Peace Ever Ltd and Others v. Chan Sui Ching, The Person Appointed To Represent the Estate of Leung Lap (梁立), Deceased (By Carry on Order Dated 17th December 2020) and Others
Read the full judgment text of LDCS 28000/2018 on BabelCite. This LDCS judgment was delivered on 1 August 2023.
1. This is an application for a compulsory sale order (“the Application”) under the Land (Compulsory Sale for Redevelopment) Ordinance, Cap 545 (“the Ordinance”) to sell all the undivided shares of various sections of Quarry Bay Marine Lot No 1 (“QBML 1”) (collectively referred to as “the Lots”) and the buildings (collectively referred to as “the Buildings” where appropriate) thereon as follows:
Cited by 12 cases · Cites 59 cases
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LDCS 28000/2018 IN THE LANDS TRIBUNAL OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION LAND COMPULSORY SALE MAIN APPLICATION NO. 28000 OF 2018 __________________________ BETWEEN
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____________________ J U D G M E N T ____________________ THE APPLICATION 1.This is an application for a compulsory sale order (“the Application”) under the Land (Compulsory Sale for Redevelopment) Ordinance, Cap 545 (“the Ordinance”) to sell all the undivided shares of various sections of Quarry Bay Marine Lot No 1 (“QBML 1”) (collectively referred to as “the Lots”) and the buildings (collectively referred to as “the Buildings” where appropriate) thereon as follows:
2.Swiss House, which is served by 4 common staircases, was issued with an occupation permit, Permit No H26, by the Building Authority dated 21 February 1962[1] which permitted the following:
3.Occupation Permit No H177 for the 9-storey tenenment building at Nos 24-38 Pan Hoi Street was issued on 28 September 1960 permitting the ground floor with 4 shops for non-domestic use and 4 tenements for domestic use; the upper 8 floors were each permitted for 8 tenements for domestic use.[2] It is served by 4 common staircases. 4.Whereas for the seven pair of 8-storey tenenment buildings at 40-94 Pan Hoi Street, occupation permit, Permit No H53, was issued on 5 March 1959 permitting shops at front portion of ground floor for non-domestic purpose and “Chinese type apartments” at rear portion of ground floor and 1st to 7th floors for domestic purpose.[3] Each pair of buildings on the 1st to 7th Pairs of Lots is connected or served by 2 common staircases. 5.The Buildings do not have any owners’ corporation in place. 6.As at the date of Application on 31 October 2018, the applicants collectively owned the Lots as follows:[4]
7.That is, upon the Application was made, there were 42 respondents (which are denoted hereinafter by the acronym “R” where appropriate) who owned the remaining undivided shares of the Lots that had not been acquired by the applicants. The 43rd respondent, ie R43, was subsequently joined pursuant to the Order of the Tribunal dated 3 December 2018. 8.However, the applicants subsequently successfully acquired additional undivided shares in the Lots from a number of the respondents including R43. The applicants have discontinued the proceedings against them as shown in the following table:[5]
9.Therefore, as a result of the above, the applicants collectively owned the Lots as follows:[6]
LIVE RESPONDENTS REMAINING ON RECORD 10.Shortly before the commencement of the trial, the applicants entered into Agreements for Sale and Purchase with R1 and R23 on 7 December 2022 and 23 November 2022 respectively. Completion later took place and the Tribunal approved consent summonses for discontinuance as against R1 and R23 on 11 and 5 January 2023 respectively. Afterwards, there remain 24 live respondents (“Remaining Respondents”) on record. The Remaining Respondents, the properties owned by them and their legal representation, if any, are listed below:[7]
Missing Owners – 1st and 2nd named R26 and R43 11.Liu Po Kiu and Liu Kee Yee were the registered owners of 3/F, No 70 Pan Hoi Street, holding the property as tenants-in-common in equal shares[8]. Liu Kee Yee passed away and Letters of Administration dated 23 July 2014 in respect of her estate were granted to Liu Kai Chu Rebecca vide memorial 14082602450026 registered with the Land Registry. Therefore, Liu Kai Chu Rebecca, being the Administratrix of the estate of Liu Kee Yee, deceased, was joined as the 2nd named R26. 12.On the other hand, Cheng Po Fan, ie R43, acquired possessory title to 3/F, No 70 Pan Hoi Street in the proceedings of DCPM 3067/2016 pursuant to the sealed Judgment of HH Judge K W Wong dated 5 December 2017. The 5th applicant successfully acquired R43’s possessory title by an Assignment dated 15 April 2019 registered with the Land Registry vide memorial 20101600520081. 13.The 5th applicant also successfully acquired the 2nd named R26’s paper title to ½ share of 3/F, 70 Pan Hoi Street by another Assignment dated 15 April 2019 registered with the Land Registry vide memorial 20101600520066. 14.As a result of the above, the applicants discontinued the proceedings against the 2nd named R26 and R43 accordingly. 15.Despite the above, according to the applicants, the 1st named R26 cannot be located and remains as one of the live respondents on record. Leave was granted by HH Judge M Wong on 21 June 2019 to proceed with the subject proceedings in the absence of any person representing the estate of the 1st named R26. Pursuant to the same Order made by HH Judge M Wong on 21 June 2019, service of all subsequent documents in the present proceedings on the 1st named R26 has been dispensed with. 16.Since the 1st named R26 cannot be identified or located, the applicants submit that they cannot carry out negotiation with anyone to acquire the paper title of the 1st named R26 to ½ share of 3/F, No 70 Pan Hoi Street. Missing Owner – 1st named R35 17.The Personal Representatives of Henry Ayee, deceased and Tum Sau Hair are the registered owners of 1/F (ie Rear Portion of 1/F), No 84 Pan Hoi Street, holding the property as tenants-in-common in equal shares[9]. 18.Leave was granted by Deputy District Judge Roy Yu on 4 July 2022 to proceed with the subject proceedings in the absence of any person representing the estate of the 1st named R35. Pursuant to the same Order made by Deputy District Judge Roy Yu, service of all subsequent documents in the present proceedings on the 1st named R35 has been dispensed with. 19.Substituted service on the 1st named R35 was effected on 8 July 2022 pursuant to the Order made by Deputy District Judge Roy Yu on 4 July 2022. The 1st named R35 has not shown up. Additional Missing Owners – R24, R41 and R42 20.R24, R41 and R42 are the registered owners of 6/F, No 62 Pan Hoi Street, 1/F, 16 Pan Hoi Street and Portion of Main Roof of Swiss Building respectively. According to the applicants, they cannot be found. 21.Substituted service on them was effected on 4 July 2019 pursuant to the Order of HH Judge M Wong dated 21 June 2019. None of them has shown up. Service of all subsequent documents in the present proceedings on them has been dispensed with. 22.As said, the 1st and 2nd named R41 are the registered owners of 1/F, No 16 Pan Hoi Street holding the property as Joint Tenants. One Hun Jay Nam Jhonson acquired possessory title to the property in the proceedings of DCMP 921/2014 pursuant to the sealed Judgment of Deputy District Judge S H Lee dated 24 November 2016 vide memorial 17011101110018 in the Land Registry[10]. 23.The 2nd applicant acquired the possessory title of Hun Jay Nam Jhonson by an Assignment dated 7 April 2017 registered vide memorial 17042500650016. The 1st and 2nd named R41 remain as the paper title owners of 1/F, No 16 Pan Hoi Street. Legal Representation 24.Ms Nancy Ngai (“Ms Ngai”), leading Ms Catherine Hau, represented the applicants at this trial. Ms Ngai summarized in her opening that at the time of the Application, ie 31 October 2018, the applicants altogether owned i) more than 80% of the undivided shares in 1st Lot; ii) more than 80% of the undivided shares in 16th Lot; iii) more than an average of 80% for 2nd to 15th Lots (or 1st to 7th Pairs of Lots) on which one building is connected to another building by a staircase intended for common use by the occupiers of the said buildings, thus satisfying the requirements of sections 3(1) and 3(2) of the Ordinance in making the Application. 25.Those respondents who are legally represented at this trial are represented by the following counsels:
ISSUES IN THE APPLICATION 26.By reference to the opening submissions of all trial counsels, particularly that from Ms Chow on behalf of R17, there are the following issues to be determined by the Tribunal, namely:
THE EVIDENCE 27.The applicants have filed the following documents in support of the Application:
28.The Remaining Respondents (save and except for R1, the 1st named R5, R7, R8, R22, R23, 2nd named R35 and R39) appointed Mr Patrick Lai as their single joint valuation expert. Mr Patrick Lai has filed the following reports:
29.The two valuation experts have also prepared the following joint statements:
30.Pursuant to paragraph 7 of the Order of Deputy District Judge Roy Yu dated 6 June 2022, the two experts had prepared a set of tables summarizing their valuation opinions on EUV and RDV lodged on 25 November 2022. Subsequently, Mr Patrick Lai had prepared revised EUV Tables on 21 and 28 November 2022. 31.In addition, the following respondents have filed their witness statements listed in the table below:
32.By Consent, it was ordered by Deputy Judge Michelle Soong and Member Ng on 1 March 2022 that the “Statements of the Factual Witnesses of the Respondents shall be adduced as evidence without calling the makers thereof to testify at trial”. 33.The other respondents have not filed any witness statement. WHETHER THE APPLICANTS ARE ENTITLED TO MAKE THE APPLICATION (Issue 1) 34.Section 3(1) of the Ordinance requires an applicant or applicants to have not less than 90% of the undivided shares in a lot before he can make an application to the Tribunal for an order to sell all the undivided shares in the lot for the purposes of the redevelopment of the lot. 35.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. 36.The Land (Compulsory Sale for Redevelopment (Specification of Lower Percentage) Notice was gazetted on 22 January 2010 and came into operation on 1 April 2010 (“the Notice”). Section 3 of the Notice lowered the threshold for compulsory sale in respect of the classes of lots specified in the Notice from 90% to 80%. Those classes of lots include: “a lot with each of the buildings erected on the lot issued with an occupation permit at least 50 years before the relevant date”. 37.By virtue of the respective occupation permits, the Buildings are more than 50 years old immediately prior to filing of the Application. The Notice is therefore applicable and the threshold percentage should be 80%. 38.Without prejudice to the above, section 3(2) of the Ordinance stipulates that an application under section 3(1) may cover:
39.Recently, however, in Max Win Development (HK) Limited v Gain Excel Limited & Another, LDCS 37000/2019 (unreported, dated 30 September 2022) (“Max Win”)[11], the Tribunal[12] in the scenario below cast doubt on whether an applicant owning 100% of a lot though on which one building is connected to another building on an adjoining lot by a staircase intended for common use by the occupiers of the buildings could make an application under the Ordinance despite the average of -
is not less than the percentage specified in subsection (1):
40.His Honour Judge M Wong held at §33 of the judgment that whilst an application under Ordinance may include multiple or contiguous lots, such multiple-lots application is permissible if, and only if, the conditions in section 3(2)(a) or 3(2)(b) are satisfied. There is no other basis to permit an application to encompass multiple or contiguous lots. Non-fulfilment of the conditions in either limb of section 3(2) will result in the multiple-lots application being invalid. Hence, as the portion of building at No 300 Castle Peak Road ever since the commencement of the application was 100% owned, applying Court of Appeal judgment in Bond Star Development Ltd v Capital Well Ltd [2004] 2 HKLRD 855[13] (“Bond Star”) said to be binding, the latter was not within the scope of the Ordinance (§46 of the judgment). Nor could the applicant in Max Win apply for the compulsory sale order in respect of the portion of the building at No 302 Castle Peak Road on its own because of the mere 66.67% ownership (or even with the other lots straddled by the building) under section 3(2)(a) (§47 of the judgment). 41.Similarly, when the lot on which portion of the building at No 304 Castle Peak Road stands was 100% owned ever since the commencement of the application, the lot on which that portion of the building stands was out of scope of the Ordinance (§52 of the judgment). 42.Coming then to the lot on which the building at No 306 Castle Peak Road stands, when the applicant in Max Win became the sole owner, His Honour Judge M Wong ruled at §55 of the judgment that the Ordinance does not permit an application to be made (or continued) in respect of a number of lots where the applicant is already the full owner of one or more of those lots. Thus, the lot which had become 100% owned could no longer form the proper subject matter of the application (even though it was so at the commencement of the application). 43.Max Win was not followed in Apex Intelligence Limited v Chan Hoi Kuen & Others, LDCS 5000/2019 (unreported, dated 19 October 2022) (“Apex Intelligence”)[14] when the Tribunal[15], in considering an application under section 3(2)(b), took into account only the average of (A) the percentage of the undivided shares owned by the applicant in the lot on which one of the buildings stands and (B) the percentage of the undivided shares owned by the owner in the adjoining lot on which the other of the buildings stands, and allowed the application, notwithstanding that the majority owner had already owned 100% of one of the two lots concerned (§8, 9, 26 to 46 of the judgment). 44.And not long later in Winmark Properties Limited & Another v Prime Way Investment Co Ltd, LDCS 4000/2020 (unreported, 21 November 2022) (“Winmark”)[16], the same issue under the Ordinance arose again when the applicant there at the commencement of an application owned 62.5% of the undivided shares in one lot and 100% of another lot on which a building at Nos 11 & 13 Lyndhurst Terrace straddles:
45.Having also considered Bond Star, Deputy District Judge Roy Yu, Presiding Officer of the Tribunal, ruled at §42 of Winmark that there should be no reasons to exclude an applicant who is an owner who owns 100% of a lot, but 95% of the other lot, and there are building(s) erected on the lots connected by common staircase, to rely on section 3(2)(b) to apply for an order for sale. His shareholding in the two lots should be taken as the average of the two lots. Technically, the applicant should be treated as not having 100% ownership in either lot. 46.But as regards the lots on which the building at Nos 15 & 17 Lyndhurst Terrace stands, when the applicant had acquired subsequently 100%, the learned Presiding Officer ruled at §49 and 50 of the judgment that such “change of circumstance is a matter to be taken into account” and that “there is no purpose in granting an order for sale according to the ruling of Bond Star.” 47.Returning to the present case, at the time of the filing of the Application, the applicants had 100% ownership of the 2nd Lot. Subsequently, they were able to acquire also 100% ownership of the 3rd Lot, the 11th Lot, the 12th Lot and the 14th Lot. 48.On Issue 1, Ms Chow confirmed that R17 maintains a neutral stance on this issue and leave the same for determination by the Tribunal[17]. She submitted that Bond Star, and Max Win, should be followed to exclude all the above five 100%-owned lots from the Application. Even if Winmark was to be followed, she submitted that the 1st pair of Lots comprising the 2nd and 3rd Lots should still be excluded from the Application. 49.The rest of the live respondents took no issue with Issue 1 at all. 50.Ms Ngai for the applicants submitted on Issue 1 that, save except for §51 of Winmark, Deputy District Judge Roy Yu had correctly analyzed, and set out, the law in Winmark. As such, all the Lots can be included in this Application. 51.Notwithstanding the above, Ms Ngai also referred this Tribunal to section 4(6)(a)(i) of the Ordinance which provides that
52.Ms Ngai further referred to the Court of Final Appeal judgment in Capital Well Ltd v Bond Star Development Ltd (2005) 8 HKCFAR 576 (“Capital Well”), in which Ribeiro PJ commented at §§39 to 42 of the judgment on Court of Appeal construction of the Ordinance in Bond Star as follows:
53.Ms Ngai submitted that insofar as the applicants are entitled to make the Application under section 3(1) or section 3(2) of the Ordinance in respect of the other lots which Ms Chow took no issue, the Tribunal can direct a sale of these lots together with the adjacent 100%-owned lots also owned by the applicants i.e. all the Lots 16 in total as a composite site pursuant to section 4(6)(a)(i) of the Ordinance. And Ms Ngai submitted that it is appropriate to do so in this Application. This can, she submitted, facilitate urban renewal in a comprehensive manner. In addition, this proposal, as was submitted by Messrs Yuen & Ting, is “in the favour of the Respondents as minority owners as it means the RDV can be assessed on the basis of all 16 Lots, increasing the compensation for each of the minority owners”[18]. Most importantly, this proposal, she submitted, renders Issue 1 “academic” and unnecessary to be determined by the Tribunal. 54.All live respondents, including Ms Chow for R17, agreed to Ms Ngai’s proposal[19], though Ms Chow disagreed with Ms Ngai’s basis to claim Issue 1 being academic[20]. 55.In view of the above, for the sake of reducing the number of issues for determination by the Tribunal, Ms Ngai served Notice of Withdrawal on 7 March 2023 withdrawing the 1st Pair of Lots from this Application. 56.Whether Ms Ngai had served the Notice of Withdrawal afore-mentioned or otherwise, we agree with her that the applicants are at least entitled to make the Application under section 3(1) and 3(2) of the Ordinance in respect of the Lots save for the 2nd Lot, the 3rd Lot, the 11th Lot, the 12th Lot and the 14th Lot. Not following §51 of Winmark, we believe we do have a discretion under section 4(6)(a)(i) of the Ordinance to direct a combined sale of the Lots as a composite site[21]. In view of the benefit of her proposal to the respondents and the stance of the live respondents and of the applicants, this is, in our views, an appropriate case to give such directions. As such, whether we follow Winmark or Max Win on inclusion or rejection of wholly owned lots for applications made under the Ordinance is, we think, neither here nor there. We hereby give our agreement with Ms Ngai’s proposal and find it unnecessary to deal with the issues raised by Winmark and Max Win. 57.Were we wrong to have relied on section 4(6)(a)(i) of the Ordinance in the way above, we would deal with the issues raised by Winmark and Max Win as follows. Save and except not following §§49 to 51 of the judgment of Winmark, we prefer Winmark and beg to differ from our learned brothers who decided Max Win. 58.First, only section 3(2)(a) was, we agree with Deputy District Judge Roy Yu, argued before, and decided by, the Court of Appeal in Bond Star. As such, the ratio of Bond Star is not binding on Lands Tribunal for applications made under section 3(2)(b).
59.As Max Win had reviewed the legislative history of the Ordinance, the bill at first only contained section 3(1), which dealt solely with “single-lot” application. Section 3(2) was introduced by way of amendments to the bill by the authorities to deal with concerns of some members of the Provisional Legislative Council when the bill passed through committee stage (§§21 to 29, 31 of the judgment). 60.For “multiple-lot” applications covered by section 3(2), its 2 sub-sections are, we would like to point out, greatly different. They first deal with different “multiple-lot” scenarios. Secondly, their ownership thresholds requirement are also set up differently. The Court of Appeal in Pacific Base Holdings Ltd v Ever Million Development Ltd & Others, CACV 426/2020 (unreported, dated 31 May 2021) (“Pacific Base”)[23] had explained section 3(2) as follows:
61.In our view, section 3(2)(a) effectively allows multiple “single-lot” applications as the 90% ownership requirement has to be satisfied in respect of each lot individually. 62.At §29 of Max Win, our learned brothers had called section 3(2)(b) the “common-staircase exception”. The Court of Appeal in Pacific Base had also called section 3(2)(b) “a special route” (p.10 of the judgment). It is, in our views, special in at least two ways.
63.Rogers VP had given, we think, the following reasons at §14 to 16 of Bond Star in not allowing 100%-owned lots to be joined in applications made under section 3(2)(a).
64.With respects, the first reason given by Rogers VP in Bond Star to exclude 100%-owned lots in multiple “single-lot” applications made under section 3(2)(a) do not, we think, apply to “multiple-lot” applications made under the “common-staircase exception”, or “the special route”, of section 3(2)(b) with the same force or at all. 65.Adopting a purposive construction of the Ordinance, in line with the thinking of Deputy District Judge Roy Yu at §42 of Winmark, we think it does serve good and legitimate purpose to include (and retain) in section 3(2)(b) applications 100%-owned lots already owned by applicant(s) so as to allow its specially-designed “less stringent” “averaging” ownership percentage requirement to operate to its fullest when otherwise the same may not be met for one simple reason or another
66.Moreover, given that the buildings in applications made under section 3(2)(b) “is connected by a common staircase”, there exists, we believe, another good and legitimate reason to join and retain 100%-owned lot(s) so as to ensure that all the lots over which the said connected buildings are built could be sold to the same purchaser, demolished together and redeveloped together as a composite site. Technical or feasibility problems due to their former staircase connection encountered or suggested, for example, in Pacific Base at Lands Tribunal below may be avoided and a larger total site can be redeveloped as a result. If these 100% owned lots cannot form the subject matter of section 3(2)(b) applications, unless their owners so happen to out-bid others at auction to purchase the rest of Group A lots and/or Group B lots not wholly owned, it is possible that the said connected building(s) may need to be demolished “partly” with possible technical or feasibility problems arising and those lots that are not wholly owned be re-developed in a “haphazard”, if not a “dangerous”, manner. 67.For reasons given by the Tribunal[25] at §47 of Supergoal Investment Ltd v Five F Ming House Ltd [2014] 1 HKLRD 286 (“Supergoal”), the 3rd reason given by Roger VP in Bond Star in excluding wholly-owned lots, if applied to section 3(2)(b) “multiple-lot” applications, would in fact, we think, undermine the policy objectives of the Ordinance as was explained by the Court of Final Appeal in Capital Well quoted at §52 above in the following ways.
68.Indeed, with respects, in “multiple-lot” application under section 3(2)(b), we believe that the contrary construction of the Ordinance rejected in Bond Star i.e. allowing inclusion of wholly-owned lots of majority owners could advance more the underlying objective of the Ordinance as was explained by the Court of Final Appeal at §21 of Capital Well quoted below.
69.Having regard to the legislative history of the Ordinance at §59 above, as was explained at §§58 to 60 of Supergoal and quoted below, with respects, we do not find any considerable strain of construction on the Ordinance suggested in Bond Star if the Ordinance is construed to allow 100% owned lots to be joined in “multiple-lot” applications made under the common staircase exception of section 3(2)(b).
70.Indeed, on our careful checking of the entirety of the Ordinance, save for sections 3(2)(a) & (b), 3(3)(c)(i)(B) and 3(5) which employ the word “lots” in the plural, the rest of the Ordinance, including its long title, employs the word “lot” in the singular. So, unless section 7(2) of the Interpretation and General Clauses Ordinance is deployed to the Ordinance, the bulk of its provisions using the singular word of “the lot” (for example, section 4) could not, one thinks, work or work effectively in “multiple-lot” applications made under section 3(2)(a), if not section 3(2)(b). 71.We would further agree with §43 and 44 of the judgment of Max Win where Deputy District Judge Roy Yu had discussed the definition of “majority owner” in section 2 of the Ordinance. It is defined, we notice and agree, by reference to the status of the applicant(s) taking out application under the Ordinance relying on section 3(1) or section 3(2) (as the case may be). The ownership threshold requirement is separately provided for in section 3(1) of the Ordinance, where the words chosen are “not less than 90%” prescribing minimum percentage to be achieved and not “less than 100%” prescribing maximum percentage to be avoided. 72.In “multiple-lot” application made under section 3(2)(b), as was explained at §45 of Apex Intelligence, “majority owner” “in the lot or lots” in section 3(2)(b)(ii) must, we think, mean the majority owner of the 2 or more lots on which one building is connected to another building by a staircase intended for common use by the occupiers of the buildings. 73.Like what Deputy District Judge Roy Yu said at §35 of the judgment of Winmark, we have no quarrel with the observation expressed at §34 and 35 of the judgment of Max Win that the recurrent and consistent theme throughout the Ordinance is a contest between majority owner(s) and minority owner(s). We, however, have to part company with our learned brothers in Max Win (and disagree with 3rd reason given by Rogers VP in Bond Star) to take the view that the said contest could still exist and work effectively in “multiple-lot” applications under section 3(2)(b) in which the applicant(s) have already owned some of the subject lots wholly.
74.For the above reasons, we would therefore hold that applicant(s) already owning 100% of the shares of one or more of the (but not all) lots the subject matter of its application under the Ordinance relying on, and making out, section 3(2)(b) is/are entitled to make, and continue, the said application for an order of sale of all undivided shares of the subject lots for the purpose of their redevelopment. 75.Hence, if we are required to determine Issue 1 at all, we would hold that, on the proper construction of section 3(1) and section 3(2) of the Ordinance, the applicants are entitled to include those lots that have become 100% owned by them (ie the 2nd Lot, the 3rd Lot, the 11th Lot, the 12th Lot and the 14th Lot) in the present proceedings. EUV AS AT 23 AUGUST 2018 (Issue 4) Assessment of EUV of G/F Units 76.Pursuant to Part 1 of Schedule 1 to the Ordinance, a valuation report, prepared not earlier than 3 months before the date on which the application under section 3(1) of the Ordinance is made, is required in setting out the assessed market value of each property on the lot—
This was what had been done by Mr Charles Chan in his Application Report dated 26 October 2018. 77.Mr Charles Chan considered the retail units on G/F of the Buildings of distinctive characteristics as they front onto different streets, namely King’s Road which is the main distributor in the locality, Pan Hoi Street which is a local access road, or even with no street frontages. They enjoy different pedestrian flow and thus different retail potential. He has therefore categorized the retail portion of the Buildings into three groups as tabulated below[27]:
78.Mr Patrick Lai had no dispute with this grouping. 79.Save for location and layout which are individualistic for each comparable, Mr Charles Chan and Mr Patrick Lai had the following adjustments and disagreement for the comparables[28]:
80.For Group 1, the two valuation experts have agreed the following particulars of the units[29]:
81.Whereas G/F, No 985 King’s Road, ie one of R39’s units, was adopted as the reference shop unit for the EUV assessment, Mr Charles Chan and Mr Patrick Lai relied on the following transactions as comparables on the basis of which the two valuation experts arrived at a unit rate of $1,053,000 per sq m and $897,300 per sq m respectively[30]:
Group 1 Retail - Choice of Comparables and Location Adjustment 82.Although Mr Charles Chan and Mr Lai adopted Comparables A2 and A3 as their common comparables and had their adjustments for location agreed, having conducted the inspection on 13 December 2022, we consider none of them are good comparables. 83.A “comparable” can be described as “an item used during the valuation process as evidence in support of the valuation of a different item of the same general type[31]”. Comparable evidence comprises a set of these comparables used to support a valuation. Whatever the property being valued, the valuation will rely on the principle of substitution. That is that “a buyer of an item would not pay more for it than the cost of acquiring a satisfactory substitute”. Therefore, a person assessing the price to pay for a particular item will normally look to the price achieved for similar items in the market (the comparable evidence) and make a bid accordingly. 84.In the valuation of shop premises, location is probably the most important factor. In Shapiro, Mackmin and Sams, Modern Methods of Valuation, 12th edition, p 327, the location factor is explained as follows:
85.The table below shows the trades that had been adopted for the properties in Group 1 along King’s Road as at the relevant date (i.e. around 23 August 2018)[32]:
86.The trades appeared to serve the residents in the locality. Unfortunately, save for Comparable A1, all of the “comparables” adopted by Mr Charles Chan or Mr Patrick Lai or both are situated at a different class of area in North Point with different types of shoppers. 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 above. At the top are the shops selling high order goods (e.g. branded commodities or jewelries) which are found along King’s Road in North Point but not in the vicinity of the subject in Quarry Bay. 87.Comparable A1 is adopted by Mr Charles Chan only. As commented by Mr Patrick Lai, this comparable is relatively large in size and occupies a corner position with frontages onto both King’s Road and Westlands Road, just opposite a pedestrian crossing. A Standard Chartered Bank is situated next to it at Shop G6 on King’s Road. Also, by reference to the photo taken in September 2019, this comparable was occupied by a branch of China CITIC Bank International (which was subject to a tenancy for a term of 3 years from 15 February 2018 at $450,000 exclusive of rates and management fees). This appears to be the busiest retail position in the locality and is highly superior in location when compared with the reference unit at G/F, No 985 King’s Road. 88.Upon our inspection on 13 December 2022, we note this comparable have been sub-divided into two units, one being occupied by “錢大媽”, a popular food wholesaler & retailer, and the other being occupied by a convenience store. We are of the opinion that the adjustments for location should be more significant than that proposed by Mr Charles Chan at -10%. 89.Comparable A2 was adopted by both Mr Charles Chan and Mr Patrick Lai as a common comparable. While both Mr Charles Chan and Mr Patrick Lai agreed the location adjustment should be nil, it is indeed situated far away from the reference unit at G/F, No 985 King’s Road and particularly in another locality in North Point and close to the Fortress Hill MTR station, amidst a high class residential district. By reference to the photo taken in September 2019, it was occupied by a grocery chain store “優品360”. With respect, we are unable to accept nil location adjustment. We are going to adopt -10% instead. 90.Comparable A3 was the only other comparable adopted by both Mr Charles Chan and Mr Patrick Lai. It is indeed situated close to Comparable A2 and both Mr Charles Chan and Mr Patrick Lai agreed a location adjustment of +5%. By reference to the photo taken in September 2019 again, it was occupied by a popular chain store that sells shoes and foot care products. We prefer to adopt a location adjustment of -10% instead. 91.Comparable A4 is adopted by Mr Charles Chan only. It is situated at the most bustling location in North Point. In contrast to that for Comparable A1, Mr Patrick Lai commented that this comparable was substantially small, only about 1/3 of the size of the reference unit at G/F, No 985 King’s Road. We agree with Mr Patrick Lai that this comparable should belong to a different market in terms of prospective investors or occupiers. We agree that this should be discarded as a comparable. 92.Comparable A5 is adopted by Mr Charles Chan only. Like Comparable A1, it is a corner shop fronting onto both Shau Kei Wan Road and Tai Hon Street, just opposite a pedestrian crossing. Next to it along Shau Kei Wan Road is a fast food chain restaurant and then a bank. This appears to be the busiest retail position in the locality and is highly superior in location when compared with the reference unit at G/F, No 985 King’s Road. We are not persuaded that no downward adjustment was required as suggested by Mr Charles Chan. We prefer to adopt a location adjustment of -20% instead. 93.Comparable A6 is situated next to Comparable A4 and is adopted by Mr Charles Chan only. It has three jewellery shops next to it on the other side to the west at Shop 6, Shop 8 and Shop 9 of the same building. Further to the west along the same block, there is another jewellery shop at Nos 293-299 King’s Road. To an extent we agree with Mr Patrick Lai these jewellery shops are local in nature but it does not necessarily mean that this section of the street with 6 jewellery shops (至尊珠寶，大福金行，福珠寶，寶豊金行，大豊珠寶金行，大盛珠寶金行，德豊金行) altogether with Dah Sing Bank in between is not one that can attract pedestrian flow or demand high values; an agglomeration of trades can be an attraction of itself. That said, we agree that this comparable should be discarded as a comparable for the same reasons above or at least a location adjustment of -40% should have been adopted[33]. 94.Comparable A7 is on the other hand adopted by Mr Patrick Lai only. It is situated not far away from Comparable A4 to the east and is occupied by a pharmacy store and has a bank opened next to it. Again this “comparable” has three jewellery shops to the east at No 365 King’s Road, No 367 King’s Road and 371 King’s Road. We find Mr Patrick Lai contradicting himself when he said Comparable A7 could be a comparable whereas Comparables A4 & A6 could not. Nevertheless, for the same reason that Comparables A4 and A6 have to be discarded, this comparable has to be discarded as well. 95.Comparable A8 is situated next to Comparable A7 and adopted by Mr Patrick Lai only. It should be discarded as a comparable for the same reasons above. 96.Thus, we have only Comparables A2 and A3 and perhaps Comparable A1. 97.In respect of the frontage adjustments, we prefer that of Mr Charles Chan at 2% per 1 m[34]. Generally, we may not make any adjustment for frontage unless the frontage in consideration is clearly superior or inferior to the norm that the benefits or disabilities which the frontage produces are clearly evident. We also consider no additional return frontage adjustment being necessary. 98.We prefer also Mr Patrick Lai’s adjustment for layout for Comparable A2 at +2% to Mr Charles Chan’s +5% as we consider the “dumbbell” shape of the shop not adversely affecting much the display of the merchandises of the grocery chain store. 99.Thus we have only 1 comparable, ie A1, situated within the locality of the Buildings but two comparables, ie A2 & A3, in another district in North Point. On the basis of these 3 comparables, our valuation of the reference shop at No 985 King’s Road is as follows:
100.At this juncture, we note that both Mr Charles Chan and Mr Patrick Lai had adopted another comparable, E3, close to the Buildings for the purpose of assessing the Gross Development Value (“GDV”) of the hypothetical redevelopment on the Lots[35]:
101.This comparable is in fact Comparable E6 adopted in Lead Harvest Group Limited & Others v Cheong Wing Electric Limited, LDCS 6000/2018 (unreported, dated 7 February 2022), ie another compulsory sale application, in assessing the GDV of the hypothetical shops. Mr Charles Chan was also one of the two experts in that case. In that case, the Tribunal cited Mr Charles Chan’s observation at §67 of the judgment as follows:
102.While in law the Tribunal does not have to follow the observation by another Tribunal, we find nothing to depart from such observation when we carried out our inspection on 13 December 2022. We are content to adopt a location adjustment of -10% for the purpose of checking our finding at $905,000 per sq m above because of the various deficiencies that Comparables A1, A2 and A3 suffer from. 103.We follow the various adjustments adopted earlier except that we adopt 2% per 1 m adjustment for frontage:
104.Thus, this checking analysis results in a value which is about 2.6% higher than $905,000 per sq m. Taking the average of the two, we are prepared to adopt $920,000 per sq m as the unit value of the reference shop at G/F, No 985 King’s Road. 105.Then we proceed to assess the EUV of other units in Group 1. 106.At this juncture, it is noted that Mr Charles Chan provided 2 scenarios for the EUV assessments. Under Scenario 1, all existing unauthorized building works found upon inspection of the Buildings were disregarded and the respective market values of the Buildings were assessed in accordance with the respective Approved Building Plans and the Addition & Alteration Plans, if any. Scenario 2 took into consideration any value that may accrue for such unauthorized building works. 107.We note that there has been continuous doubt on whether this kind of unauthorized conversion can attract market value, for instance, in determining the EUV under the Ordinance. 108.Firstly, it must be a market reality that the owner of such unit would not let his premises without charging a rent for the full area of the enclosed premises. Needless to say, if the unauthorized structure has no additional value to the one who erected it, it would not have been there in the first place. The next question is whether someone in the market would pay anything for it. 109.In Ni Tiee Bor Robert & Another v Golden Crane Industries Limited, HCMP4407/1998 (unreported, dated 21 March 2000), the property sold was full of unauthorized structures and alterations. 110.In Join Union Investment Limited v China Tree Investment Limited, [2016] 2 HKLRD 901, there was a subdivision of the ground floor premises into four shops. The structural engineering expert in the case could not cite any example or authority where, in similar circumstances, the Government or the Building Authority took enforcement action requiring demolition of the partitioning and reinstatement of the property to its original state. Chow J (as he then was) was of the view that there was no real risk of enforcement by the Government or Building Authority in respect of the alleged unauthorized partitions. See §§97-103 of the judgment. 111.At §107 of the judgment, the learned judge observed that:
112.Indeed, shops consisting of unauthorized structures are sold usually on “as is” basis. 113.In Circle Angle Limited v Orchard Enterprise (Hong Kong) Limited, DCCJ 1252/2011 (unreported, dated 6 February 2012), the purchaser was aware that the property which it intended to purchase was subject to a notice issued under section 24C(1) of the Buildings Ordinance. In spite of this, it signed a Provisional Agreement which contained a clause that read:
114.Something similar took place in Gold Glory International (HK) Limited v K W Wong Investment Company Limited, HCMP 1618/2012 (unreported, dated 17 December 2013) where the parties agreed that:
115.The recognition that unauthorized structure attracts market value is not new. In Hong Kong Telephone Company Limited v The Hong Kong Land Company Limited, LDLA 5/1982 (unreported, dated 5 November 1982), the Tribunal considered market rent appropriate for the premises although there was an illegal addition in the form of an enclosed void at ground level having been converted into a playroom. 116.In that case, “(b)ecause of the steep slope down from the road level the foundations of the building continue for a considerable further distance below the lower level floor opening onto a paved open garden area. The area of these foundations below the lower level floor has been closed to provide a playroom”. In that case, therefore, the conversion created a 4th storey but the Government Lease limited the building to only 3 stories. The Tribunal held that while the enclosed foundation area used as a playroom did not form part of the legal gross floor area, it was part of the suit premises and must for valuation purposes be taken into account as ancillary to the residential area, in the same way as the garden and car park areas were likewise ancillary. The Tribunal was satisfied that its existence could reasonably be expected to attract a slightly higher rent than if it did not exist, in the same way as other ancillary features add value to premises. The possibility that the landlord may at sometime have to remove the glass doors enclosing the area could not be discounted, nor could the probability that it is allowed for the time being. 117.This view is supported by Transport for London (London Underground Limited) v Spirerose Limited [2009] 1 WLR 1797, [2009] UKHL 44, where Lord Neuberger pointed out at paragraph 50:
118.More recently, in Newbigin (VO) v SJ & J Monk (A Firm) [2015] 1 WLR 4817, Lewison LJ discussed “the reality principle” in these terms:
119.Referring back to Transport for London, supra, we do not consider any particular evidence is needed to prove the existence of market value of an unauthorised structure, save for quantum, when this is recognized as a market reality. In Almond v Ash Brothers & Heaton Ltd [1969] 2AC 366, Lord Pearce stated, at p 382 that “one only excludes the human realities to a limited and necessary extent, since it is only the human realities that give any value at all to hereditaments.” And in the same case, Lord Wilberforce described the reality principle at pp 385—386 as “mainly devised to meet, and it does deal with, an obvious type of case where the character or condition of the property either has undergone a change or is about to do so.” 120.Cheung Kwong Yuen v Sun Hui Fang, CACV 112/2015 which has been reported as [2016] 1 HKLRD 464 concerned an appeal from an application for recovery of vacant possession of unauthorised roof top structure of a building at 107 Tai Nan Street, Kowloon. During the trial before the Tribunal, being LDPD 1740/2014, it was found that Suen Chor Ming (alias Suen Ming Fai), the brother of the respondent, Madam Sun, had paid money in 1992 for acquiring the occupation of the corrugated steel sheet structure existing on the roof of the building. Obviously no legal title was passed and the Tribunal considered adverse possession by Madam Sun was not proven. Madam Sun’s subsequent appeal was allowed by the Court of Appeal on 30 January 2015 and the case was remitted to the District Court for retrial, which became DCCJ 743/2016. The District Court found adverse possession in favour of Madam Sun on 6 September 2017 and appeal by Mr Cheung, the unfortunate landlord who failed to verify the status of Madam Sun when he made the purchase on 31 October 2013, was refused by the Court of Appeal on 26 February 2019 in CAMP 64/2017. 121.From this case, it is manifested that the unauthorised roof top structure commanded market value in 1992. It also continued to attract significant market value at least until early 2019 despite a lapse of some 27 years. Otherwise, Madam Sun would not have taken the time and trouble in advancing her adverse possession claim. Without the shelter provided by the unauthorized roof top structure, it is absurd to think that Madam Sun would reside on an open roof. 122.The Tribunal has witnessed similar landlord and tenant disputes on the letting of unauthorised structures. LDPD 1802/2021 was another case where the landlord sought vacant possession of an unauthorised roof-top structure which had been let since 1980. Obviously, the unauthorised roof top structure commanded significant market value from 1980 till at least the commencement of 2022 when the case was heard. 123.In Joint Hope Limited v Vecent Hong Kong Trading Limited & Others, LDCS 21000/2019 (unreported, dated 9 July 2021), the Building Authority issued to the owner of G/F, including the space underneath the staircase, 38 Ming Fung Street, Kowloon, a building order dated 11 May 2018 under section 24(1) which required the owner to demolish the unauthorised building works that include the structure erected on and over the yard but not the cockloft at high level of the G/F Shop. Then on 31 May 2019, the Building Authority issued a letter to the owner stating that: “As the building works have been modified, I am prepared to withhold further enforcement action for the time being, and withdraw my Order.” As at the land search of 5 February 2021, no order was issued against the cockloft. 124.Surely, when the Building Authority issued the order of 11 May 2018, it should have known about the unauthorized cockloft (against which notice was issued in 2016). Yet the Building Authority did not enforce against such cockloft in the order of 11 May 2018. Neither did the withdrawal letter of 31 May 2019 mention anything about the cockloft save to state that the premises were not free of any other unauthorized building works. 125.Similarly, in the same case, on 11 May 2018, the Building Authority issued to the owner of G/F, including the space underneath the staircase, 44 Ming Fung Street, a building order under section 24(1) which required the owner to demolish the unauthorized building works that include the structure erected on and over the yard but not the cockloft at high level of the G/F Shop. Then on 17 August 2018, the Building Authority issued a letter of compliance of the order. 126.In Sound Advice Property Limited & Others v Mok Wai Ching & Mok Yui Cheung Anthony, LDCS 18000/2020 (unreported, dated 21 December 2021), the Tribunal found that although Building Orders against an unauthorised building structure had been issued in March 2007, the Building Authority had not taken any further action for at least 14½ years until the date of the trial. 127.In Link Harvest Ltd v Wayhang Development [2001] 2 HKC 652, Recorder Edward Chan SC said:
128.Unlike the Lands Resumption Ordinance, Cap 124 where the value of the land to be determined for compensation is qualified under section 11 and to the provisions of paragraphs (aa), (b) and (c) of section 12, there is no such qualification of the market value pursuant to Part 1 of Schedule 1 to the Ordinance. Property of which market value is to be assessed means, under section 2 of the Ordinance, immovable property, authorized or unauthorised[37]. 129.Thus, for the purpose of the present proceedings, we are content to adopt Scenario 2 as proposed by Mr Charles Chan. As stated by the Tribunal in Kannix Limited & Another v Coreluxe Developments Limited & Others, LDCS 8000/2018 (unreported, dated 25 March 2020) at §26, the value attributable to such unauthorized structures would be a matter of assessment of the enforcement risk. In fact, as demonstrated by the fact and discussions in Li Yan Ping v Multi Elite Limited & Another, HCA 1486/2014 (unreported, 22 October 2020), many purchasers of shop premises were either having full knowledge of or indifferent to the presence of “unauthorised or illegal structures”. They were prepared to take the commercial risk of the “unauthorised or illegal structures”. 130.Having said that however, we note under Scenario 2, Mr Charles Chan assigned ½ of the unit value of the respective shops to areas which had been designated as common corridor/ lobby under the Approved Building Plans at various shop units. These areas have been enclosed or converted to become part of the premises. Mr Patrick Lai even assigned full unit value to such encroachments. We prefer Mr Charles Chan’s treatment as these encroached areas are supposed to be unauthorized but the difference should not be significant when these encroachments are small. 131.On this basis, the particulars of the shops in Group 1 as agreed by the two experts are as follows[38]:
G/F, Nos 20 & 22 Pan Hoi Street (R38’s Units) 132.Notwithstanding the above, there was a further disagreement between Mr Charles Chan and Mr Patrick Lai on the value to be assigned to the covered yard between G/F, No 22 Pan Hoi Street in the front and G/F, No 20 Pan Hoi Street in the rear: Mr Charles Chan assigned a unit value of 1/5 treating the two units as one while Mr Patrick Lai assigned a unit value of 1/3 treating the two as separate units. 133.Although G/F, No 20 Pan Hoi Street was originally designed for domestic use and separated from G/F, No 22 Pan Hoi Street by a partition wall, they have been converted into a single unit, though appearing in a “dumbbell” shape, by having the partition demolished[39]. According to the witness statement dated 15 March 2021 by the R38[40], ever since she acquired G/F, 20 & 22 Pan Hoi Street on 21 August 2006, the premises have been let out as a restaurant:
134.Having conducted our inspection, we agree with the two valuation experts that G/F, 20 Pan Hoi Street and G/F, No 22 Pan Hoi Street should be valued as a single unit. 135.In such regard, we consider the concept of zoning method most applicable in the present circumstances as the means of comparison. The zoning concept is based on the principle that the area closest to the frontage (Zone A) is the most valuable part of a shop, but as the distance from the front of the shop increases the value per unit of area decreases. Thus, when a value per square metre is arrived at Zone A by reference to sales or lettings of comparables, rates for the other zones in the rear will be derived formulaically and from that the value for the shop is analyzed whereby a process, often known as ‘halving back”, is used most extensively. 136.Whereas in the United Kingdom, it has been the usual practice to adopt an analytical scheme of three 6.1 m zones and a remainder. This is not a hard and fast rule and sometimes, natural zones to take into account the actual configuration of the shop to be valued or the common depth of comparables are adopted. For instance, the highest value zone, Zone A, will be the depth of the shallowest shops in the subject. This is exactly the case when one walks the full depth of G/F, 22 Pan Hoi Street (6.4 metres) to arrive at the demolished partition. We are prepared therefore to treat the full area of G/F, 20 Pan Hoi Street as the remainder zone and value it accordingly[41]. By employing this method, we can avoid the layout adjustment as much as -30% which was suggested by Mr Charles Chan but is subjective; the size adjustment would be kept to the minimum. 137.We are also prepared to adopt Mr Patrick Lai’s 1/3 for the covered yard to the value of the rear part, ie G/F, 20 Pan Hoi Street. Again, by reference to R36’s witness statement dated 15 March 2021[42], when she acquired G/F, 20 & 22 Pan Hoi Street on 21 August 2006, the premises were occupied as a restaurant and that covered yard existed as a kitchen. According to her, and we accept, that kitchen is still occupied as an adjunct to the restaurant which is in occupation[43]. Restaurant licence is still prevailing[44] and no enforcement action has ever been taken by the Building Authority or anybody. We consider the risk of enforcement relatively low. 138.Most of the other adjustment factors had been agreed by Mr Charles Chan and Mr Patrick Lai save for those for the location along Pan Hoi Street[45]. For the latter, we prefer those proposed by Mr Patrick Lai to those by Mr Charles Chan which were 5% higher. 139.Thus, our assessments of the EUV for the various shops under Group 1 are shown as follows:
Income Capitalization as Cross-Checking 140.Indeed, in view of the dearth of comparables in the locality of the Buildings, we had at trial invited the parties to provide the tenancy agreements (if any) of the commercial premises of the Buildings for the purpose of checking our analysis or for determining the EUV of those premises where no good comparables are available[46]. 141.It comes to our attention that the following might be relevant:
142.By reference to the private retail rental index and the corresponding yields published by RVD, we attempt to compare the value of the shops derived from the Income Capitalization Method with the EUV arrived earlier by the means of the limited comparables:
143.Perhaps owing to the problem of indexing as discussed in Alliance Develop Limited v Director of Lands, LDLR 1/2020 (unreported, dated 20 February 2023) at §§65-69 or the vagaries of the market, no satisfactory conclusion can be deduced from the above analysis. 144.For instance, Portion B of G/F, No 983 King’s Road had been rented by the same tenant, Mr Chow Hung Kei (“Mr Chow”), as early as from 13 November 2014 at $35,000 per month (inclusive of rates and management charges) when the rental index was 176.1. When a new tenancy was entered into in March 2018 with the 4th applicant, the monthly rental was reduced to $30,000 though the rental index had increased to 185.6. As well, before Mr Chow rented the premises, the same unit was previously occupied as a fruit store[47]. There appeared to have been degeneration of the area. If it was the case, a higher yield of more than 2.4% would be more appropriate. 145.This degeneration of the area is also manifest when G/F, 983A King’s Road, which was used to be occupied by Emperor Financial Services Group, was then leased also for the outlet trading as 天空之城特賣場 in December 2015. The unit was subsequently sold to R39, a company registered in British Virgin Island, in May 2016 subject to the tenancy[48]. The agreement for sale and purchase was signed by a solicitor on behalf of R39. Bearing in mind the location of the unit, the obscurity of the identity of the purchaser, the transaction and occupation, the reliability of the rental as reserved in the tenancy as good indicator of market rent is skeptical. 146.The tenancy dated 15 December 2017 in respect of G/F, 985A King’s Road was also a renewal of a preceding tenancy. By a tenancy agreement dated 19 May 2014, the tenant, J & D Catering Limited, had leased the unit from the 3rd applicant as confirmor for a term of 3 years at a monthly rent of $90,000 for a term of 3 years. More particularly, by the remark (1) of this tenancy agreement, it was stated that upon expiration of the tenancy agreement on 17 September 2017, the tenant had the right to renew the tenancy for a further term of 3 years with a rent increase by not exceeding 15%. This explains why the monthly rental for the tenancy agreement dated 15 December 2017 was $90,000 x (1+15%) = $103,500 which might not be the market rent of the unit. 147.As well, according to remark (8) of the 2014 tenancy agreement, the 3rd applicant was holding a food factory licence from the Food and Environmental Hygiene Department and the tenancy was prepared to pay $50,000 for the transfer of this licence. Hence, if valuation is to be conducted on a vacant possession basis pursuant to Part 1 of Schedule 1 to the Ordinance, the benefit of the food factory licence and any goodwill thereof should be excluded. 148.G/F, No 987 King’s Road had been leased to Hui’s Brothers Currency Exchange Group Holdings Ltd (“Hui’s Brothers”) ever since 24 November 2013 for a term of 3 years at a monthly rent of $55,000 inclusive of rates and management charges. When the 5th applicant became the owner of the unit, a new tenancy was entered with Hui’s Brothers somehow for only a short period from 24 January 2018 to 23 November 2018 at a monthly rent of $60,500 though Hui’s Brothers appeared still in occupation even in October 2019[49]. Again, bearing in mind the short duration of the tenancy, the reliability of the rental as reserved in the tenancy as good indicator of market rent is doubtful. 149.As regards the tenancy in respect of G/F, No 16 Pan Hoi Street, it is rather dated and could serve little purpose in valuation practice. 150.In respect of G/F, No 18 Pan Hoi Street, it appears that the unit was let to two separate tenants, a vegetable store and a Korean restaurant. However, remark (3) of the tenancy agreement dated 9 December 2016 in favour of the Korean restaurant provides as follows:
151.From the above, the two tenancies in 2016 were renewals possibly from preceding tenancies of 2 years earlier at monthly rents of $34,000 and $35,000 respectively when the rental index was about 175.2 and 177.9. This notwithstanding, it is surprising that the capitalization of the two tenancies in 2016 has arrived at a value approaching double as that determined by the direct comparison method. In contrast, capitalizing the rental for G/F, No 987A King’s Road as adjusted from November 2018 reaches only about 40% of the value determined by the direct comparison method. 152.As said, no satisfactory conclusion can be deduced from the above capitalization analysis. On the other hand, the Tribunal, as always the case in the past, prefers the use of direct sales comparison approach. In the decision on review in Fan Chun Keung v The Secretary for the Environment, Transport and Works, LDMR 5/2004 (unreported, dated 2 November 2005), the Tribunal said at §54 as follows:
153.And to the extent that the direct sale comparison method is regarded as the best method of valuation (as affirmed by the Privy Council in Mon Tresor Limited & Another v Ministry of Housing and Lands (Mauritius) [2008] 38 EG 140, [2008] UKPC 31), we are content to maintain our EUV assessments as contained in §139 above. Group 2 Retail 154.Mr Charles Chan and Mr Patrick Lai were able to agree on the unit rate for G/F, No 38 Pan Hoi Street at $434,250 per sq m. They had further agreed the particulars of various shops in Group 2 as follows[51]:
155.Again, most of the other adjustment factors had been agreed by Mr Charles Chan and Mr Patrick Lai save for those for the location along Pan Hoi Street: Mr Charles Chan adopted a somewhat linear approach with -3% each for shops further down the street up to -49% for G/F, No 94 Pan Hoi Street whereas Mr Patrick Lai adopted a threshold approach with for instance the shops at G/F, Nos 40, 46 & 48 Pan Hoi Street at -15%, shops at G/F, Nos 54, 56 & 62 Pan Hoi Street at -20%, shops at G/F, Nos 64 & 70 Pan Hoi Street at -30%, shops at G/F, Nos 72 & 78 Pan Hoi Street at -35%, and the rest at -40%[52]:
Nevertheless, Mr Patrick Lai could not explain his basis of grouping during cross-examination. 156.Pan Hoi Street is on generally flat level from No 16 Pan Hoi Street to No 40 Pan Hoi Street but slopes downwards gently and gradually starting from No 40 Pan Hoi Street with a raised pedestrian walkway along the frontage of the shops. By No 94 Pan Hoi Street, the height difference between the vehicular road and the raised pedestrian walkway is around the height of one person so that no one can cross the street to reach those shops starting from No 40 Pan Hoi Street onwards. 157.And walking along the pavement of Pan Hoi Street, we found the ground floor entrance to Swiss House between G/F, No 983 King’s Road and Nos 16 & 18 Pan Hoi Street, a ground floor entrance between No 18 Pan Hoi Street and No 22 Pan Hoi Street, a ground floor entrance between No 30 Pan Hoi Street and No 32 Pan Hoi Street, then 3 steps up and a ground floor entrance between No 40 Pan Hoi Street and No 46 Pan Hoi Street, a ground floor entrance between No 48 Pan Hoi Street and No 54 Pan Hoi Street, a ground floor entrance between No 56 Pan Hoi Street and No 62 Pan Hoi Street, then 2 steps up and a ground floor entrance between No 64 Pan Hoi Street and No 70 Pan Hoi Street, a ground floor entrance between No 72 Pan Hoi Street and No 78 Pan Hoi Street, a ground floor entrance between No 80 Pan Hoi Street and No 86 Pan Hoi Street, and finally a ground floor entrance and a step between No 88 Pan Hoi Street and No 94 Pan Hoi Street which is the end of the terrace. In such regard, we prefer the threshold approach of Mr Patrick Lai with minor modifications to take into account the steps and entrances that may truncate the pedestrian flow. Having said the above, we however agree with Mr Patrick Lai that the 1 step difference between No 88 Pan Hoi Street and No 94 Pan Hoi Street would not adversely affect pedestrian flow as passers-by would unlikely go as far along Pan Hoi Street unless they go there with a specific purpose. G/F, No 62 Pan Hoi Street and G/F, No 94 Pan Hoi Street (R21’s Units) 158.R21, the registered owner of G/F, No 62 Pan Hoi Street and G/F, No 94 Pan Hoi Street, made a witness statement dated 12 March 2021. She stated that she and her husband had been running a fitting-out and refurbishment business at G/F, No 94 Pan Hoi Street and then together with G/F, No 62 Pan Hoi Street, using the latter as a hardware store[53]. 159.R21 claimed that in order to display the comprehensive range of products covered by their hardware store, she had been using certain space of the pavement immediately outside the front door of G/F, No 62 Pan Hoi Street and G/F, No 94 Pan Hoi Street respectively for storage and display of goods[54]. R21 even suggested that she did not normally move the construction tools/ materials back to, for instance, G/F, 94 Pan Hoi Street after the shop is closed for business[55]. While R21 may be feeling comfortable to do so, Part 1 of Schedule 1 to the Ordinance requires the assessment of market value of the premises on the basis of vacant possession. We are not persuaded that any prospective purchaser or willing buyer will pay anything for the space outside the premises on a pavement (though we understand is a private street) accessible by the public without interruption or restriction. 160.Messrs Yuen & Ting had tried to compare this strip of pavement to the Government land so occupied in Wealth Plan Development Limited v Xiu Chuan Limited & Others, LDCS 21000/2018 (unreported, 27 December 2019) where the Tribunal was content to assign a value for the “convenience” that can be enjoyed. With respect, this strip of pavement must be distinguished from the government land in that case because in the latter:
161.In comparison, this strip of pavement in the present case is a pavement accessible by the public from time to time and is not situated at a dead end. People may instead take the convenience to reach the carparking entrance of Sunway Gardens at the rear by passing along the pavement. In fact, a metal staircase has been attached to the strip of pavement at its end to facilitate the accessibility[57]. 162.In spite of the above, the covered yard at the back of G/F, No 62 Pan Hoi Street and G/F, No 94 Pan Hoi Street respectively had been valued by Mr Patrick Lai at ½ of that of the unit shop proper. They have been occupied as kitchens with water supply and storage. G/F, No 88 Pan Hoi Street 163.There is another dispute between Mr Charles Chan and Mr Patrick Lai on the treatment of a yard of 4 sq m behind G/F, No 88 Pan Hoi Street: Mr Charles Chan considered it a covered yard which justified ¼ of the unit value of the shop while Mr Patrick Lai considered it an open yard only because according to him, the structures were noted to be in dilapidated condition. 164.With respect to Mr Patrick Lai, whether the yard was covered or uncovered is a matter of fact. By reference to the photograph as contained in Mr Charles Chan’s Application Report dated 26 October 2018[58] and our observation on 13 December 2022, the yard has a concrete and/or brick cover[59]. Photographs were taken afterwards and produced as Exhibit A6. 165.On the one hand, Mr Patrick Lai could provide no evidence on how far the yard was dilapidated; secondly, unless Mr Patrick Lai could provide evidence to show that the substantial covering of the yard is likely to collapse, the adjunct to a shop which appears to be a kitchen as shown in the photographs taken on 13 December 2022 should fetch its value when it can reasonably be renovated. We are content to treat the yard as covered like what Mr Charles Chan did. Layout for G/F, Nos 40, 46, 48 and 54 Pan Hoi Street 166.As regards layout, we do not consider the adjustment of -3% proposed by Mr Charles Chan for shops at Nos 40, 46, 48 and 54 Pan Hoi Street necessary as the so-called trapezoidal shape is minor and insignificant[60]. It would not adversely affect the value of the respective shops. 167.Thus, our assessments of the EUV for the various shops under Group 2 are shown as follows[61]:
Group 3 Retail 168.For Group 3, G/F, No 36 Pan Hoi Street, ie R5’s unit, was adopted as the reference shop unit for the EUV assessment. It comprises a saleable area of 61.3 sq m. 169.Although having an address at Pan Hoi Street, this reference shop unit is one of those G/F units in Group 3 that are accessible only via their respective common corridors that lead from the entrances from Pan Hoi Street in the front. In addition, each of these G/F units also consists of yard that opens to a rear lane running all the way behind the Buildings. 170.By reference to the witness statement of the 2nd named R5 dated 12 March 2021, when her father purchased G/F, 36 Pan Hoi Street in October 1976, there was a covered shelter demarcated by cement wall with a tin roof top hanging above, forming an extension area to the unit which abuts the rear lane[62]. According to the 2nd named R5, this extension had been occupied for storage of raw materials and the finished products used by her business (which involved manufacturing of pre-moist toilette and tissue paper). This covered area had been agreed by both Mr Charles Chan and Mr Patrick Lai at 13.9 sq m (rather than 14.9 sq m as suggested by the 2nd named R5). Since December 2010, G/F, No 36 Pan Hoi Street together with the extension as a whole had been let to Ocean Dispensary Limited which is also the occupier of G/F, No 987A King’s Road. This covered yard was however approved by the Building Authority in 1962[63]. We had inspected this structure. The area is completely enclosed and accessible by a locked metal door next to the rear entrance of the unit[64]. We accept the covered portion can be valued at ½ of the value of the shop proper as proposed by Mr Patrick Lai[65]. 171.Mr Charles Chan and Mr Patrick Lai relied on the following transactions as comparables on the basis of which the two valuation experts arrived at a unit rate of $143,000 per sq m and $165,300 per sq m respectively[66]:
172.With respect, save for Comparable C1, none of the above comparables are comparables at all when compared to the reference shop unit in Group 3. All these comparables are either fronting onto service lanes that are traversed by the public from time to time or even streets that are vehicular accessible. In comparison, the rear lane that is “fronted” by the reference shop unit has nominal if not nil pedestrian flow; the access through the entrance corridor from Pan Hoi Street cannot be regarded as a frontage at all. 173.Indeed, Comparable C1 is the only comparable adopted by both Mr Charles Chan and Mr Patrick Lai. It comprises one of the parade of shops accessible via a pedestrian way off King’s Road and is occupied as a timber workshop with a Korean restaurant on its left and a beauty massage parlour on its right. We prefer a location adjustment of -20% instead of the -5% and -10% adopted by Mr Charles Chan and Mr Patrick Lai respectively. In this regard, we note that both Mr Charles Chan and Mr Patrick Lai allowed further adjustment for accessibility at -5% and +5% respectively:
174.While we appreciate that the two valuation experts tried to adjust accessibility as shops in Group 3 are only accessible via the common entrance corridor, we have difficulty in distinguishing the difference between location and accessibility in the present circumstance. As Ms Liu for R3 submitted, one may treat the rear frontage onto the service lane as the main entrance. We consider that further refinement or breaking down the location factor into two sub-factors is not necessary. Therefore, we make no further allowance for accessibility. 175.In respect of the adjustment for headroom, we prefer to adopt 2.9m under cockloft as the basis for comparison rather than its full headroom of 5.7m; otherwise, when we are assigning value to the cockloft of Comparable C1 itself, ie the unit rate analyzed would have been reduced, a further negative adjustment of 5.5% as proposed by Mr Charles Chan would result in double counting. 176.Indeed, the Tribunal had on many occasions explained that this headroom under cockloft approach is to be preferred, following Chan Kai Yuen & Another v Director of Lands, LDLR 8/1999 (unreported, dated 1 September 2000) in which the Tribunal decided to adopt an enhancement of 5% to the adjusted unit rate in assessing the G/F area with an extra 2.1m of headroom. See for example Success Active Limited v Harbourview International Holdings Limited & Others, LDCS 31000/2018 (unreported, dated 19 April 2021) at §§67-68. 177.Comparables C2 & C3 were adopted by Mr Charles Chan only. They are indeed arcade shops that front onto a pedestrian atrium or yard surrounded by a few residential/commercial buildings. Comparable C2 used to be a barber’s shop but is now occupied as a laundromat; Comparable C3 used to be laundromat but is now occupied as a beauty parlour. While Ms Liu suggested that passers-by of the section of King’s Road outside Yick Cheong Building might not notice the shops in the pedestrian atrium or yard, the same is also true for shops in Group 3. Indeed, there are quite a number of shops of various trades that serve the residents not only living in Yick Cheong Building but also in the locality. 陳衍裔 對 李珈維, LDPE 927/2017 (unreported, dated 10 October 2017) concerned another ground floor unit at 1048 King’s Road around the same pedestrian atrium or yard. It was occupied as a beauty parlour. It is hard to imagine that those shops in Group 3 (perhaps save for G/F, No 26 Pan Hoi Street though its location is also inferior) can offer a similar attraction or convenience if any of them is occupied as a beauty parlour. In our opinion, the agglomeration effect of trades has enhanced attraction of those shops situated within pedestrian atrium or yard of Yick Cheong Building likening to a local shopping enclave or shopping centre. 178.In regard of the above, we agree with Mr Charles Chan that his aggregate adjustment for location and accessibility up to a total of -15% would be appropriate. With respect, we do not agree with Ms Liu that shops under Group 3 are more “publicly” exposed. If pedestrian flow in the yard of Yick Cheong Building is classified as very low, that along the rear yard of shops under Group 3 should be considered nil or minimal. 179.Unfortunately, these two comparables are in respect of very small shops which are some half the size of the reference shop unit in Group 3. The dates of transactions were also some two years before the relevant date. They should have been discarded as comparables if there were not so few comparables available. 180.Similarly, Comparables C4 & C5 were also adopted by Mr Charles Chan only. They front onto a wide pedestrian lane and occupied as restaurants. Even Mr Charles Chan suggested a location adjustment of -40%. Again, they are in respect of very small shops which are less than half the size of the reference shop unit in Group 3. The dates of transactions were also some two years before the relevant date. They should be discarded as comparables. 181.Comparables C6-C9, which were adopted by Mr Patrick Lai only, are indeed situated in another locality of completely different catchment area and spending power. They also have proper street frontages and vehicular access which are quite different from shops in Group 3. They should be discarded outright. 182.Thus, at most, we are left with only one comparable, ie Comparable C1 and perhaps Comparables C2 and C3, which are adjusted as follows:
183.In spite of the above, the adjusted unit rate is only marginally higher than the unit rate of $143,000 per sq m assessed by Mr Charles Chan. In the present case, we consider the zoning approach we adopted earlier in valuing G/F, No 20 Pan Hoi Street of probative value for checking purpose. 184.G/F, No 36 Pan Hoi Street is situated at the rear of G/F, No 38 Pan Hoi Street where both experts had agreed a unit rate of $434,250 per sq m. $147,916 per sq m lies within the range of
185.In the latter, a factor of 1/3 is adopted instead of ½ because in the case of G/F, No 20 Pan Hoi Street, the rear portion is connected to the front portion with direct access from the street. 186.We are content therefore to adopt $150,000 per sq m as the unit rate for G/F, No 36 Pan Hoi Street. Area/Value Dispute in Group 3 187.There are various areas of the other ground floor units in Group 3 which have been enclosed or covered and the two experts could not agree on the value attributable to these unauthorized structures or enclosures. They include:
G/F, No 26 Pan Hoi Street (R2’s Unit) 188.Perhaps owing to its proximity to King’s Road, G/F, No 26 Pan Hoi Street has been tenanted as a barber’s shop according to the witness statement dated 20 September 2021 by R2 since the year of 2006[67]. R2 stated that the open yard at the rear had been covered and part of which is also enclosed by chain link etc. A portion of the area had been subdivided by the tenant and occupied as a massage parlour. We agree with Mr Charles Chan that only some 3.8 sq m of the open yard is more properly covered so that it is occupied as a kitchen with the installation of electrical appliances, a washing machine, electric kettle and electric hob[68]; and his proposed factor of unit adjustment of 1/5 appears reasonable. The other portion of the open yard, though appears to be covered with canvas or temporary materials, should not be regarded as having value as much as 1/5 that of the unit shop proper[69]. In respect of the latter, therefore, we consider Mr Charles Chan’s factor of 1/7 more appropriate than Patrick Lai’s 1/6. 189.On the other hand, there is a large piece of land up to 13.9 sq m running by the side of the shop that is occupied for clothes racking or storage etc[70]. Although R2 maintained that this piece of land had been occupied by her tenant ever since, it is unenclosed as a result of which passers-by may dump any debris thereon. R2 indeed agreed that there exists a septic tank underneath which may require maintenance or repair from time to time[71]. Certainly, the owner of the shop unit does not have any title to the land though it has been somehow delineated on ground with cement edge. 190.However, that the area was enclosed by mesh wire fence along the cement edge is neither here nor there as it is conceded by R2 that the mesh wire fence was removed for the sake of convenience to maintain the underground septic tank there. We consider it being able only to be so occupied for historic reasons but unlikely to fetch any market value because of the likely enforcement action by the owners when incorporated or intrusion by third party. While enclosure may not be the only requirement to give value to a space, how could a prospective purchaser pay anything to which he has no legal title and has difficulty to enclose for exclusive use? We regret for Mr Patrick Lai’s reply during cross-examination that he had to take into account the view of the owner without regard to the reality of the situation. 191.By the market reality approach, it does not mean what exists in place must have a value; it begs the question whether a prospective purchase would pay anything for it. If a typical buyer is not willing to pay for a particular feature in a property, then we should not make an adjustment for that feature. 192.We are not persuaded that R2 can claim exclusive possession to the exclusion of the world, for instance, as suggested by Messrs Yuen & Ting. In Incorporated Owners of Chungking Mansions v Shamdasani, Murlipessumal, CACV 199/1991 (unreported, dated 26 February 1993), the Court of Appeal stated at §4 that: “If, by its words or conduct, the respondent (ie the Incorporated Owners) did indeed lead the appellant to believe that, whatever the strict legal position, the appellant would be allowed to continue to occupy and let out the A units as Maidstone (ie the appellant’s predecessor) had, and the appellant, to his detriment, did act in reliance on this, equity will step in to prevent the respondent from now attempting, unconscionably, to insist on its strict legal rights.” However, the Court of Appeal could not find any evidence to justify a conclusion that the respondent had, in fact, induced the appellant to assume that he would be allowed to continue and occupy the units in question. And so be it in the present case. 193.And lately, in Grand Power International Limited v Chan Sing Hoi Enterprises Limited [2020] 2 HKLRD 142, the Court of Appeal also found no evidence on acquiescence and waiver having been established against the applicant’s predecessors-in-title based on their inaction and implied representation. 194.Therefore, the total converted or effective area of 55.6 sq m is adopted for G/F, 26 Pan Hoi Street. G/F, No 28 Pan Hoi Street (R3’s Unit) 195.For G/F, No 26 Pan Hoi Street, both Mr Charles Chan and Mr Patrick Lai agreed that no value would be assigned to a recessed area located by the side of the shop[72]. There is a similar recessed area by the side of G/F, No 28 Pan Hoi Street. Although there is a small metal gate that guards against intrusion, we consider the area of 3.09 sq m too small for any significant value. In any event, what were stored inside the area were tools and equipment such as buckets and ladders of no significant value. We do not consider that a prospective purchaser would be willing to pay a price for this small area of no significant value. 196.Once again, we agree with Mr Charles Chan that the total converted or effective area for G/F, 28 Pan Hoi Street is 56.8 sq m only. Ms Liu referred to Famous Concept Development Limited v Thousand Treasure Investment Limited & Others, LDCS 30000/2019 (unreported, 2 November 2021) where the Tribunal accepted at §36 that a square open yard of some 2.49 sq m right in the middle of the shop which was covered and physically indistinguishable from the rest of the shop could be regarded as part of the saleable area of the shop. This observation by the Tribunal is obviously distinguishable from the present case when the encroached yard is not as small as 2.49 sq m and not in the middle of the shop. With respect to Ms Liu, we cannot agree that the covered yard is indistinguishable from the unit proper. In such regard, whether or not the covered yard is complete with an office setting with electricity supply is neither here nor there. 197.In respect of the encroached lobby, in contrast to the suggestion of Ms Liu, anyone who passes by would readily recognize this is an encroachment and so would a prudent purchaser. G/F, No 42 Pan Hoi Street 198.At G/F, No 42 Pan Hoi Street, part of the yard thereto has been enclosed and covered with a retractable canopy. However, that enclosure is not to its full height and portion of the cover is by means of flimsy and drooping canvas. As a result, rains, or even rats can come in occasionally[73]. Therefore, Mr Charles Chan considered some 8.1 sq m not really covered. We agree. G/F, No 44 Pan Hoi Street 199.Like G/F, No 42 Pan Hoi Street, it appears that the premises of G/F, No 44 Pan Hoi Street has extended or encroached onto the common lobby to its entrance with closed door. Mr Patrick Lai, after visiting G/F, No 42 Pan Hoi Street, had agreed to take into account this enclosed space for G/F, No 42 Pan Hoi Street but refused to take into account similar enclosed space for G/F, No 44 Pan Hoi Street. Mr Patrick Lai explained his rationale as that he had not been able to visit G/F, No 44 Pan Hoi Street. We had questioned Mr Patrick Lai what he would think behind the closed door and his reply was surprisingly that he would never speculate. 200.Alas, we were not asking Mr Patrick Lai to speculate but we expect a valuation expert to value a premises on the basis of how much it might reasonably be expected on the market, on the basis of vacant possession in the present case. Owing to site constraint or otherwise, a valuer may not be able to gain access to every part of a premises for the purpose of valuation. Similarly a valuer cannot go inside the comparable for the purpose of verification but has to rely on the floor plans or other information to justify his opinion. Here, obviously, G/F, No 42 Pan Hoi Street and G/F, No 44 Pan Hoi Street are only separated by a partition wall. Whereas Mr Patrick Lai had gone inside G/F, No 42 Pan Hoi Street and found the space was properly enclosed, we suppose a reasonable valuer would similarly expect that the space behind closed door of G/F, No 44 Pan Hoi Street would be likewise enclosed. Thus, we accept an area of 3.2 sq m should be taken into account as an extension or encroachment for G/F, No 44 Pan Hoi Street. G/F, No 50 & 52 Pan Hoi Street (R15 & R16’s Units) 201.By reference to the witness statement of R15 dated 12 March 2021, he and his wife, ie R16, are the registered owners of G/F, 50 & 52 Pan Hoi Street respectively. They both occupy the units as “永基冷氣工程公司” without demolishing the partition wall in between[74]. Thus, as these 2 units are under different ownership (though between husband and wife), we are prepared to determine the EUV on the basis of two separate units. 202.R15 claimed that since their acquisition of the units in 1989 and 1995 respectively, they had been placing certain tools and machines that were used for their air-conditioning business at an area immediately outside the front doors which in effect an encroachment onto the common lobby. As said, such encroachment had been valued by Mr Charles Chan at ½ of the value of the ground floor proper which we agree. No 60 Pan Hoi Street 203.We agree with Mr Charles Chan that only some 15.5 sq m of the open yard is more properly covered and his proposed factor of adjustment of 1/4; the other portion of the open yard, though appears to be covered with bamboo rack and canvas or other temporary materials, should not be regarded as having value as much as 1/4 that of the shop proper. In respect of the latter, we consider Mr Patrick Lai’s factor of 1/6 more appropriate than Mr Charles Chan’s 1/7. EUV of Shops in Group 3 204.As said, all shop units in Group 3 have “frontages”, thus called, to the rear lane with little pedestrian flow. With the exception of G/F, 26 Pan Hoi Street or perhaps G/F, 28 Pan Hoi Street which are situated in close proximity to and visible from the entrance to the rear lane off King’s Road[75], we do not expect there is any much difference in value between the various shop units[76]; we do not agree there should be a somewhat linear adjustment along the rear yard as suggested by Mr Charles Chan or the threshold adjustment as suggested by Mr Patrick Lai:
205.Mr Patrick Lai explained that he applied lesser location adjustments towards the end of service lane because there is a short slide installed next to the staircase off the vehicular carriageway in front of the vehicular entrance to the car park of Sunway Gardens at the rear of the Buildings. We accept Ms Ngai’s submission that such treatment is without ground because:
206.That said, we are aware that there is a roller-shutter having been installed on the side-wall of G/F, Nos 92 Pan Hoi that fronts onto the vehicular carriageway above-mentioned but lies further away from the entrance to the car park of Sunway Garden. We accept R36’s submission that this roller-shutter would facilitate the loading and unloading of goods directly via vehicular carriageway without having to rely on the slide or staircase mentioned above. In such regard, we are prepared to add 3% for the location in respect of this end of the row unit. 207.In addition to location adjustments, Mr Patrick Lai applied separate adjustments for exposure to side lane and accessibility. For instance, he allowed the following adjustments as much as 15% for the units at G/F, No 26 Pan Hoi Street and G/F, No 28 Pan Hoi Street:
208.We have earlier dismissed a separate adjustment for accessibility by the common corridor leading from the entrances to the respective Buildings fronting Pan Hoi Street. 209.As regards a separate adjustment for exposure to side lane (which should more properly be considered as rear lane), Mr Patrick Lai referred to the advertising signs and/or signboards for businesses that might be operated in shops in Group 3 being mounted at the lane entrance at King’s Road for the purpose of drawing attention of passers-by. 210.Because of this, Mr Patrick Lai considered those G/F shops which were situated close to King’s Road should be better in terms of exposure when compared to shops situated, for instance, in the middle of the rear lane. At trial, he even quoted the example of the location of Basement A where an advertisement sign is mounted at the entrance off King’s Road[77]. With respect, an advertisement sign can be placed anywhere which might not be even in close proximity to the subject shop[78]; on the other hand, operators (if any) inside units situated in the middle of the rear lane can place their signboards at the lane entrance at King’s Road if they consider it may enhance the attraction of their business. In our view, only if a shop is readily accessible, ie at a short distance, from King’s Road is relevant; Mr Patrick Lai’s view is illogical. 211.Our assessments of the various shops in Group 3 are as follows:
Assessment of EUV of Basement Units 212.There are two basement units in Swiss House. Basement A has an opening on G/F which is accessible through the rear lane that leads from King’s Road. Basement B has an opening on G/F which makes use of the shop at No 18 Pan Hoi Street. 213.Both valuation experts admitted that they could not find any comparables for the basements. In such circumstances, attempts are sometimes made to value basements on a basis of a proportion of the unit value of the ground floor. 214.In the assessment for Basement B, Mr Charles Chan and Mr Patrick Lai however agreed to adopt a conversion factor to the average unit rate of G/F, Nos 16, 18 and 22 Pan Hoi Street, ie 215.But they could not agree on the conversion factor: Mr Charles Chan proposed 20% while Mr Patrick Lai proposed 15%. On the basis of the values they derived, they arrived at a unit value of $149,245 per sq m and $99,105 per sq m respectively[79]. According to Mr Patrick Lai’s valuation report dated 12 March 2021, he adopted a discount firstly for the reason that its size is large and secondly because Basement B was only permitted under the approved building plan as a store but it was then as at 23 August 2022 occupied for retail purpose. More particularly, Basement B was and is accessible by a staircase constructed in portion of the ground floor shop of No 983 Kings Road that fronts onto Pan Hoi Street. 216.But in Wing Hong Investment Company Limited v Fung Sok Han & Others, [2016] 1 HKLRD 1, Chan J (as he then was) found at §235 of the judgment that there is no provision in the Buildings Ordinance to suggest that it is an offence to adopt a user of premises which is materially different from that stated in the occupation permit although the Building Authority may serve an order on the owner under section 25(2) to prohibit the intended user or require the changed user to be discontinued if it is found that the changed or intended new user is not acceptable. 217.And in Bright Dragon Properties Limited v Director of Lands, LDLR 3/2007 (unreported, dated 8 August 2014) where Mr Patrick Lai was also one of the two valuation experts, Mr Patrick Lai had disagreed similar such discount because “a relatively higher price will be demanded by the owner if the ground floor shop can form an entrance providing (Basement B) with a direct access from the street[80]”. 218.Notwithstanding the above, there has been a lot of assumptions or intuition by the experts, the result of which is at best an approximation. All things considered, we prefer to adopt 15% and arrive at the unit rate for Basement B say:
219.If this be the case, the EUV for Basement B would be
220.As regrds Basement A, Mr Charles Chan preferred to adopt 70% that of the unit value of Basement B which would become $102,534 per sq m x 70% = $71,774 per sq m and a further discount of 2.3% for size. On the other hand, Mr Patrick Lai chose to adopt 30% of the unit value of G/F, No 26 Pan Hoi Street which would become $176,850 x 30% = $53,055 which appears to be unreasonably low as a unit value for premises of good commercial potential. 221.No matter which assumption that the two experts adopted, they were arbitrary. In view of the dearth of comparables in the locality of the Buildings, we had at trial invited the parties to provide the tenancy agreements (if any) of the commercial premises of the Buildings for the purpose of checking our analysis or for determining the EUV of those premises where no good comparables are available. 222.In respect of Basement B, there was a tenancy agreement dated 6 March 2018 for a term of 2 years commencing on 16 March 2018 at a monthly rental of $52,500 (inclusive of rates and management charges) for the operation of “萬豊家居百貨”. The rental index published by Rating and Valuation Department was 185.6 and that as at 23 August 2018 was 187.9 (ie a difference of 1.2% which is negligible). The yield as at the latter was about 2.4%. By means of the Income Capitalisation Method, we arrive at $25,000,000 (assuming a market rent of $50,000 per month). This is less than 5% higher than $23,880,000 arrived earlier. 223.In respect of Basement A, there was a tenancy agreement dated 15 May 2017 for a term of 2 years commencing on 10 April 2017 at a monthly rental of $70,000 exclusive of rates and management charges for use as an amusement arcade (which is more commonly referred to as a games centre). 224.Prior to that, there was also a tenancy agreement dated 10 April 2015 for a term of 2 years commencing on 10 April 2015 at a monthly rental of $80,000 exclusive of rates and management charges. By reference to the rental index published by the Rating and Valuation Department, the index as at 10 April 2015 and 15 May 2017 were 181.7 and 181.2 respectively. Thus, the reduction in rent for Basement A appears to be explicable and not unreasonable. 225.For instance, we are prepared to adopt $70,000 as the market rent for Basement A as at 23 August 2018 (where the rental index was 187.9). The yield at the time was about 2.4%, ie the capitalized value on the basis of these assumptions gives $35,000,000. Of course, the yield of 2.4% published by the RVD is more or less an average figure which may not be pertaining to the subject premises. Basement A is situated on basement and at a secondary location which might require a higher yield say 3.0%. On the basis of this revision, the capitalized value would become $28,000,000. 226.Having reviewed the above, we adopt the EUV of the basement units as follows:
Assessment of EUV of Upper Floor Units 227.In respect of the assessment of the EUV for the upper floor domestic units, Mr Charles Chan and Mr Patrick Lai were able to adopt 4/F, No 985 King’s Road, having a saleable area of 53.5 sq m, as a reference domestic unit. They agreed that the internal condition of this reference domestic unit was “poor” by reference to the following classifications[81]:
228.They agreed at a unit rate of $114,100 per sq m, which in our opinion, rightly on the basis of Mr Charles Chan’s scenario 2, ie on the basis of market reality[82]. 229.Mr Charles Chan and Mr Patrick Lai however had the following agreements or disagreements on the adjustment factors applicable[83]:
230.Judging from the above, Mr Charles Chan and Mr Patrick Lai could not agree on adjustments for floor level, view, lighting & ventilation, orientation, noise, internal conditions and layout of some of the other units. Adjustment on Floor Level 231.While both Mr Charles Chan and Mr Patrick Lai adopted an adjustment rate of 2% per floor, Mr Patrick Lai adopted an additional 2% to units on 7/F and 8/F. We do not find the logic for such further additional allowance. As Mr Charles Chan explained in his Rebuttal Report dated 27 April 2021 at §5.2.5, such an additional allowance means the percentage difference in value for identical units on 7/F would suddenly become doubled from 2% to 4%[84]. Mr Patrick Lai had tried to suggest that the transaction prices of 7/F and 8/F flats in tenement buildings are exceptionally low. With respect, this is a novel suggestion unheard of and Mr Patrick Lai did not produce any analysis in support. 232.Also, while both Mr Charles Chan and Mr Patrick Lai adopted an adjustment rate of -3% for units on the top floor, Mr Charles Chan made no such allowance for units on 8/F immediately underneath the penthouse units. We find such distinction unnecessary as these units would be suffering from similar weather heat or risk of water seepage because their proximity to the open roof. Adjustment on Size 233.Both Mr Charles Chan and Mr Patrick Lai adopted a rate of 1% per 5 sq m difference in size. Adjustment on View 234.Mr Charles Chan have categorized four different view adjustments but Mr Patrick Lai had 8 categories:
235.From the above, it appears that the reference domestic unit, ie 4/F, No 985 King’s Road, enjoys a hillside view (overlooking Tai Tam Country Park across King’s Road) according to Mr Charles Chan and an open view according to Mr Patrick Lai. This being the case, Mr Patrick Lai’s differentiation might be more to the point and appropriate for the subject units which enjoy quite a variety of outlooks[85]. 236.Nevertheless, we consider Mr Charles Chan’s application more consistent. For instance, units on 1/F to 3/F of Nos 983-987A King’s Road all enjoy the similar view but Mr Patrick Lai applied -5% to those units on 1/F & 2/F. We prefer Mr Charles Chan’s adjustments save for the units on 1/F directly overlooking King’s Road. 237.As regards units on 1/F to 7/F, No 20 Pan Hoi Street, both Mr Charles Chan and Mr Patrick Lai agreed that they have inferior view (ie by facing the rear portion of Swiss House). Mr Charles Chan allowed -5% for all levels but Mr Patrick Lai allowed -10% for units on 1/F to 7/F and -5% for 8/F. We do not agree such differentiation is necessary or appropriate. 238.For domestic units at Nos 40, 46, 48 & 54 Pan Hoi Street, Mr Charles Chan differed from Mr Patrick Lai on adjustments for view in respect of units on upper floors that face Pan Hoi Street: Mr Charles Chan applied +3% whereas Mr Patrick Lai applied -3%. This means that, in Mr Charles Chan’s opinion, those units facing Pan Hoi Street that enjoy an “open building view” even better than the reference domestic unit that overlooks the greenery towards Tai Tam Country Park. With respect, we cannot agree and therefore Mr Patrick Lai’s proposed adjustments on view for these units are adopted. 239.The table below shows the difference in view adjustment for the other domestic units:
240.In his Rebuttal Report dated 27 April 2021, Mr Charles Chan stated at §5.3.8 that when he was preparing the Application Report in 2018, units on 2/F to 7/F of Nos 48, 54, 56, 62, 64, 70, 72, 78, 80, 86, 88, 94 were overlooking the construction site across the street[86] (the commercial building on which it is built, 2 Taikoo Place, was due for completion as at the date of joint inspection on 13 December 2022). In our opinion, any prospective purchaser of the units should have realized that a big commercial building would be constructed right outside the units blocking the “open building view” suggested by Mr Charles Chan. In this regard, we agree with Mr Patrick Lai’s proposed adjustment of -3%. 241.As well, Mr Patrick Lai allowed a lesser view adjustment for units on 5/F to 7/F of Nos 66 & 68 Pan Hoi Street than other units facing Sunway Gardens in the rear. Having carried out the inspection, we are satisfied that these units are overlooking the podium platform between Block C and Block E of Sunway Gardens that justifies a lesser adjustment proposed by Mr Patrick Lai. Adjustment on Lighting & Ventilation 242.Mr Charles Chan suggested that residential units that receive better sunlight and circulation are generally more welcoming and would fetch a higher unit rate. His adjustments ranged from -3% to +5%, with the former applying to units facing the rear lane and the latter applying to units around the corner with windows openable onto King’s Road as well as Pan Hoi Street or the rear lane. 243.On the other hand, Mr Patrick Lai’s lighting and ventilation adjustments vary between floors. He classified the differences into 5 categories with the reference domestic unit falling into the “above average”:
244.Having carried out the inspection, we have reservation on whether human perception of lighting & ventilation can be so meticulously defined and divided into so many categories. Therefore, in the present case, Mr Charles Chan’s application of adjustment for lighting & ventilation is preferred. Adjustment on Orientation 245.Mr Charles Chan made no allowance for the different orientation of the subject domestic units but Mr Patrick Lai applied +2% to those units that face north, northeast and northwest. The latter means units that face north, northeast and northwest should enjoy a higher unit rate while the subject domestic units face southwest. With respect to Mr Patrick Lai, we consider his application against common understanding and should be disregarded. Adjustment on Noise 246.Mr Charles Chan had classified units suffering from noise from the street into three categories:
247.On the other hand, Mr Patrick Lai considered in particular noise emitted from passing traffic along King’s Road important. He opined that residential units on low floors would be affected by noise nuisance to a relatively greater extent so that -15% to 4% were applied correspondingly. 248.In Oriental Generation Limited & Others v Luk Yung & Others, LDCS 4000/2013 (unreported, dated 29 February 2016), the Tribunal at §40 of the judgment accepted the inverse square law that noise, ie the intensity of sound, reduces with the square of the distance from the source. However, this inverse square law is only applicable to a single source of noise. At trial, we have distributed to the parties research articles[87] which explained that residents of upper floor units do not necessarily suffer less noise because they hear noise emitted from a larger area, ie more sources of noise from the moving traffic whereas residents on lower floors hear noises mainly in close proximity. Whereas this phenomenon is true for up to 30 storeys, we consider Mr Patrick Lai’s assertion on noise wrong in theory and in perception. We also agree with Ms Ngai’s submission that the traffic volume along Pan Hoi Street is low and screened from the traffic along King’s Road. We prefer to adopt Mr Charles Chan’s adjustments for noise. Adjustment on Internal Conditions 249.As regards internal conditions of domestic units, Mr Charles Chan and Mr Patrick Lai had agreed on different classifications as follows:
250.Notwithstanding the above, Mr Charles Chan and Mr Patrick Lai differed in their assumption when a unit could not be inspected: Mr Charles Chan assumed it was in poor condition whereas Mr Patrick Lai assumed it was in the same condition as the unit next to it on the same floor. We agree with Mr Charles Chan that Mr Patrick Lai’s assumption is inexplicable. 251.Ms Lui explained the reasons why Mr Charles Chan might not have inspected some of the units owned by the applicants as follows:
252.Notwithstanding the above, Mr Charles Chan and Mr Patrick Lai were able to agree the internal conditions for most of the units, including those that were then clarified on the joint inspection on 13 December 2023[88]. 253.In the end, the dispute over internal condition has been narrowed down to 27 units only 7 out of which remained uninspected by both experts but all are owned by the applicants. Messrs Yuen & Ting submitted, and we accept, that for those units that are still not able to be inspected by both experts, we should draw the inference that they were in “very poor” or “unacceptable conditions” as proposed by Mr Patrick Lai. 254.Save for the above, where the opinions on classification between Mr Charles Chan and Mr Patrick Lai differed, we adopt those of Mr Charles Chan because Mr Charles Chan’s inspection was conducted on 20 October 2017, 2 August 2018 or 7 October 2020 (all with photos), which were closer to the relevant date of 23 August 2018 while that of Mr Patrick Lai was conducted on 5 February 2021 when the internal conditions of the units might have deteriorated owing to vandalism or dereliction during the interim period. Adjustment on Layout 255.Mr Charles Chan allowed adjustments from 0% to 5% on different domestic units. However, having studied the floor plans and carried out the inspection of the various units, we prefer Mr Patrick Lai’s approach on nil adjustment. EUV of Upper Floor Units in Swiss House 256.Hence, our assessments of the EUV of the respective domestic units in Swiss House are shown at Appendix 1 herein[89]. 257.As regards the unit rate of the Portion of the Main Roof, Mr Charles Chan and Mr Patrick Lai agreed that it would be equivalent to the average of that of Penthouse A, B and C. 258.The total of the EUV for the upper floor units in Swiss House is determined at $445,723,000. EUV of Upper Floor Units in Building at Nos 24-30 Pan Hoi Street 259.As regards our assessments of the EUV of the respective domestic units in the building at Nos 24-30 Pan Hoi Street, it is shown at Appendix 2 herein[90]. 260.The size of the roof of No 30 Pan Hoi Street was in dispute because there is no delineation either on site or in the floor plan: Mr Charles Chan put it as 22.3 sq m while Mr Patrick Lai revised it from 33.8 sq m to 30.4 sq m just on the basis of area of the unit below. While we agree with Mr Patrick Lai that this may be proper assumption in some other case, we agree more with Mr Charles Chan that it is proper to allow circulation on roof which might be sensible for fire escape purpose. In any event, Mr Patrick Lai conceded that the size of the roof of No 30 Pan Hoi Street should be 22.3 sq m after the inspection on 13 December 2022[91]. 261.The total of the EUV for the upper floor units in the building at Nos 24-30 Pan Hoi Street is determined at $182,468,000. EUV of Upper Floor Units in Building at Nos 32-38 Pan Hoi Street 262.As regards our assessments of the EUV of the respective domestic units in the building at Nos 32-38 Pan Hoi Street, it is shown at Appendix 3 herein[92]. 263.R13, who is the registered owner of 8/F & Roof, No 38 Pan Hoi Street, submitted that the two valuation experts had not taken into account the commercial value of her premises. More particularly, R13 submitted that her premises had been leased to Hutchison Telephone Company Limited for the purpose of setting up a radio base station at least for the period since 1 April 2017 to 31 March 2019 at a monthly rental of $7,600 exclusive of Government rates and management fee[93]. 264.Mr Charles Chan, when cross-examined by R13, explained for instance that, pursuant to Part 1 in Schedule 1 to the Ordinance, the assessment of the EUV should be on the basis of vacant possession. That is, when preparing his valuation, he should assume that the premises were vacant, for instance, as at 23 August 2018 and therefore the presence of the tenant or the installation of radio base station should be disregarded. 265.Then the question arises if this were the case, would somebody who was preparing to acquire 8/F & Roof, No 38 Pan Hoi Street would take into account the likelihood that Hutchison Telephone Company Limited (“Hutchison Telephone”) or other mobile network operator would pay much for the purpose of setting up a radio base station in the premises and not at other places and if the answer was in the affirmative, for how long. In the absence of any comparable for analysis, this would be a discounted cash flow exercise:
266.In the reply to Hon Charles Mok in the Legislative Council on 7 February 2018, the then Secretary for Commerce and Economic Development, Mr Edward Yau, stated[95]:
267.In other words, the valuation of a property suitable for the setting up of a radio base station would be highly subject to the vicissitude of the market and uncertainty related to new technology, ie the cash flow would be uncertain and the discount rate would be high. If the monthly rental of $7,600 is of any probative value to go by, an annual income of $91,200 would be receivable and a multiplier of 10 (which is equivalent to a 10% return in perpetuity)[96], for instance, would only yield $912,000. This is significantly lower than $4,569,000 as determined. If, on the other hand, the annual income of $91,200 is taken as the normal rental receivable as a domestic unit, the yield for Class A domestic unit (ie with saleable area less than 40 sq m) was 2.6% as at 23 August 2018. Therefore, the capitalized value would be just $3,507,692.. 268.As regards the internal condition of 8/F & Roof, No 38 Pan Hoi Street, we accept that it was in fair condition as opposed to “poor” assumed by Mr Charles Chan previously in 2018 when he could not inspect the unit; this was indeed Mr Charles Chan’s concession after we had conducted the joint site inspection on 13 December 2022. 269.By reference to Mr Charles Chan’s classification for various internal conditions of the domestic premises in his Application Report dated 26 October 2018, “fair” was referred to the condition which was “up to tenantable standard with no obvious defects noted, although some minor defects might be noted”; “good” was referred to the condition which was “above tenantable standard with no obvious defects noted[97]”. 270.Referring to Clause 3(i) of the Tenancy Agreement with Hutchison Telephone, however, R13 submitted that her unit should be assessed as if in “good condition” instead of something otherwise:
271.R13 further submitted what we could find upon our inspection 13 December 2022 could not reflect the internal condition of her unit when it had been vacant for more than 3 years after Hutchison Telephone had departed since 31 March 2019. Unfortunately, R13 had not arranged any inspection by any of the two valuation experts around the relevant date; the photos (allegedly taken in September 2019) she sent to Mr Patrick Lai subsequently were of quality too poor to be of assistance as far as classification or clarification of the internal condition of her unit is concerned[98]. In contrast, the photos, particularly photo 102, as contained in Mr Patrick Lai’s Valuation Report dated 12 March 2021 shows obvious defects on the ceiling[99]. 272.Notwithstanding the above, we are not persuaded that the internal condition of R13’s unit should be classified as “good”. Firstly, as submitted by R13 herself, her unit had been leased to Hutchison Telephone for more than 11 years, not for domestic purpose but for the setting up of a radio base station. In such regard, we do not think Hutchison Telephone would improve the unit to “above tenantable standard” as such was totally not necessary. 273.Secondly, “fair” as defined in the Oxford Advanced Learner’s English-Chinese Dictionary, 10th Edition, also means “quite good (相當好的)”. In such regard, there appears no conflict with “良好” in Clause 3(i) of the Tenancy Agreement between R13 and Hutchison Telephone. In any event, Mr Charles Chan was denied inspection of the unit in 2018 or no arrangement for such was arranged even on 7 September 2020, 11 September 2020, 17 September 2020, 25 September 2020, 7 October 2020, 16 October 2020, 29 October 2020, 4 November 2020, 5 November 2020, 13 November 2020, 9 February 2021 and 19 February 2021 before Mr Charles Chan proceeded to prepare his Supplemental Report dated 10 March 2021[100]. By this time, Hutchison Telephone, according to R13, had already vacated her unit. 274.With respect to R13, it is totally inappropriate or futile for her to challenge the “classification” of “poor” or “fair” without knowing the meaning of such classification. 275.The total of the EUV for the upper floor units in the building at Nos 32-38 Pan Hoi Street is determined at $182,054,000. EUV of Upper Floor Units in Building at Nos 40-46 Pan Hoi Street 276.As regards our assessments of the EUV of the respective domestic units in the building at Nos 40-46 Pan Hoi Street, it is shown at Appendix 4 herein[101]. 277.The total of the EUV for the upper floor units in the building at Nos 40-46 Pan Hoi Street is determined at $174,299,000. EUV of Upper Floor Units in Building at Nos 48-54 Pan Hoi Street 278.As regards our assessments of the EUV of the respective domestic units in the building at Nos 48-54 Pan Hoi Street, it is shown at Appendix 5 herein[102]. 279.R17, which occupy 1/F and 2/F, No 48 Pan Hoi Street, claimed that the premises are for non-domestic use, more particularly for religious purposes and should deserve a higher value than that for domestic use despite both Mr Charles Chan and Mr Patrick Lai opined otherwise. With respect, that a non-domestic use must fetch higher value than domestic use is an illusion. For instance, there are many urban districts in Hong Kong which are zoned “Residential (Group A)” for town planning purpose. Under this zoning designation, shops or other non-domestic uses are permitted on the lowest three floors of a building to be built and non-domestic uses are qualified for a higher plot ratio under Schedule 1 to the Building (Planning) Regulations. However, developers sometimes opt not to build three floors for non-domestic uses though forsaking some plot ratio because, in their opinion, non-domestic uses are not the highest and best use in that particular location. 280.In fact, there are also many “office” premises in Sheung Wan having been converted into domestic purpose. One of the notorious examples is Caineway Mansion at 128-132 Caine Road which has its “office” units on lower floors all converted into domestic units. 281.In Gainfield Investment Limited & Others v Legend Time Limited, LDCS 16000/2014 (unreported, dated 17 October 2016), a ground floor domestic unit had been occupied as a clinic. Nevertheless, like Mr Charles Chan and Mr Patrick Lai in the present case, both experts in that case agreed that it had a higher value for domestic purpose than for non-domestic purpose. See §120 of the judgment. Similar phenomenon was observed by the Tribunal in Joint Hope Limited v Vecent Hong Kong Trading Limited & Others, LDCS 21000/2019 (unreported, dated 9 July 2021). See §95 of the judgment. 282.And in Alliance Fame Limited & Others v Mak Kam To & Others, LDCS 9000/2015 (unreported, dated 4 August 2017), there were 2 office units at the rear of G/F opening to the lift lobby and internal corridor. The 2 units were previously occupied as a doctor’s clinic and a dental clinic respectively[103]. The two valuation experts in that case assessed the EUV of the 2 units at $102,468 per sq m and $90,342 per sq m respectively[104] whereas the Tribunal determined the EUV for the reference domestic unit at $110,000 per sq m[105]. By reference to Appendix A of the judgment however, these figures all fell below the unit values of the domestic units on 1/F of the building. 283.Thus, in spite of the allegation by R17 in the present case, we would assess the EUV of its units for domestic use only. 284.As regards the internal conditions of R17’s units, Mr Charles Chan classified them as fair whereas Mr Patrick Lai classified them as good[106]. 285.We agree with Ms Chow, counsel for R17, that Mr Charles Chan was inept not to clarify his opinion difference with Mr Patrick Lai when he had known long before the difference in grading; That the total volume of information was sheer could not be an excuse if that is important or relevant. 286.At the request of the Tribunal, Mr Charles Chan did provide the additional photographs taken on 13 November 2020 of R17’s properties on the 6th day of the trial, ie 19 December 2022, including 8 photographs of 1/F and 5 photographs of 2/F[107]. 287.When these additional photographs were shown to Mr Patrick Lai during examination-in-chief for his opinion, he opined as follows:
288.Regrettably, internal inspection of either the 1/F unit or the 2/F unit was not available on 13 December 2022 and the Tribunal is in a quandary to resolve the difference between the two valuation experts. 289.Ms Chow then tried to compare the photographs of the 1/F unit and the 2/F unit with photographs of 2/F, No 94 Pan Hoi Street[108], for instance, by arguing the internal condition of the latter unit was obviously much inferior but Mr Charles Chan still graded that unit as “fair”. However, with respect, Ms Chow should have realized that firstly there must be a range of conditions that fall within either grade. While internal conditions of two units vary, they may happen to fall within the same grading on a vacant possession basis. 290.Secondly, perhaps the first dispute on the internal condition of a domestic unit in a compulsory sale application arose in Oriental Generation Limited & Others v Luk Yung & Others, supra, where Mr Charles Chan, who happened to be also one of the valuation experts in that case, agreed to make an upward adjustment after he was able to carry out the inspection[109]. Then in Gainfield Investment Limited v Legend Time Limited & Others, supra, the Tribunal, though commenting on the adjustment for layout instead of on the internal condition, illustrated the point at §138 of the judgment that “when old units are purchased, new purchasers are prepared to renovate the units”. Thus, the question we should ask is on the basis of vacant possession, would a prospective purchaser of a unit pay an additional value for its particular internal condition. 291.And lately, in Bright Full Limited & Others v Hing May Properties Limited, LDCS 36000/2019 (unreported, dated 6 January 2023), counsel for Bright Full rightly raised the point at §24 of the judgment that “it is unthinkable that a prospective purchaser of (the unit concerned) would pay $7,000,000 premium more just because of the internal decoration as it exists”. The Tribunal only accepted a higher grading for the unit concerned because there was evidence that the owner of the unit had spent a substantial cost on upgrading and renovation when he purchased the unit and the maintenance of the unit still appeared quite good when the Tribunal conducted the inspection. 292.Having reviewed therefore the photographs of both the 1/F unit and the 2/F unit of R17, we agree with the grading by Mr Charles Chan. 293.At this juncture, we would like to clarify that by reference to the classification of internal condition, it would be quite seldom to find units in buildings of say more than 50 years of age in “above tenantable standard with no obvious defects noted” for the purpose of assessing the market value on a vacant possession basis. 294.The total of the EUV for the upper floor units in the building at Nos 48-54 Pan Hoi Street is determined at $153,132,000. EUV of Upper Floor Units in Building at Nos 56-62 Pan Hoi Street 295.As regards our assessments of the EUV of the respective domestic units in the building at Nos 56-62 Pan Hoi Street, it is shown at Appendix 6 herein[110]. 296.The total of the EUV for the upper floor units in the building at Nos 56-62 Pan Hoi Street is determined at $145,351,000. EUV of Upper Floor Units in Building at Nos 64-70 Pan Hoi Street 297.As regards our assessments of the EUV of the respective domestic units in the building at Nos 64-70 Pan Hoi Street, it is shown at Appendix 7 herein[111]. 298.Again, Mr Ng, counsel for R27, challenged Mr Charles Chan’s grading of 6/F, Nos 66 & 68 Pan Hoi Street as having “poor” internal condition as at the relevant date. In answer to Mr Ng during cross-examination, Mr Charles Chan explained if there were patent problems with internal condition of a unit, such as water seepage or exposed steel bars, the internal condition would be categorized as “poor”. However, no record of any water seepage or exposed steel bars were disclosed in any of Mr Charles Chan’s reports. We regret that Mr Charles Chan had not clarified his opinion difference with Mr Patrick Lai when he had known long before the difference in grading. This is particularly the case when 6/F, No 66 Pan Hoi Street was vacant and unoccupied. 299.In spite of the above, Ms Ngai had come to Mr Charles Chan’s rescue by producing some close-up photos of 6/F, Nos 66 & 68 Pan Hoi Street taken on 5 November 2020[112], showing dried paint detached from the internal walls. While we could not agree with Mr Ng’s comment that these photos presented a biased view magnifying small defects inside a relatively large area, we take into account that these photos were not taken around the relevant date because internal inspection was not arranged[113]. 300.During the joint inspection on 13 December 2022, the Tribunal was drawn attention to the door gates having been severely damaged by unknown person(s) trying to gain access into the units and entrance doors having been removed as well. Mr Ng suggested that this might explain vandalism or deterioration of the internal conditions. 301.Mr Ng then invited the Tribunal to infer that the internal condition of 6/F, Nos 66 & 68 Pan Hoi Street should be more superior as at the relevant date. In this regard, Mr Ng produced evidence of relatively recent renovation of the units where R27 paid in December 2012 a total of $319,700 to carry out a large scale renovation exercise to the unit[114]. 302.At this juncture, we would like to stress the importance of the valuation experts having the opportunity to inspect the subject units and prepare the valuation reports accordingly – a point which was so emphasized by the Tribunal in Union Carbide Asia Ltd v The Hong Kong Land Co Ltd, LDLA 17/1982 which has been reported in [1982] HKDCLR 75 at §45. If inspection is not possible, assumptions will have to be made as to the internal condition. 303.In 葉祥偉 對 差餉物業估價署署長, LDRA 26/2014 (unreported, dated 25 September 2015), the appellant rate payer declined the inspection request by the respondent but subsequently challenged that the expert on behalf of the respondent could not have appreciated the internal condition of the premises. The Tribunal ruled at §52 that the appellant rate payer was barred from making such challenge on the reasonable assumption made by the expert. 304.In the present case, whereas Mr Ng accused Mr Charles Chan of providing the photos of 6/F, Nos 66 & 68 Pan Hoi Street late, for reason out of his control, it begs the question why R27 could not have provided evidence of the renovation of the units earlier or could not contact Mr Charles Chan or the applicants for an internal inspection around the relevant date. 305.We are aware that Mr Patrick Lai was then able to inspect 6/F, Nos 66 & 68 Pan Hoi Street when he prepared his Valuation Report dated 12 March 2021[115]. Faced with the latest photos produced by the applicants’ dated 5 November 2020, Mr Patrick Lai could not explain why he classified the internal conditions of those units as “fair”[116]. As well, the same criticism can be levied on him that it was already some 2 and half years after the relevant date when anything could have happened. 306.Having reviewed the evidence, and for the purpose of maintaining a fair tone of the list of EUV for all premises under consideration, we agree that the internal conditions of 6/F, Nos 66 & 68 Pan Hoi Street were reasonably assumed to be “poor”. 307.The total of the EUV for the upper floor units in the building at Nos 64-70 Pan Hoi Street is determined at $145,709,000. EUV of Upper Floor Units in Building at Nos 72-78 Pan Hoi Street 308.As regards our assessments of the EUV of the respective domestic units in the building at Nos 72-78 Pan Hoi Street, it is shown at Appendix 8 herein[117]. 309.By reference to R29’s witness statement dated 12 March 2021, the main door of 1/F, 74 Pan Hoi Street had been moved outward and a small area of the common lobby was encroached since his parents acquired the unit in 1987[118]. We have discussed out view on the value of such encroachment and are willing to apply half value to such area. 310.The total of the EUV for the upper floor units in the building at Nos 72-78 Pan Hoi Street is determined at $143,071,000. EUV of Upper Floor Units in Building at Nos 80-86 Pan Hoi Street 311.As regards our assessments of the EUV of the respective domestic units in the building at Nos 80-86 Pan Hoi Street, it is shown at Appendix 9 herein[119]. 312.The total of the EUV for the upper floor units in the building at Nos 80-86 Pan Hoi Street is determined at $145,130,000. EUV of Upper Floor Units in Building at Nos 88-94 Pan Hoi Street 313.As regards our assessments of the EUV of the respective domestic units in the building at Nos 88-94 Pan Hoi Street, it is shown at Appendix 10 herein[120]. 314.The total of the EUV for the upper floor units in the building at Nos 88-94 Pan Hoi Street is determined at $146,317,000. Total EUV for the Buildings 315.Thus the total EUV of the Application adds up to $2,654,833,000 on the basis of the following:
316.The corresponding share of the respondents’ interest is shown in the following table:
WHETHER REDEVELOPMENT OF THE LOT IS JUSTIFIED (Issue 2) 317.Section 4(2) of the Ordinance provides that the Tribunal shall not make an order for sale unless it is satisfied that the "age or state of repair" of the Buildings is justified and that the applicants have taken "reasonable steps" to acquire all the undivided shares of the Lots. 318.The Remaining Respondents had not produced any expert report or evidence in relation to the question as to whether redevelopment of the Lots is justified due to the "age or state of repair" of the Buildings. 319.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 laid down the factors that the Tribunal should consider in determining whether redevelopment is justified due to age and state of repair. 320.In Top Sail, the Tribunal stated that:
321.Such a discretion by the Tribunal was followed in Charmlink:
322.There is no argument on the principles set out in Top Sail and Charmlink. 323.For the age and state of repair requirements, the applicants adduced the expert evidence of 2 experts: Mr Wong Sai Ning Benson (“Mr Benson Wong”) who is an authorised person and a building surveyor, and Mr Wong Chi Ming (“Mr C M Wong”) who is an authorised person and a structural engineer. Their expertise was not disputed and their attendance at trial was dispensed with by the Order made by the Tribunal dated 1 March 2022. 324.In his Structural Assessment Report dated 24 November 2020, Mr C M Wong conducted a structural assessment of the Buildings on the basis of the following tests/surveys:
325.Mr C M Wong found the following defects in the Buildings[121]:
326.Based on the above findings, Mr C M Wong opined that the deterioration of the structural elements of the Buildings has entered the propagation phase. Once that phase is reached, the deterioration will accelerate and additional defects may appear in more locations. Frequent maintenance and repair works may be required in the near future in order to keep the Buildings in a safe and functional state[122]. 327.Mr Benson Wong, in his Condition Survey Report dated 20 November 2020, remarked that the Buildings are aged as they were over 58, 60 and 61 years old respectively. He identified defects and deficiencies in, inter alia, the following aspects of the Buildings:
328.Mr Benson Wong also found that the components, finishes and building services of the Buildings have been suffering from various deteriorations resulted from unauthorized building works constructed, substandard workmanship and/or materials used in the original construction, lack of repair and continuous natural weathering over the years. He considered defects and deficiencies found in the Buildings being of the nature and magnitude that cannot be easily rectified by simple and piecemeal repairs. Substantial repairs at the total estimated costs of $110,048,545 are required to be carried out in order to restore the Buildings to a fair state of repair. This amounts to over 36% of the construction costs for new similar superstructures. 329.In addition, Mr Benson Wong opined that the implementation of the repair works and discharge of other repair obligations will be disturbing and onerous to the existing occupiers and building owners. The future mandatory and voluntary repairs concerning safety and hygiene improvements introduced after the Buildings were constructed will make the continued occupation of the Buildings uneconomical and even unsafe, to both occupants and third parties. He recommended the owners to redevelop rather than repair the Buildings, particularly bearing in mind the Buildings do not possess any historical value or architectural merit. 330.Having carried out the joint inspection on 13 December 2022 and having considered the evidence before the Tribunal, we are satisfied that redevelopment of the Buildings is justified due to the age and state of repair of the Buildings. WHETHER THE APPLICANTS HAVE TAKEN REASONABLE STEPS (Issue 3) 331.The applicants are under an obligation to take reasonable steps to negotiate on terms that are fair and reasonable for the purchase of the interest of the respondents under Section 4(2)(b) of the Ordinance. 332.It is not disputed that the applicants have made the following offers to the respondents through their solicitors to acquire the units or interests they own[125]:
333.Ms Ngai submitted, and we agree, that the offer prices made to R7, R8, R17, R22, R23, R24, R29, R35, R39 and R42 in the applicants’ 3rd round of offers were higher or close to the market values of their respective properties assessed by Mr Patrick Lai reflecting their respective proportionate shares in the RDV of the Lots[130]:
334.Ms Ngai further submitted, and we agree, that the offer prices made to R7, R8, R17, R22, R23, R24, R29, R35, R39 and R42 in the applicants’ 3rd round of offers were higher than the market values of their respective properties assessed by Mr Charles Chan reflecting their respective proportionate shares in RDV of the Lots. 335.Of course, in light of the changes in market conditions, we agree that the applicants were entitled to revise their offers in the 4th round. Such are commercial decisions that are not precluded by the Ordinance. See also Starex Development Limited v Yau So Ching & Others, DCCJ 2372 & 2374/2021 (unreported, dated 13 February 2023) at §31. 336.The 1st named R11 and the 2nd named R11, who are brothers, complained in their witness statements dated 27 May 2021 and 28 May 2021 respectively that they were not satisfied with the offer prices made by the applicants, thinking that it did not include the redevelopment potential of the Lots[131]. By reference to the table above, it must be the 1st named R11’s and the 2nd named R11’s misunderstanding. 337.The same also applied to R2 who had also filed her witness statement dated 20 September 2021 disputing the accuracy of the offers by the applicants. 338.In Intelligent House Ltd v Chan Tung Shing & Others [2008] 4 HKC 421 where the majority owner relied on its valuation expert to formulate some of the offers, the Tribunal ruled at paragraph 334(3) that:
Thus, the applicants are entitled to rely on their valuation expert which is a reputable valuation firm. 339.More importantly, the Court of Final Appeal in Capital Well has emphasized at paragraph 33 that:
340.The Court of Final Appeal stated further at paragraph 36 of the judgment that:
341.We also appreciate that the applicants have successfully acquired additional undivided shares in the Lots from a number of the respondents including R1 and R23 since the Application[132]. 342.Lastly, R7, for instance, in his closing submission challenged whether this should be the right time for putting up the Lots for sale because the market had dropped as manifested by the offers by the applicants dated 10 November 2022. However, nobody has the crystal ball and it is not appropriate for the Tribunal to speculate on which is the right time. This is also not permitted under the Ordinance. 343.Bearing in mind the above, we are satisfied that on the evidence available and in the circumstances of the Application, the applicants have taken reasonable steps to acquire all the undivided shares in the Lots including negotiating for the purchase of such of those shares as are owned by the Remaining Respondents on terms that are fair and reasonable. UNDUE HARDSHIP 344.Messrs Yuen & Ting tried to introduce a consideration or concept of “undue hardship” which is found nowhere in the Ordinance. Save perhaps for R7 as well, no other respondents, including Ms Chow, raised the same issue. 345.Messrs Yuen & Ting suggested that even if redevelopment is justified on age or state of repair etc, the Tribunal may nonetheless refuse to grant an order for sale if it is of the view that as a result, the minority owners may suffer undue hardship. Messrs Yuen & Ting referred to section 4(2) of the Ordinance which provides that:
346.Messrs Yuen & Ting submitted, if the legislative intent were to restrict objections to matters relating to age or state of repair only, then the phrase “after hearing the objections, if any, of the minority owners” would be superfluous. In other words, the type or nature of “objections” must be intended to be non-exhaustive and related to something more than just age or state of repair. 347.Messrs Yuen & Ting further referred to the reply of the then Secretary for Planning, Environment and Lands in the Provisional Legislative Council when the then Land (Compulsory Sale for Redevelopment) Bill, ie the predecessor to the Ordinance, was read for the second time as recorded in the Official Record of Proceedings of the Provisional Legislative Council dated 7 April 1998 at p177:
348.Messrs Yuen & Ting submitted that the legislative intent was therefore clear that the criteria specified in the Ordinance is not exhaustive and that the Tribunal ought to take all relevant factors into account. Messrs Yuen & Ting submitted that whether an “objection” (irrespective of its nature or the label given, bearing in mind that undue hardship is just an example given by the then Secretary) is properly made out is an altogether distinct assessment to be conducted by the Tribunal before it decide whether an order for sale would be appropriate in all the relevant circumstances of the case. 349.In support of their submissions, Messrs Yuen & Ting cited Century Supreme International Limited v Kam Chi Kit Charles and Hui Pui Kuen & others[133], LDCS 24000/2018 (unreported, dated 21 January 2022) where the Tribunal (differently constituted[134]) held at §40 of its judgment that “such textual expression (i.e. double negative employed in s.4(2) of the Ordinance) does not compel the tribunal to make an order for sale once the “age or state of repair” and “reasonable steps” are satisfied. This means that the tribunal could refuse to grant an order even though the criteria are met”. 350.One of us must confess to have found the above submissions of Messrs Yuen & Ting attractive. However, in the end, we are afraid that indications in Court of Appeal authorities are to the contrary. In Pacific Base, where the issue under appeal was whether the Tribunal should be concerned with the question of feasibility of the redevelopment, the Court of Appeal had remarked at §36 as follows:
351.Whilst the Court of Appeal did not have to deal with the issue of whether hardship could be taken into account by the Tribunal in considering whether redevelopment could be justified, we are of the view that this issue, if raised, would receive the same answer by the Court of Appeal. 352.Whereas “it is a matter for the legislature to strike the balance between different interests amongst the majority owners, the minority owners and the public interest in urban renewal”, despite the citation of what the then Secretary for Planning, Environment and Lands had said when the Land (Compulsory Sale for Redevelopment) Bill was being considered in the Provisional Legislative Council according to Official Record of Proceedings of the Provisional Legislative Council dated 7 April 1998, the consideration of “hardship” was nowhere written in the Ordinance in the end. In section 4(2)(a)(ii), the Ordinance did provide for “1 or more grounds” that the Tribunal has to be satisfied before it makes an order for sale but no such ground of “hardship” has been added by way of regulations since the enactment of the Ordinance. 353.More recently in China Orchid International Limited & Others v Fujitec (HK) Limited & Others, LDCS 7000/2018 (unreported, dated 5 May 2023), the Tribunal, though differently constituted, also remarked at §206 of the judgment as follows:
(See also Greatmax International Ltd & Others v Lo Sha Kam Ha Teresa & Others, LDCS 7000/2019, unreported, dated 16 June 2023, §103-107). 354.Indeed, in Able Luck Development Limited & Others v Public Global Investments Limited & Others, LDCS 7000/2014 (unreported, dated 6 October 2017), the Tribunal[136] had rejected at §168 the suggestion that it has a residual discretion as to whether to make an order for sale even if it is satisfied that redevelopment is justified and stated the following conclusion at §170:
355.The above conclusion was recently quoted by the Court of Appeal in Able Luck Development Limited & Others v Pawling Limited, CAMP 435/2022, [2023] 1 HKLRD 1448 (“Able Luck”) at §49 and, importantly, received the approval of the Court of Appeal at §50 in the following manner:
356.To the numerous considerations cited above in parenthesis, we have no doubt that the Court of Appeal would have added “undue hardship” if required. 357.Fairly, at the close of evidence, the Tribunal alluded to the judgment of Recorder Joseph Fok SC (as he then was) in Wong Chun Kei v Poon Vai Ching [2007] 1 HKLRD 825 where a concept similar to the “undue hardship” alleged by Messrs Yuen & Ting was canvassed. This was indeed a case involving an application for an order for sale of a lot known as Section A of Inland Lot No 3565 upon which a development called Villa Splendour situated at Nos 9-12 Chun Fai Terrace, Hong Kong was erected. That application was made under section 6(1) or section 6(3) of the Partition Ordinance, Cap 352, by the owners of 75% of the undivided shares in the aforesaid lot. 358.At §108 of the judgment, his Lordship held that:
359.But the purpose of the Partition Ordinance must be distinguished from those of compulsory sale under the Ordinance. In the case of the Partition Ordinance, the primary intention was to enable an unwilling co-owner to rid himself of the shackles of co-ownership[137]. In contrast, as stated by the Court of Final Appeal at §21 of Capital Well, the Ordinance aims to facilitate urban renewal in respect of old and dilapidated buildings by assisting private developers to complete their acquisition. Later, the Court of Appeal in Good Faith Properties Limited & Others v Cibean Development Company Limited [2014] 5 HKLRD 534 supplemented at §11:
360.In Bright Full Limited, supra, it was held at §95 that:
361.More particularly, under section 6(1) of the Partition Ordinance, the court is required to consider “any other circumstances”. In contrast, the statutory criteria set out in section 4(2) of the Ordinance are exhaustive and leave no room for the Tribunal to take into account any other criteria as recently affirmed by the Court of Appeal in Able Luck, supra. The two ordinances in fact serve two different and distinct purposes. 362.Were we wrong to have decided this matter of undue hardship as the Court of Appeal authorities above oblige us to do i.e. had the statutory criteria not been exhaustive and we have a residual discretion to decide whether or not to make an order of sale even after the 2 statutory criteria are met, we would nonetheless exercise our discretion in favour of granting an order of sale in this case despite the alleged undue hardship advanced by R7, R15, R16, R21 and R29. 363.Returning to the facts of the present case, R15, R16 and R21 are running their businesses at the respective units as follows:
364.Messrs Yuen & Ting submitted that if an order for sale is made, they will have to set up shop in a new location and will suffer unquantifiable loss of goodwill throughout the decades on which their business stood. 365.We have difficulty in discerning any particular goodwill for these local businesses and, with respect to Messrs Yuen & Ting, no cogent evidence on such goodwill, if any, for the trades of R15, R16 or R21 has been submitted for our consideration. 366.We are further of the view that these respondents, if they want to, would most likely, if not certainly, be able to find replacement premises in the vicinity. With respect, their businesses are not ones that are inextricably tied to their units[140]. 367.More importantly, as many laymen may have this misconception, in a compulsory sale under the Ordinance, the minority owners are not selling at the EUV of their units; under the auspices of the Ordinance, they are selling their units for their corresponding share of the “redevelopment” value. 368.The matter was explained in Horn v Sunderland Corporation [1941] 2 KB 26 (CA) which involved a compulsory acquisition of land on which a business for raising pedigree horses was running. However, the owner was able to claim compensation for a higher market value on the basis of its suitability for use for building subdivision for development. Sir Wilfred Greene MR had this to say at p35:
369.Scott LJ also remarked at p42 that:
370.Thus, unless any of the R15, R16 or R21 can prove that the EUV of their units plus the disturbance including any alleged loss of goodwill that they may suffer as a result of relocation is higher than their corresponding share of the RDV, there could not been any economic or pecuniary hardship as alleged by these respondents at all. We do not believe that these respondents have provided evidence to that effect. 371.Messrs Yuen & Ting emphasized also the old age of R15 and R16, being husband and wife of 72 and 65 years of age respectively, and their current living at Pan Hoi Street with their family. Messrs Yuen & Ting submitted that moving the business would also necessitate relocation of the family as a whole and commuting to and from any new business premises would be difficult for them. 372.In effect, Messrs Yuen & Ting was repeating similar difficulty alleged by the claimant for compensation in Yip Kui trading as Tai Wo Trading Company v The Secretary for Transport, LDMR 52/2000 (unreported, dated 18 September 2002). The Tribunal found then the claimant had before the loss of his premises due to resumption no plan to retire. Also it was his intention that he would be continuing with his business until either his son or his brother would take over. The Tribunal also found the claimant should not have been seriously affected by his age of 62 if he wished to relocate his business. 373.In the present case, save for Taikoo Place, the locality is principally a residential area predominated by a mix of residential buildings of various ages with shop facilities on ground floor. There is even a wet market in front of Tak Lee Building and Wai Lee Building further south to Sunway Gardens along King’s Road where there is a footbridge connecting to the Quarry Bay Municipal Services Building across the road. We find there are plenty of domestic premises available for relocation in the vicinity if R15 and R16 wish. There should be no difficulty in finding similar ground floor facilities in the locality for replacement as well especially when R15 and R16 are receiving compensation for the sale of their units not at EUV but a pro rata of the RDV. We have already discussed Comparables C1 which is occupied for similar trade of R15 & R16[141] and Comparables C2 & C3 which is a de facto local shopping centre that accommodates similar trade of R15 & R16[142]. As well, as we shall see, Comparable F5 is situated at Hoi Wan Street on the ground floor of one of the range of composite buildings. 374.With respect, we are of the view that the difficulty to move or relocate as alleged by R15 and R16 has been exaggerated. 375.Turning to R15 & R16’s old age, we think it likely that they would have been sufficiently compensated by their share of the RDV to opt for their retirement or allow their 41-year-old son to take over as he is also working in the business[143]. Hence, age should not be a big issue here. 376.R21, who is now 67 years old, as claimed by her in her witness statement dated 12 March 2021[144], is running the fitting out and hardware business together with her husband, her son and her son’s wife. We trust our comments and observations on R15 & R16 above are also applicable to R21’s family and we do not bother to repeat. 377.Moving to R29, we are rather surprised that R29, being the administrator of the estate of his father who owned 1/F, No 74 Pan Hoi Street, could see fit to allege hardship to his elder sister, one of the 3 beneficiaries of the estate, allegedly caused by this application. His main ground is that his elder sister, Madam Lu, had become the sole occupier of the unit and that she suffered from permanent hearing impairment and other medical issues[145]. R29 claimed that sale proceeds from the compulsory sale are required to be apportioned in equal shares among the 3 beneficiaries and, thus, the amount payable to Madam Lu may not be sufficient for her to purchase a new home for herself. With respect, the Application provides a golden opportunity for R29 to realize the asset of his father’s estate as administrator and to divide it among 3 beneficiaries and such hardship, if any, to Madam Lu, would be caused more by R29 himself and/or his elder brother in not sharing with their disabled sister sufficient proceeds to meet her needs than by the compulsory sale order itself. 378.The hardship allegation of R29 looks even more absurd when R29 had intimated himself that since mid-2019, Madam Lu had already moved out and resided at a flat co-owned by her friend and her on 13/F, Wealth Garden, 20 Wing Ting Road, Kowloon, obviously served by lifts on such a level. Here are the excerpt of the witness statement of R29 dated 12 March 2021:
379.In Director of Buildings and Lands v Shun Fung Ironworks Limited [1995] 2 AC 111, the Privy Council had laid down three conditions for loss to qualify for compensation in resumption cases:
380.We are afraid that R29’s hardship allegation to Madam Lu could satisfy none of the above conditions. 381.In the meantime, R7 also filed a late closing submission dated 23 March 2023 because of his hospitalization in February 2023. He had also alleged his infirmity and old age in addition to drop in property market value since 2022. 382.We think that our comments in the preceding paragraphs are also applicable to R7’s situation. Although his unit at 2/F, 34 Pan Hoi Street is assessed at $5,953,000, he is indeed entitled to the pro rata share of the redevelopment of the Lots pursuant to Part 3 in Schedule 1 to the Ordinance. As we shall see, this would amount to $6,310,000,000 x 0.22301% = say $14,000,000 (less any expenses to be incurred pursuant to section 11 of the Ordinance). By Horn v Sunderland Corporation, supra, as explained above, R7 is not to be compensated for his tenement unit completed more than 50 years ago and he shall enjoy the fruit of the prospective redevelopment. This explains why he was offered by the applicants on 28 February 2022 the sum of $16,040,000 for acquiring his interest in his unit but he refused to accept. R7’s 50-years-old “斗室” would likely today be exchanged for “新式摩天大樓”as “頭上塊磚片瓦”. His remarks of “已見松柏摧為薪，更聞桑田變成海” and “寄言全盛紅顏子， 應憐半死白頭翁” towards the end of his closing submission sound more like maverick affectation “為賦新詞強說愁”. While we accept that he may suffer some inconvenience in terms of relocation, in view of his share of RDV, he should have no cause for complaint even though the market had dropped. 383.Hence, all the undue hardship allegations raised by R7, R15, R16, R21 and R29 would not have caused us to exercise our discretion against granting an order of sale in all the circumstances of this case in any event. DISPUTES ON THE ESTIMATION OF THE RDV OF THE LOTS (Issue 5) Optimum Hypothetical Development Model 384.The Lots fall within an area zoned “Residential (Group A)” under the Approved Quarry Bay Outline Zoning Plan No S/H21/28 gazetted on 17 September 2010. As explained in the statutory notes appropriated for the Outline Zoning Plan, this zone is intended primarily for high-density residential developments. Commercial users are always permitted on the lowest three floors of a building, taken to include basements[146]. Both Mr Charles Chan and Mr Patrick Lai 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. 385.By their Joint Statement dated 21 November 2022, it was disclosed that Mr Patrick Lai provided a new development concept at very late which hypothesized five residential towers of 26 storeys each surmounting a 3-storey commercial podium to be built on the Lots. Mr Charles Chan then agreed there would also be 1 storey of clubhouse and 2 levels of basement carparks. The particulars of the hypothetical development agreed are as follows[147]:
Choice of G/F Comparables in Assessing the Value for G/F shops fronting onto King’s Road 386.As regards the assessment of the value of G/F premises facing King’s Road, Mr Charles Chan and Mr Patrick Lai adopted a Hypothetical Shop 4 on G/F as the reference ground floor unit and referred then to the following 3 comparables, arriving at a unit rate of $900,000 per sq m and $1,288,000 per sq m respectively[149]:
387.In the assessment of EUV for Group 1 shops above, we have adopted -10% to account for the difference in location between Comparables A2 & A3 and the shop at G/F, No 985 King’s Road. Comparables A2 & A3 are situated at the section of King’s Road in the busier district of Fortress Hill. 388.Comparable E1 is even situated at the busiest section of King’s Road on the northeastern side of Fortress Hill Road of in North Point. We are surprised to note that Ms Liu, in her closing submission, suggested that pedestrian flow along 983-987A King’s Road is busier than Nos 301-333 King’s Road which we consider should be the other way round. We would have allowed a higher negative adjustment if no redevelopment of the Lots is envisaged. 389.We are further surprised by Ms Liu’s comment that this section of King’s Road only comprises convenient stores, pharmacy and some local small-scale jewelleries. While she may turn a blind eye to the three jewellery shops next to Comparables A4 & A6 at Majestic Apartments, Nos 301-319 King’s Road, the further jewellery shop at Nos 293-299 King’s Road to the west, she should not have ignored the presence of another three jewellery shops to the east of Comparables A7 & A8 at No 365 King’s Road, No 367 King’s Road and 371 King’s Road respectively when we walked past the road. During our joint inspection on 13 December 2022, we had specifically pointed out that a branch of Chow Tai Fook Jewellery is situated at No 371 King’s Road. It may be against common understanding and stress our imagination that Chow Tai Fook Jewellery is a local small-scale jeweller. There is also a cluster of banks in the area including Hang Seng Bank, Nanyang Commercial Bank, CMB Wing Lung Bank, DBS Bank as well as Sa Sa Cosmetic and fashion chained stores there. At trial, we had already refuted the allegation by Mr Patrick Lai that because of the street market at Chun Yeung Street behind this section of King’s Road, ie behind the cluster of banks, the three jewellery shops to the east of Comparables A7 & A8 as well as Sa Sa Cosmetic and fashion chained stores there, pedestrian flow had been broken or diverted away. Why should pedestrians be attracted to go to a market street behind instead of passing by a high street with a variety of trades? 390.Having said that, we do not consider Mr Patrick Lai’s positive adjustments of 15% and 20% respectively for location appropriate as we do not expect that upon redevelopment of the Lots, the latter would become busier or more popular than Comparable E1. While the hypothetical development is located at a close distance from the office hub of Taikoo Place and would be situated just one road (ie Pan Hoi Street) across Two Taikoo Place, which is expected to be completed in 2023, it is situated at a position further away from the MTR Quarry Bay station. At the present moment, save for Two Taikoo Place, most of the new developments of Taikoo Place have already been in place for a few years. That Ms Liu’s suggestion that the location of being amidst the large office complex would help attract customers with higher spending power is rebutted by the actual environment around Taikoo Place. When one walks around One Taikoo Place, Berkshire House, Oxford House and One Island East etc, he/she would have noted that the developer of Taikoo Place, ie Swire Properties Limited, chose not to allow many shop spaces in the new developments and pedestrian flow is limited. No branded and chain stores are found in the vicinity; the G/F premises had been mainly occupied by restaurants and food & beverages trades over the years since the establishment of Taikoo Place. We fully agree with Mr Charles Chan that Mr Patrick Lai had over-exaggerated the advantage on location that might be brought about by Two Taikoo Place. 391.Indeed, Two Taikoo Place is not situated along King’s Road side by side with the hypothetical development; it is situated one block behind with the main entrance abutting Hoi Wan Street but is more convenient to reach from the Quarry Bay MTR station. By our observation on 13 December 2022, it appeared that Two Taikoo Place might not have any shop frontage on Pan Hoi Street facing the hypothetical development. 392.We consider 0% location adjustment would be at the highest for Comparable E1. 393.As regards Comparable E2, it is situated on the opposite side of Comparable E1 across King’s Road. We agree it has a less bustling environment and therefore we allow 5% for location adjustment. 394.In any event, we regret that no recent transactions in the vicinity of the Lots are found and in this regard; we are prepared to adopt Comparables E1 and E2 mostly for the purpose of determining whether the unit price of Comparable E3, the only relevant comparable in the vicinity, is supported. 395.Upon redevelopment of the Lots, the hypothetical development, because of its scale, would significantly improve the environment of the vicinity. We consider the location of E3 then no better than the Hypothetical Shop 4 on G/F and instead are prepared to adopt 5.0% (which is some mid-way between 0% and 15% proposed by Mr Charles Chan and Mr Patrick Lai respectively). Adjustment for Other Factors 396.Mr Charles Chan and Mr Patrick Lai have further agreements/disagreements on the other adjustment factors:
397.In respect of age, in light of the significant age differences between the hypothetical Shop 4 on G/F and this comparable E3, we consider the adjustment of 11% as derived from 1% per 5 years’ difference proposed by Mr Charles Chan not adequate. We are prepared to adopt 18.3% on the basis of 1% per 3 years’ difference as proposed by Mr Patrick Lai. 398.As regards frontage, which we consider being conceptual at this stage, we prefer to maintain the 2% per 1 m difference as that adopted in our assessment of the EUV above. 399.In terms of layout for Comparable E3, we tend to agree with Mr Patrick Lai’s 5% rather than Mr Charles Chan’s -5% because of the sudden recession of the comparable within its 7.9m depth. We do not consider any adjustment for layout for Comparables E1 & E2 appropriate. 400.Comparable E1 enjoys a return frontage to the arcade entrance of Coronet Court. We agree with Mr Charles Chan’s -5%. 401.Thus, on the basis of this sole comparable E3, we arrive at the following:
402.Following from the above, we are prepared to place more weight on the analysed result for Comparable E3 because it is most comparable to the subject location. Thus, we determine the GDV for the hypothetical shops facing King’s Road in the new development as follows:
Choice of Comparables in Assessing the Value for G/F fronting onto Pan Hoi Street 403.As regards the assessment of the G/F shops fronting onto Pan Hoi Street, Mr Charles Chan and Mr Patrick Lai adopted a Hypothetical Shop 12 on G/F as the reference ground floor unit and referred then to the following 5 comparables, arriving at a unit rate of $592,000 per sq m and $913,000 per sq m respectively[150]:
404.Again, we are hesitant to adopt those comparables F1, F2, F3 & F4 which are situated in another district, ie North Point. Comparable F3 is not suitable as well because it enjoys a secondary or rear frontage onto the arcade. 405.Then Comparable F5 becomes the sole comparable. Again, it was comparable E8 in Lead Harvest, supra. It lies at the periphery of the newly developed Taikoo Place with a range of old composite commercial/residential buildings on both sides of the street. Shops on ground floor are occupied by a variety range of eateries the character of which we envisage would be very similar to the hypothetical development upon completion. While Mr Charles Chan and Mr Patrick Lai proposed an adjustment of -10% and 30% respectively for location, we are content to adopt just 5% taking into account the increase in population of the more affluent means and new environment to be brought by the new hypothetical development[151]. Adjustment for Other Factors 406.Comparable F1 may also be too small in size to be comparable to Hypothetical Shop 12. We appreciate that Comparable F5 is not too much better in terms of its small size but Mr Charles Chan and Mr Patrick Lai were content to adopt the same 1% per 5 sq m difference. 407.In respect of other adjustment factors, we are prepared to adopt the same as those discussed previously in this judgment. 408.Thus, on the basis of this sole comparable F5, we arrive at the following:
409.Following from the above, we determine the GDV for the hypothetical shops facing Pan Hoi Street in the new development as follows:
410.Here, we note that Mr Patrick Lai put a value at $913,000 per sq m when compared with the agreed EUV at $434,250 per sq m for G/F, No 38 Pan Hoi Street. That means since the date of the valuation of the EUV, the unit value for the hypothetical development on G/F facing Pan Hoi Street has been doubled in 4 years. We are of the view that Mr Patrick Lai had over-exaggerated the advantage on location that might be brought about by Two Taikoo Place. Assessment of the Value for Arcade Shops on G/F 411.There will be arcade shops on G/F of the hypothetical development. Mr Charles Chan adopted a saleable area of 1,257.352 sq m for such shops but Mr Patrick Lai added 60 sq m to include the area of the escalators[152]. We prefer to adopt the area including the escalators as the position of the escalators can be readily changed. We also accept Mr Patrick Lai’s explanation that the design on how the floors will be sub-divided and how common passageways from the escalator to each shop will be delineated is still pending. In Pacific Base, supra, the Court of Appeal acknowledged at §43 that:
412.Indeed, in Re Jackson’s (VO) appeal [2020] UKUT 0078 (LC), RA/27/2019, the English Upper Tribunal (Lands Chamber) held that the hypothetical tenant would not expect to pay less for the whole premises with the facility and security benefits that an internal staircase would bring. In any event, the inclusion is insignificant when compared with the total. 413.As regards value, we prefer to adopt 60% of the unit value of the shops fronting onto King’s Street as well as those fronting onto Pan Hoi Street as proposed by Mr Patrick Lai to that of 50% proposed by Mr Charles Chan. Assessment of the Value for Arcade Shops on 1/F & 2/F 414.Turning to arcade shops on 1/F & 2/F, Mr Charles Chan adopted a saleable area of 2,768.967 sq m and 1,349.985 sq m respectively. Likewise, Mr Patrick Lai added 60 sq m to include the area of the escalators. For the reason we stated above, we simply adopt Mr Patrick Lai’s figures. 415.As regards the value of 1/F, to the extent that Mr Patrick Lai had proposed value at 60% of the unit value of the shops fronting onto King’s Street as well as of those fronting onto Pan Hoi Street for the arcade shops on G/F, we are surprised that he proposed the same unit rate for those shops on 1/F which cannot be the case in real life. In this regard, we are prepared to adopt 50% of the unit value of the shops fronting onto King’s Street as well as of those fronting onto Pan Hoi Street for shops on 1/F. 416.Once again, we are surprised that Mr Patrick Lai assumed the unit rate of shops on 2/F would be equal to the unit rate of shops on 1/F[153]. This is not realistic and contradictory to his assumption as stated in the Joint Statement that it would be 75% of the value of 1/F[154]. Mr Patrick Lai tried to explain his change of opinion because the area of the 2/F shops had been halved in the latest schematic. With respect, this is not acceptable because these shops on either 1/F or 2/F would likely be sub-divided and let to individual occupiers when the area for each individual shop would be quite similar. The saleable area of the 2/F still amounts to slightly more than 1,400 sq m and it is unreasonable to expect any prudent developer would dispose of it separately from the whole shopping arcade. We consider Mr Charles Chan’s proposal that the unit rate for 2/F be about 75% of that on 1/F around the mark but we prefer a round figure of 80% instead of 75%. GDV for Car Parking Spaces 417.Mr Charles Chan and Mr Patrick Lai had agreed the following in valuing the car parking spaces:
418.In addition, we note Mr Patrick Lai had assigned further value to the loading and unloading spaces. We believe those loading and unloading spaces should be common areas of the hypothetical value. We do not assign any separate value to it because it should have been mostly reflected in the value of the shops in the hypothetical development. 419.Ms Liu had referred to Able Luck Development Limited & Others v Boly Metal Manufactory Limited, LDCS 11000/2018 (unreported, dated 22 April 2022) where the Tribunal accepted only with reservation at §168 that values were assigned to the loading and unloading spaces in the GDV assessment. However, that case should be distinguished as the hypothetical development there was a modern industrial building where the loading and unloading spaces would be much valuable. The value for the loading and unloading spaces was proposed by the applicants’ expert who happened to be Mr Charles Chan but his rationale for that was not manifest or explained in the judgment. Ms Liu had not cross-examined Mr Charles Chan on that issue in the present case. GDV for Upper Floors Domestic Units 420.Mr Charles Chan and Mr Patrick Lai had also agreed the following value for the domestic units on the upper floors:
Other Parameters in Residual Valuation 421.Mr Charles Chan and Mr Patrick Lai had also agreed the other parameters in residual valuation save for the profit to compensate the hypothetical developer as well as the interest rate for discounting[155]:
Developer’s Profit 422.In Shapiro, Mackmin and Sams, Modern Methods of Valuation, 12th edition, p 222, the development profit is explained as follows:
423.Both Mr Charles Chan and Mr Patrick Lai adopted 15% as the developer’s profit in their first RDV assessments. Then Mr Patrick Lai saw fit to increase to 17% in his report dated 4 November 2022 whereas Mr Charles Chan increased his developer’s profit to 20% because he had doubts as to whether the agreed hypothetical scheme is likely to be approved by the Building Authority. 424.R13 in her closing submission stated that she or other respondents might be reasonably expected to get similar returns from their interest in their respective units. With respect, this is completely wrong in concept and principle as R13 or other respondents are not in the position to undertake a development process which is entrepreneurial in nature involving the investment of a lot of time and capital. 425.It is also the wrong impression of R7 that the so-called developer’s profit is a guarantee. Once a developer has committed and proceeded with the development process, conditions affecting values may change. A developer has to face the vagaries of the market which might turn out in or against his/her favour. The developer’s profit contained in a residual valuation is just an assumption of inducement that might attract a developer’s going into the commitment in the first place. It would be relatively smaller when the market is optimistic or relatively higher when the market is pessimistic. In the end, the successful bidder may make a bad bargain or a good one. The developer’s profit is not guaranteed. 426.Returning to the estimate of the developer’s profit, the gross site area of the Lots agreed at 4,076.7 sq m includes the right of way along Pan Hoi Street at 434.6 sq m and the open space of 355.12 sq m at the scavenging lane next to Sunway Gardens. According to Mr Charles Chan, he chose to adopt a higher developer’s profit because there was doubt on whether Mr Patrick Lai’s latest hypothetical scheme would be approved by the Buildings Department at least for the following reasons:
427.As stated, Mr Charles Chan had, prior to his agreement to adopt Mr Patrick Lai’s new hypothetical development scheme, adopted developer’s profit at 15% in his residual valuation exercise, for instance dated 18 February 2022[156]. Then the net site area Mr Charles Chan adopted was 3,642.05 sq m and the total GFA was 37,885.33 sq m when compared with the prevailing agreed 4,076.7 sq m and 45,263.583 sq m respectively. 428.Subsequent to then, Mr Charles Chan was provided by the applicants with the approval letter from Building Authority dated 21 March 2022 as well as a set of approved building plans for a proposed redevelopment of the Lots (“Approved GBP”)[157]. In the Approved GBP, the site area adopted for site coverage and plot ratio calculation was 3,903.537 sq m because the existing pavement in front of a section of the boundary of the Lots in front of No 46 to No 94 Pan Hoi Street (the “Upper Strip”) was included in the site area calculation. 429.Still, the existing pavement in front of remaining section along Pan Hoi Street leading from King’s Road (the “Lower Strip”) was excluded from the site area calculation but Mr Patrick Lai, in his latest hypothetical scheme, chose to include the 173.163 sq m in the site area calculation and the dedication of the 434.6 sq m to obtain the bonus plot ratio under the Building (Planning) Regulations. 430.It is the applicants’ case that Mr Charles Chan was instructed to agree this latest development so as to reduce the number of valuation issues in dispute. However, Mr Charles Chan found it necessary to reflect in the developer’s profit the risk that Mr Patrick Lai’s development model would not be approved by the Building Authority. 431.However, under cross examination, Ms Lui agreed that the applicants would continue to actively negotiate with the Buildings Department for the whole of the pavement to be included in the site area. In the applicants’ modification application letter dated 26 August 2022[158], the following justifications were cited[159]:
432.This latest submission was disapproved by the Building Authority on 24 October 2022. 433.As pointed out by the Tribunal at trial, the present case is not new on such an issue. In Hinge Well Co Ltd v Attorney General [1986] UKPC 31, [1988] 1 HKLR 32, two vacant plots of land which were originally divided by a no longer discernable scavenging lane were owned by the appellant who submitted plans for their development. In such plans the two plots were treated as one and included the whole of the area of the former scavenging lane for the purpose of plot ratio. The Building Authority refused to approve the proposed development on the grounds that ... the proposal infringed the restrictions in the relevant regulations as to site coverage and plot ration. The issue was whether a particular scavenging lane fell to be excluded from a site calculation as being a street within BPR reg 23(2)(a). Although the Privy Council relied on the dictum of Lord Fraser in Attorney General v Cheng Yick Chi [1983] 1 HKC 14 at 19 as a reason for concluding that the scavenging lane was to be excluded, it supposed, in the penultimate paragraph of the judgment, that a modification of the Building (Planning) Regulations could be granted in circumstances. 434.Subsequent to it, there has been a change of policy of the Buildings Department after a review of its position in Reg 23(2)(a). In 1995, the Buildings Department issued Practice Note for Authorized Persons, Registered Structural Engineers and Registered Geotechnical Engineers (“PNAP”) No APP-73 for the purpose of unifying the practice in dealing with service lanes and promulgating a policy to generally relax the exclusionary effect of Reg 23(2)(a) by way of granting modification in favor of landowners. 435.No APP-73 reads as follows:
436.Then in Building Authority v Appeal Tribunal (Buildings) & Estoree Limited, HCAL 147/2002 (unreported, dated 25 July 2003), Hon Hartmann J (as he then was) remarked at §37 as follows:
437.Later in Ashley 121 Limited v Appeal Tribunal (Buildings) & Building Authority, HCAL 49/2010 which has been reported as [2011] 2 HKLRD 728, Hon Reyes J remarked at 42 as follows:
438.Following at §§73-74, for instance, Hon Reyes J found that notwithstanding the effect of r23(2)(a) in that a “Strip Land” had already become a “street” by its surrender, the unused development potential pertaining to such land could be properly added and attributed onto the lot held by the owner, the ‘Triangular Lot” in that case. 439.And more recently in Building Authority v Appeal Tribunal (Buildings) & Dobrowen Investment Limited & Others, HCAL 20/2011 (unreported, dated 20 December 2011), Dobrowen Investment Limited, a subsidiary of Henderson Land, proposed to build two blocks of flats on the six Inland Lots by including into the site area a right of way. When the case went to the Court of Appeal [2013] 4 HKLRD 52, it was revealed that modification was granted under section 42 of Building (Planning) Regulation in respect of the right of way so as to exempt that area from the operation of Building (Planning) Regulation 23(2)(a). 440.In comparison, we find that similar modification in the present case should be more forthcoming and compelling as we cannot see the rationale behind why only a portion of existing pavement in front of a section of the boundary of the Lots along Pan Hoi Street can be included in the site area calculation but not the whole as well. Here, we have reservation on Mr Benson Wong’s comment that he is not a legal professional and therefore not in the position to determine the relevance of this case in relation to the subject application[160]. As a qualified building surveyor, Mr Benson Wong should be able to discern form previous court judgments or his past dealings with the Buildings Department in relation to his trade and profession the applicability of certain building regulations to a particular case so as to proffer his advice to his client. A professional is supposed to know the tricks of his trade. 441.In any event, it is theoretically wrong for Mr Charles Chan to increase his allowance for risk by say 2% to the whole hypothetical development when as a matter of fact, there is only a minor increase in plot ratio that has a risk that might not be achieve; if Mr Charles Chan had to reflect that risk, he should only account for the marginal increase in plot ratio. 442.Unfortunately, the illustration below by Mr Ng in his Reply Submission of for R27 on 7 February 2023 at §34-35 is wrong as well because he failed to realise that $120,207 per sq m as assessed by Mr Charles Chan is what we so-call in the profession as “accommodation value” instead of a unit value of the site:
443.In other words, if Mr Charles Chan’s accommodation value of $120,207 per sq m was correctly assessed, the inclusion of the Lower Strip of 173.163 sq m would increase the residual site value by
444.By increasing the developer’s profit say by 2%, Mr Charles Chan had effectively reduced the residual value by some $135,000,000. That is, he had discounted the benefit of the inclusion of the Lower Strip by some 445.Finally, as regards Mr Charles Chan’s concern about the continuous span of the residential towers, he admitted in cross-examination that neither he nor the authorized person advising him had done any analysis thorough on such matter. 446.In Pacific Base, supra, the Court of Appeal acknowledged at §43 that:
447.In our opinion, Mr Charles Chan’s concerned is unfound. It is a matter of design how the residential towers of hypothetical development are spanned across the site area. 448.Having reviewed the market conditions prevailing at the moment, with the implication of Covid-19 pandemic on economy having faded away, we prefer to adopt 17%. Interest Rate or Finance Charges 449.Also in Modern Methods of Valuation at pp 220-221, the interest cost is explained as follows:
450.Here we prefer Mr Charles Chan’s 5% as opposed to Mr Patrick Lai’s 4% bearing in mind HSBC's Current Hong Kong Dollar Best Lending Rate was 5.625%[164] and the HKD Interest Settlement Rate for three months was about 3.5%[165]. 451.Ms Liu had referred to a recent judgment of the Tribunal in Oriental Moon Limited v Golden Sino Link Limited & Others, LDCS 32000/2019 (unreported, dated 21 November 2022) where the interest rate agreed on 11 August 2022 by the valuation experts at 4% was adopted. But since then, there has been increase in the interest rates:
That is, there had been some 0.625% increase in HSBC’s Best Lending Rate and 3.23% increase in the HKD Interest Settlement Rate for 3 months since 11 August 2022. 452.At this juncture, we would like to mention that R13 for instance had referred to the annual reports of Swire Properties in 2020 and 2021 which stated that the weighted average cost of debt was between 3.1% and 3.4%. With respect, R13 had failed to note the substantial increase in interest rates in 2022: 453.And with respect, we cannot agree with R13 that the referral by Mr Charles Chan to the trend of the federal funds rates in the United States of America (“US”) was wrong. She should have realised that since 17 October 1983, the Hong Kong Monetary Authority had adopted the Linked Exchange Rate System (LERS) to defend the local currency. Through such a rigorous, robust and transparent Currency Board system, the LERS ensures that the Hong Kong dollar exchange rate remains stable within a band of HK$7.75-7.85 to one US dollar. This system has been commonly referred to (or as a misnomer) as a peg against the US dollars. 454.For instance, in response to the US’s federal funds rate increase in March 2022, the Hong Kong Monetary Authority issued a press release on 17 March 2022:
455.This Base Rate has ever been set at either 50 basis points above the lower end of the prevailing target range for the US federal funds rate or the average of the five-day moving averages of the overnight and one-month Hong Kong Interbank Offered Rates (HIBORs), whichever is higher. Following the 25-basis point upward adjustment in the target range for the US federal funds rate by the US on 16 March (US time), 50 basis points above the lower end of the prevailing target range for the US federal funds rate is 0.75%, while the average of the five-day moving averages of the overnight and one-month HIBORs is 0.14%. The Base Rate is therefore set at 0.75% according to the pre-set formula. 456.Whereas the Federal Reserve raised funds rate by 0.5% in December 2022, followed by another rate increase on 2 February 2023 and several Federal Reserve officials’ warning that interest rates might need to go higher than anticipated to keep the lid on inflation in light of January's hotter-than-expected inflation data, on 15 February 2023, the one-month gap between Hong Kong and the US dollar London Interbank Offered Rate (Libor) continued to widen and hit a new height, approaching the level of 2.5%. This triggered the resurgence of capital outflows via carry trade by arbitrageurs borrowing the Hong Kong currency cheaply to buy the US dollars for higher yields. As a result, the Hong Kong dollar touched the level of the weak-side trading band against the US dollar. Therefore, the Hong Kong Monetary Authority intervened the currency market for two consecutive days, buying a total of 19 billion Hong Kong dollars. The large-scale market entry involved about 14.868 billion Hong Kong dollars as a result of which the leaving the aggregate balance – the sum of balances in clearing accounts maintained by banks with the monetary authority – measuring interbank liquidity to drop to around 77 billion Hong Kong dollars, which was the lowest level in about 3 years[167]. It presaged the banks of Hong Kong would follow the US in raising interest rates in March 2023. 457.Similarly, Mr Paul Wong, counsel for R38, might have fallen into the same trap suggested by Mr Patrick Lai that the financial institutions would only lend at rates solely on the financial background of the developer, its commercial relationship with the development etc. As rightly pointed out by Mr Charles Chan, the financial institutions would not lend at rates below its own costs which are best reflected by the corresponding HIBOR. 458.Also, it is wrong for Mr Paul Wong to suggest that the increasing interest rate trend might come to an end soon when the redevelopment of the Lots proceed, which would take a few years’ period. Firstly, we have just witnessed another rate increase by the Federal Reserve on 2 February 2023 and more recently on 4 May 2023. It is hard to predict how soon the interest rate hike would come to an end. 459.Secondly, the rationale of a residual valuation is to reflect a developer’s calculation of the risk and commitment at present so as to bid for the land. The developer cannot wait until the years pass to place his bid. This is manifested that the developers would commit borrowing for a term loan or issue bonds with a few years’ maturity instead of exposing himself to the risk of interest rates fluctuation. FINDING ON RDV AND THE RESERVE PRICE 460.Thus, on the basis of what we have stated above, we determine the land value of the Lots at $6,310,000,000 (ie accommodation value of $139,406/m2) as shown in the Appendix 11 herein. 461.We adopt the estimated RDV of $6,310,000,000 as the Reserve Price for the auction of the Lots as a whole. TWO INCIDENTAL MATTERS 462.The applicants propose to appoint Mr Chow Wing Kin Anthony and Ms Chow Suk Han Anna, being consultants of Messrs Guantao & Chow, Solicitors & Notaries, as the sale trustees. Based on the information on their background and experience as set out in their letters dated 25 February 2022[168] and 14 November 2022[169], we are satisfied that they are proper persons to be appointed as trustees to discharge the duties imposed on trustees under the Ordinance. The remuneration package proposed in the said letter appears to be reasonable. 463.The applicants have prepared a set of draft Particulars and Conditions of Sale of the Lots[170]. Subject to any amendment that may become necessary as a result of our agreement and ruling that the 1st Lot, the 4th to 16th Lots be put up for sale together with the 2nd and 3rd Lots, the said particulars and conditions of sale of the Lots by public auction submitted by the applicants are also reasonable. ORDER 464.Thus, we make the following orders:
COSTS 465.We make a costs order nisi that:
466.Unless any of the parties applies by summons to vary it, the costs order nisi shall be made absolute upon expiry of 14 days from the date of this judgment. 467.Finally, should any respondent acting in person require interpretation of this judgment into Chinese, he/she should approach our clerk to make prior appointment with court interpreter to arrange for the same.
Ms Nancy Ngai and Ms Catherine Hau, instructed by Messrs Vincent T K Cheung, Yap & Co, for the 1st to 17th applicants 1st Respondent, absent Mr Ross M Y Yuen, leading Ms Emily Ting, instructed by Messrs Anthony Chiang & Partners, for the 2nd and 11th respondents Ms Abigall Liu, instructed by Messrs Joseph C T Lee & Co, for the 3rd respondent 1st named 5th respondent, absent Mr Ross M Y Yuen, leading Ms Emily Ting, instructed by Messrs Ho Tse Wai & Partners, for the 2nd named 5th respondents, the 15th to 16th respondents, the 21st and 29th respondents 7th respondent, not legally represented, represented by Madam Chung Shui Fong, appearing in person 8th respondent, absent 13th respondent, not legally represented, represented by Madam Yue Kar Man Dora, appearing in person Ms Anna M W Chow, instructed by Messrs Grandall Zimmern Law Firm, for the 17th respondent 1st and 2nd named 22nd respondents, not legally represented, appeared in person 23rd respondent, absent 24th respondent, absent 26th respondent, absent Mr Felix Ng, instructed by Messrs Hastings & Co, for the 27th respondent 35th respondent, absent 36th respondent, not legally represented, appeared in person Mr Paul Wong, instructed by Messrs Kevin L H Kwong & co, for the 38th respondent 39th respondent, absent 41st respondent, absent 42nd respondent, absent Appendix 1 EUV of Swiss House
* As all units at 22 Pan Hoi Street (save that on 3/F) have extended their entrance onto the smoke lobby, which is a typical conversion for this kind of old tenement buildings, we have adopted Mr Charles Chan’s suggestion to include such encroachment at half value. Similarly, we have adopted Mr Charles Chan’s conversion factors for areas extended outside the penthouses on the roof top[171]. On the other hand, we do not agree with Mr Charles Chan to assign any value to the roof portion which is in fact a canopy for the floor below. We do not agree with him that it is accessible[172]. Appendix 2 Nos 24-30 Pan Hoi Street
* Like units at 22 Pan Hoi Street, some of the units have extended their entrance onto the smoke lobby, which is a typical conversion for this kind of old tenement buildings. For the sake of consistency and fairness, we have adopted Mr Charles Chan’s suggestion to include such encroachment at half value. Whereas for those units that comprise flat roofs, balcony extensions, and roofs, the conversion factors had been agreed by Mr Charles Chan and Mr Patrick Lai. In respect of the roof of 30 Pan Hoi Street, we agree with Mr Charles Chan that the area for an escape route (right of way) has to be excluded from the consideration; in any event, the difference is not significant when it accounts for only 1/8 of the value. Appendix 3 Nos 32-38 Pan Hoi Street
* Like units at 22 Pan Hoi Street, some of the units have extended their entrance onto the smoke lobby, which is a typical conversion for this kind of old tenement buildings. For the sake of consistency and fairness, we have adopted Mr Charles Chan’s suggestion to include such encroachment at half value. Whereas for those units that comprise flat roofs, balcony extensions, and roofs, the conversion factors had been agreed by Mr Charles Chan and Mr Patrick Lai. Appendix 4 Nos 40-46 Pan Hoi Street
* Like units at 22 Pan Hoi Street, some of the units have extended their entrance onto the smoke lobby, which is a typical conversion for this kind of old tenement buildings. For the sake of consistency and fairness, we have adopted Mr Charles Chan’s suggestion to include such encroachment at half value. Whereas for those units that comprise flat roofs, balcony extensions, and roofs, the conversion factors had been agreed by Mr Charles Chan and Mr Patrick Lai. Appendix 5 Nos 48-54 Pan Hoi Street
* Like units at 22 Pan Hoi Street, some of the units have extended their entrance onto the smoke lobby, which is a typical conversion for this kind of old tenement buildings. For the sake of consistency and fairness, we have adopted Mr Charles Chan’s suggestion to include such encroachment at half value. Whereas for those units that comprise flat roofs, balcony extensions, and roofs, the conversion factors had been agreed by Mr Charles Chan and Mr Patrick Lai. Appendix 6 Nos 56-62 Pan Hoi Street
* Like units at 22 Pan Hoi Street, some of the units have extended their entrance onto the smoke lobby, which is a typical conversion for this kind of old tenement buildings. For the sake of consistency and fairness, we have adopted Mr Charles Chan’s suggestion to include such encroachment at half value. Whereas for those units that comprise flat roofs, balcony extensions, and roofs, the conversion factors had been agreed by Mr Charles Chan and Mr Patrick Lai. Appendix 7 Nos 64-70 Pan Hoi Street
* Like units at 22 Pan Hoi Street, some of the units have extended their entrance onto the smoke lobby, which is a typical conversion for this kind of old tenement buildings. For the sake of consistency and fairness, we have adopted Mr Charles Chan’s suggestion to include such encroachment at half value. Whereas for those units that comprise flat roofs, balcony extensions, and roofs, the conversion factors had been agreed by Mr Charles Chan and Mr Patrick Lai. Appendix 8 Nos 72-78 Pan Hoi Street
* Like units at 22 Pan Hoi Street, some of the units have extended their entrance onto the smoke lobby, which is a typical conversion for this kind of old tenement buildings. For the sake of consistency and fairness, we have adopted Mr Charles Chan’s suggestion to include such encroachment at half value. Whereas for those units that comprise flat roofs, balcony extensions, and roofs, the conversion factors had been agreed by Mr Charles Chan and Mr Patrick Lai. Appendix 9 Nos 80-86 Pan Hoi Street
* Like units at 22 Pan Hoi Street, some of the units have extended their entrance onto the smoke lobby, which is a typical conversion for this kind of old tenement buildings. For the sake of consistency and fairness, we have adopted Mr Charles Chan’s suggestion to include such encroachment at half value. Whereas for those units that comprise flat roofs, balcony extensions, and roofs, the conversion factors had been agreed by Mr Charles Chan and Mr Patrick Lai. Appendix 10 Nos 88-94 Pan Hoi Street
* Like units at 22 Pan Hoi Street, some of the units have extended their entrance onto the smoke lobby, which is a typical conversion for this kind of old tenement buildings. For the sake of consistency and fairness, we have adopted Mr Charles Chan’s suggestion to include such encroachment at half value. Whereas for those units that comprise flat roofs, balcony extensions, and roofs, the conversion factors had been agreed by Mr Charles Chan and Mr Patrick Lai. Appendix 11
[1] See Bundle C1/101 & F3/559. [2] See Bundle C1/102 & F3/547. [3] See Bundle C1/103 & F3/553. [4] See Annex 3 of Applicants’ Opening Submission. [5] See Annex 5 of Applicants’ Opening Submission. [6] See Annex 3 of Applicants’ Opening Submission. [7] See Annex 4 of Applicants’ Opening Submission. [8] See Bundle F/LWY-4(12)/5115. [9] See Bundle F/LWY-4(16)/6571. [10] See Bundle F/LWY-4(21)/8259-8260. [12] Presiding Officer His Honour Judge M Wong and Member Mr Alex Ng [13] Also reported as [2003] 4 HKC 22 [15] Member Mr Lawrence Pang [17] See §10 of Ms Chow’s closing and §3 of her reply closing. [18] §3 of Messrs Yuen & Ting’s closing [19] Apart from the live respondents’ oral confirmation at trial, their written affirmation can also be found, for instance, at §3 of Messrs Yuen & Ting’s closing, §3 of Ms Liu’s closing, §3 of Ms Chow’s reply closing and §26(a) of Mr Paul Wong’s closing. [20] §5 of Ms Chow’s reply closing [21] See also Day Bright Development Ltd & Others v Choi Pak Ling & Others [2014] 4 HKC 364, 381C-D [22] Any discussion of section 3(2) of the Ordinance in Bond Star, we agree with Deputy District Judge Roy Yu, was focused on its section 3(2)(a) on which the appeal turned. [24] §103 of Ms Ngai’s reply submissions [25] Constituted by Presiding Officer HHJ Justin Ko and Member Mr Lawrence Pang [26] Constituted by Deputy District Judge Kot (as she then was) and Member Mr W.K. LO [27] See Bundle C1/42. [28] See Bundle C4/1230-1231. [29] See Bundle C4/1239-1240. [30] See Bundle C4A/1533-375. [31] “Comparable evidence in real estate valuation”, 1st edition, October 2019, published by the Royal Institution of Chartered Surveyors at p 4. [32] See Exhibit A17. [33] In George Frye Holdings Ltd v St Clair Region Conservation Authority (1980) 21 LCR 310, the Ontario Compensation Board remarked that: “sales which requires a 50% adjustment as to time and location cannot be regarded as particularly reliable comparables”. And in Glasspool v London Borough of Southwark, ACQ/39/2017, [2017] UKUT 0373 (LC) which concerned compulsory acquisition of a maisonette on a blighted estate, the English Upper Tribunal remarked at §45 that if an adjustment of a factor over as much as third was required the property could not reasonably be considered comparable. [34] If, otherwise, we allow 4% per 1 m instead, the resultant adjustment would be doubled at -16.8%. [35] See Bundle C4A/1533-439. [36] Although this judgment of the English Court of Appeal was overturned by the Supreme Court ([2017] UKSC 14) on the facts found by the English Tribunal that the premises were undergoing reconstruction at the material day, and it was therefore entitled to alter the rating list to reflect that reality, there is no real inconsistency between the two decisions in terms of principle. [37] See also Leung Man Cheung and Others v Secretary for Planning and Lands and Another, HCAL 274, 375-382, 390-394, 396, 900-904, 906, 907, and 909-915 of 2000 (unreported, dated 18 July 2002) at §67, “It has been established by a series of land resumption cases that unauthorised structures do not attract compensation ...”. [38] See Bundle C4A/1533-379. [39] See Bundle C2/589. [40] See Bundle B/137-138. [41] The Tribunal has only applied the zoning valuation approach in exceptional situations. However, in Zhuang PP Holdings Ltd v Lam How Mun Peter and others, HCA 1589/2003, (unreported, dated 19 August 2009), Deputy Judge To remarked at §107 that “(i)t is useful for shops of irregular shape and greater depths.” [42] See Bundle B/137-138. [43] See Bundle C2/590-591. [44] See Bundle F5/11182. [45] See Bundle C4A/1533-379. [46] See Exhibit A19. [47] See Exhibit A16. [48] The tenant, Tam Kit Yee, also signed as witness for Mr Chow in the tenancy agreement of Portion B, G/F, No 983 King’s Road in March 2018. [49] See Exhibit A16. [50] Some 18% in that case. [51] See Bundle C4/1241-1242. [52] See Bundle C4A/1533-383. [53] See Bundle B/176. [54] See Bundle F5/11082 & 11086. [55] See Bundle B/178. [56] See §31 of the judgment. [57] See the photo at Inspection Bundle p60. [58] See Bundle C1/216. [59] See also Inspection Bundle p 67. [60] See Inspection Bundle p 34. [61] See Bundle 4A/1533-381. [62] See Bundle B/153. [63] See Bundle C2/749 and D1/144. [64] See Bundle C2/599. [65] See Bundle F4/10704. [66] See Bundle C4A/1533-377. [67] See Bundle B/216-217. [68] See Bundle F4/10601. [69] See Bundle F4/10613-10614. [70] See Inspection Bundle pp 93 & 94. [71] See Bundle F4/10602-10603. [72] See Bundle 4A/1533-389. [73] See Inspection Bundle p64. [74] See Inspection Bundle pp 84 & 96 and Bundle F5/10929. [75] See Inspection Bundle p 50. [76] See the photo at Bundle C2/543. [77] See Inspection Bundle p 50. [78] For instance, there is a placard mounted above G/F, 983 King’s Road showing “基督教中國佈道會香港萬善堂” that referred to its place at 51-53 Pan Hoi Street (which has no relation to any premises of the Buildings). See Photo 3 at Bundle C2/545. [79] See Bundle C4A/1533/438. [80] See §34 of the judgment. [81] See Bundle C1/24 (for Charles Chan) or Bundle C2/492 (for Mr Patrick Lai) which is substantially the same. [82] See Bundle C4A/1533-413. [83] Ditto. [84] See Bundle C3/891. [85] Mr Charles Chan himself also saw fit to provide more categories of view in Oriental Generation Limited & Others v Luk Yung & Others, LDCS 4000/2013 (unreported, dated 29 February 2016). See §78 of the judgment. [86] See Bundle C3/896. [87] “住高樓幽靜噪音少？實測結果可能跟你想的不一樣”
[88] See Exhibit AR1. [89] See Bundle C4A/1533 - 414-417. [90] See Bundle C4A/1533 - 418-419. [91] See Exhibit R8. [92] See Bundle C4A/1533-420/421. [93] See Exhibit R7. [94] “How much is that rooftop worth”, Kerry Bourne, Estate Gazette, 23 February 2002. [95] https://www.info.gov.hk/gia/general/201802/07/P2018020700397.htm [96] See “Assessing Radio Station Value: A Review of Academic Literature and Analysis of Contemporary Industry Models”, Allan B Albarran, Journal of Radio Studies, November 2009: https://www.researchgate.net/publication/261666529_Assessing_Radio_Station_Value_A_Review_of_Academic_Literature_and_Analysis_of_Contemporary_Industry_Models [97] See Bundle C1/24. [98] See Bundle C3/1218-1221 2/630-632. In fact, Photo 102 at 631 shows obvious defects on the ceiling. [99] See Bundle C2/630-632. [100] See Bundle C1/140. [101] See Bundle C4A/1533 - 422-423. [102] See Bundle C4A/1533 - 424-425. [103] See §56 of the judgment. [104] See §59 of the judgment. [105] See §68 of the judgment. [106] See photos at Bundle C2/635 & 637. [107] See Exhibit A17. [108] See Bundle C3/945-946 or Inspection Bundle p316. [109] See §47 of the judgment. [110] See Bundle C4A/1533 - 426-427. [111] See Bundle C4A/1533 - 428-429. [112] See Exhibit A5. [113] See Bundle C1/132. [114] See Exhibit R2. [115] See Bundle C2/638-643. [116] See Bundle C2/835. [117] See Bundle C4A/1533 - 430-431. [118] See Bundle B/189-190. [119] See Bundle C4A/1533 - 432-433. [120] See Bundle C4A/1533 - 434-435. [121] See Bundle E1/120-122. [122] See Bundle E1/123. [123] See Bundle D1/17-19. [124] See Bundle D1/21. [125] See Bundle B/119-121. [126] See Bundle F3/10264-10477. [127] See Bundle F6/11258-11418. [128] See Bundle F7/11419-11579. [129] See Bundle F7/11580-11741. [130] See Exhibit A1. [131] See Bundle B/199-200 & 207-208. [132] See §8 above. [134] Deputy District Judge Michelle Soong and Member Mr Alex Ng [135] “Whilst the Tribunal is directed by Section 4(2)(a) of LCSRO to consider if the redevelopment is justified due to the age or state of repair of the existing development on the lot, there is no requirement that the Tribunal has to be satisfied that the building works issues can be resolved before it makes an order for compulsory sale.” [136] Her Honour Judge KOT, Presiding Officer, and Mr Lawrence Pang, Member [137] See Beautiglory Investment Limited v Tang moon Sum & Others, HCMP 531/1989 (unreported, 10 December 2003) at §31. [138] See Bundle B/164-165. [139] See Bundle B/176-177. [140] See Yip Kui trading as Tai Wo Trading Company v The Secretary for Transport, CACV 379/2002 (unreported, 13 June 2003) at §18: “It is a question of fact as to whether or not it would have been reasonable for the business to have been relocated. In determining that, the tribunal is entitled to judge the matter, as a specialized tribunal, against its own experience. In this case there was ample evidence for the tribunal to conclude that the applicant would have had no difficulty in locating suitable similar premises at a reasonable rent in the vicinity of the resumed premises, let alone in other areas.” [141] See Inspection Bundle p160. [142] See Inspection Bundle p168. [143] See Bundle B/164 at §8 of R15’s witness statement dated 12 March 2021. [144] See Bundle B/175-178. [145] See Bundle B/188-189 at §6-7. [146] See Bundle C1/190. [147] See Bundle C4A/1533 – 280-281. [148] 3,286.98 sq m = 4,076.70 sq m - 434.60 sq m - 355.12 sq m. [149] See Bundle C4A/1533-439. [150] See Bundle C4A/1533-440. [151] The Tribunal in Lead Harvest applied +15% for location because the hypothetical development in that case was within close proximity to the Taikoo Shing MTR exit across a narrow pedestrian crossing. [152] See Bundle C4A/1533 -282. [153] See Bundle C4A/1533-441. [154] See Bundle C4A/1533-287. [155] See Bundle C4A/1533 – 283-285. [156] See Bundle C4/1401. [157] See Bundle C4A/1533-68. [158] Section 42(1) of the Buildings Ordinance (Cap 123) provides as follows:
[159] See Exhibit A13(b). [160] See Bundle C5/1914. [161] This should be more properly called “the accommodation value”. [162] With respect to Mr Ng, his calculation is wrong and should be replaced by:-
[163] This should be $5,562,874,216 - $5,440,860,530 = $122,013,686 [164] HSBC had just increased its best lending rate to 5.75% since 4 May 2023. [165] Currently, it has risen to more than 4%. [166] https://www.hkma.gov.hk/eng/news-and-media/press-releases/2022/03/20220317-4/. [167] https://www.scmp.com/business/article/3210106/hong-kong-makes-first-currency-market-intervention-2023-sells-us538-million-support-local-dollar [168] See Bundle F12/12816-12817. [169] See Bundle F12/12822.a [170] See Bundle F12/12847-12909. [171] See Inspection Bundle p127. [172] See Inspection Bundle pp124-125. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
which in our mind is excessive.
Cases cited in this judgment
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