that Mr Benson Wong had exaggerated the required items for repair. These include the complete replacement of the building façade (item 3), the pitched roof and the flat roof (item 4). Indeed, Mr Benson Wong had engaged a specialist to perform infrared thermographic survey on the external façade of the Villas. Only 52 spots of “minor delamination” as defined under “Severity Grade I” were found:[63]
151.Under this “Severity Grade I”, the specialist stated “No immediate action was considered necessary, but routine monitoring is recommended.” [64] 152.Even Mr Benson Wong admitted that patch repairs would suffice to bring the subject components back to tenantable conditions. Mr Benson Wong’s proposal also included certain improvements to the facilities of the swimming pool and other external facilities (item 11) which, in the opinion of the respondent, are at the option of the owners given that some of the existing facilities are already in tenantable condition. The total cost estimate of these 3 items is around $4 million. 153.At the request of the Tribunal upon the joint inspection, Mr Benson Wong provided a breakdown of his estimate above as follows:[65]
154.From the above, it is manifested that the so-called repair costs required accrue to individual houses instead of the Villas as a whole. Even assuming Mr Benson Wong’s estimates are entirely correct (which are also subject to the challenges by Mr Albert Chan)[66], the repair cost required for each house appears not to be too much as prospective purchasers of such luxury houses would inevitably spend a vast sum of money for decoration and repair according to his/her own taste. Indeed, according to Mr Chung, he spent a sum of about $2,800,000 when the respondent acquired House C in March 2006. This included, inter alia, replacing and improving the drainage pipes, changing and replacing the new air-conditioning system and adding on some split type air conditioners, rewiring, changing the windows to aluminium windows, making some changes to layout, redoing the flooring, ceiling and wall tiles etc. While his evidence was not challenged by the applicants, on the basis of the RLB Tender Price index[67], $2,800,000 in March 2006 would have become: 155.In fact, the repair costs estimated by Mr Benson Wong at around $4,200,000 for each house (except House C) is not unreasonably high and is less than 5% of the EUV of each house. 156.Having reviewed the above, therefore, we do not consider redevelopment of the lot having been justified due to the age or state of repair of the existing development on the Lot. The Application shall be dismissed. Costs 157.We make a costs order nisi that the applicants do pay the costs of these proceedings (including any reserved costs) to the respondent, with certificate for counsel, to be taxed on the High Court scale if not agreed. Unless any parties apply by summons to vary the costs order nisi, it shall become absolute upon expiration of 14 days from the date of this judgment. 158.Last but not least, we thank Counsel for their able assistance.
Mr C Y Li, SC leading Mr Jeremy Kwong and Mr Chester Kwan instructed by Messrs Woo, Kwan, Lee & Lo, for the 1st to 4th Applicants Mr Ross M Y Yuen instructed by Messrs Mayer Brown, for the Respondent Appendix
[1] See Bundle C/1/1. [2] See Bundle C/9/69-104. [3] The Director of the respondent, Mr Chung Siu Hung, moved out of House C which he used to occupy in November 2021 and the house has become vacant. [4] See Bundle A/3/17-23. [5] See Bundle A/6/36-39. [6] See Bundle B11/15/2523. [7] See Bundle B11/15/2524. [8] During cross-examination, Ms Sat conceded that the internal condition for House D should be “Poor/Fair” instead of “Very Poor” and the adjustment applied was revised accordingly from -5% to -2%. [9] See Bundle B10/9/2290. [10] See Bundle B10/12/2444. [11] See Mr Li’s closing submission at §214(c) on p 82. [12] See Exhibit A5. [13] See Exhibit A8. [14] See Bundle B11/18/2649 & 2652. [15] See Bundle B11/18/2655-2656. [16] See §42 of the judgment. [17] See Bundle B11/18/2672. [18] See Bundle B11/18/2675. [19] See Bundle B11/18/2676. [20] See Bundle B11/18/2677. [21] See Bundle B11/18/2673. [22] See Bundle B11/18/2653. [23] Before the agreement, Mr Varty was content to apply 1% per 1-year difference for the first 10-year difference but 0.5% per 1-year difference for the remaining years’ difference. [24] This house was dropped as a comparable by Ms Sat. [25] See Bundle B11/18/2658-2660 and Exhibits A7 & R6. [26] In re-examination, Mr Varty conceded that RC7 warranted up to +10% adjustment. [27] See Exhibit A6. [28] See Exhibit R8. [29] Mr Varty reduced his adjustment to 15% during cross-examination. [30] See Bundle B11/18/2660. [31] See Exhibit R6. [32] See Exhibit A5 for the HIBOR graph published by Hong Kong Association of Banks. [33] See Bundle B11/18/2650-2651. [34] See also Bundle B11/18/2642 & 2684. [35] See Bundle B11/2670. [36] See Bundle B7/5/1666. [37] See Bundle B10/8/2267. [38] See Bundle B7/5/1667. [39] See Bundle B7/5/1669-1670. [40] See Bundle B7/5/1676 at §7.3.2. [41] See Bundle B10/8/2270. [42] See Bundle B7/5/1671. [43] See Bundle B7/5/1672. [44] See Bundle B10/8/2278 & 2282. [45] See Bundle B7/5/1684-1685 & B10/8/2276. [46] See Bundle B7/4/1577. [47] See Bundle B7/4/1578. [48] See Bundle B7/4/1579. [49] See Bundle B1/1/15-18 and B7/4/1580. [50] See Bundle C/1/1. [51] See Exhibit A1. [52] See Exhibit R9. [53] See Exhibit R4. [54] See Exhibit R5. [55] See Exhibit R3. [56] See Bundle B1/17. [57] See Table E4 of the Fire Code 2011. [58] See Exhibit A9. [59] See Exhibit R7. [60] See Bundle B7/5/1683. [61] That is, the Villas. [62] See Bundle B4/1/911 & B7/4/1619-1620. [63] See Bundle B1/1/116. [64] See Bundle B1/1/111. [65] See Exhibit A2. [66] In addition, as stated in §§114-117 above, Mr Benson Wong had wrongly classified the Villas as “Domestic Buildings - low rise (over 3 storeys in height)” under FSI Code 2012. Therefore, the fire services installation is unnecessary. [67] See Exhibit A5. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cases cited in this judgment
Further hearings and rulings under LDCS 36000/2019