Billion Glory Properties Ltd and Others v. Li Baozhu and Others
Read the full judgment text of LDCS 23000/2019 on BabelCite. This Lands Tribunal judgment was delivered on 29 February 2024 before Mr Lawrence Pang, Member of the Lands Tribunal.
Land law – compulsory sale for redevelopment – Land (Compulsory Sale for Redevelopment) Ordinance, Cap 545 – building Haven Court at Nos 2-30 Haven Street and Nos 128-138 Leighton Road, Hong Kong – Section C of Inland Lot No 2147 – 11-storey composite building with occupation permit issued on 27 January 1959 (over 63 years old) – applicants collectively owning 84.04% of undivided shares (379 in total) – whether applicants entitled to make application – applicable 80% threshold under Land (Compulsory Sale for Redevelopment (Specification of Lower Percentage) Notice for lots with buildings whose OP was issued at least 50 years before the application – held threshold met – dispute over EUV assessment of G/F shops – frontage adjustment of 2% per 1m preferred over 2% per 0.5m given subject's fringe Causeway Bay location and Haven Street as cul-de-sac – dispute over internal condition adjustments for Block D 8/F, Block I 9/F, Block K 8/F and Block M 2/F – adjustments of 0%, -3%, -6% and -3% adopted respectively – total EUV determined at $1,591,340,000 – whether redevelopment justified by age and state of repair – experts Mr So (structural engineer) and Mr Benson Wong (building surveyor) gave uncontradicted evidence of extensive defects, carbonation, chloride contamination, obsolete fire safety, and non-fire-rated features – repair cost estimated at $48,985,459 (about 25% of new superstructure construction cost) – held redevelopment justified – whether applicants took reasonable steps under section 4(2)(b) – two rounds of offers made to respondents on 11 June 2019 and 14 January 2022 – held reasonable steps taken – RDV estimation – dispute over hypothetical development model – Mr Yung's 24-storey scheme with F&B uses, escalator entrance 38.5m into Haven Street, and podium garden rejected – Mr Raymond Chan's Alternative Scheme (25-storey conventional office building with lift lobby on G/F) adopted – market demand did not support 5 floors of F&B at fringe location – bonus plot ratio for setback not taken into account as planning-mandated dedication unlikely to gain Building Department approval under PNAP APP-108 – podium garden not required under PNAP APP-132, APP-151 and APP-152 – AHU rooms provision required and adopted with 20.27 sq m (1/F-9/F) and 12.23 sq m (10/F-24/F) deductions per floor – construction cost based on $40,000/sq m of saleable area – Mr Varty's evidence based on undefined 'units' inadmissible under Bennett v Birmingham Airport – interest rate of 5.5% adopted – developer's profit of 22.5% adopted as balance between Mr Charles Chan's 25% and Mr Varty's 15% – final RDV determined at $2,425,000,000 (accommodation value of $132,334/sq m) – reserve price fixed at $2,425,000,000 – Mr Anthony Chow and Ms Anna Chow of Messrs Guantao & Chow appointed as trustees – redevelopment to be completed within 6 years – costs order nisi in favour of opposing respondents at High Court scale with certificate for counsel.
Legal issues: Whether the applicants meet the threshold to make a compulsory sale application · Appropriate frontage adjustment for G/F shop EUV valuation · Internal condition adjustments for disputed U/F domestic units · Whether redevelopment is justified by age and state of repair · Whether applicants have taken reasonable steps to acquire minority interests · Choice of optimum hypothetical development model for RDV estimation · Whether bonus plot ratio should be attributed for the setback under the Outline Zoning Plan · Whether to incorporate communal podium garden and its impact on saleable area · Provision of AHU rooms in the hypothetical development · Construction cost adjustment (Mr Varty's use of 1,000+ units of measurement) · Appropriate interest rate for residual valuation · Appropriate development profit for residual valuation
Outcome: Compulsory sale order granted in favour of the applicants. All undivided shares of Section C of Inland Lot No 2147 (the Lot) to be sold by public auction with reserve price of $2,425,000,000. Mr Anthony Chow and Ms Anna Chow of Messrs Guantao & Chow, Solicitors & Notaries appointed as trustees. Costs order nisi made in favour of the 2nd, 3rd, 4th, 5th, 6th, 7th, 9th, 10th, 11th, 13th, 16th, 18th, 19th, 20th, 21st, 22nd, 23rd, 25th and 26th respondents.
Cites 23 cases
|
LDCS 23000/2019 [2024] HKLdT 17 IN THE LANDS TRIBUNAL OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION LAND COMPULSORY SALE MAIN APPLICATION NO 23000 OF 2019 __________________________
__________________________
_________________ JUDGMENT _________________ 1.This is an application for a compulsory sale order under the Land (Compulsory Sale for Redevelopment) Ordinance, Cap 545 (“the Ordinance”) (hereinafter referred to as “the Application”) to sell all the undivided shares of Section C of Inland Lot No 2147 (“the Lot”) on which building known as the Haven Court (“the Buildings”) stands with the address of Nos 2-30 Haven Street & Nos 128-138 Leighton Road, Hong Kong. 2.In between the Lot and Haven Street is a longitudinal strip of land, being Section P of Inland Lot No 2147, owned by an associated company of the applicants. As a result, their valuation expert, Mr Charles Chan of Savills Valuation Surveyors and Professional Services Limited (“Savills”), has been instructed to assess the redevelopment value (“RDV”) of the Lot on the assumption that the Lot is a Class B site under the Building (Planning) Regulations with frontage onto both Leighton Road and Haven Street. 3.The Building comprises an 11-storey composite building with shops on G/F and domestic units on the upper floors (“U/F”) being served by 3 common staircases and 3 passenger lifts. The occupation permit of the Building (“OP”), Permit No H23, was issued pursuant to the Buildings Ordinance on 27 January 1959 which permitted the following:
4.According to the plans attached to the Deed of Mutual Covenant dated 30 December 1958, there are 44 shops on the G/F, 18 being shops with street frontages and the remaining arcade shops with the rear row of the arcade shops fronting onto the common open yard which is currently accessible. On each of 1/F to 9/F, there are 13 domestic units (ie Block A to Block M) and on 10/F, there are 8 domestic units with Block A to Block B and Block H to Block M. The corresponding undivided shares as assigned to each of the units, totaling 379, are shown as follows:
5.At the time of the Application, ie 22 July 2019, the applicants altogether owned approximately 84.04% of the equal and undivided shares subject to the rest owned by the respondents (with the prefix R) as follows:
6.While Notices of Opposition (Form 33) were filed by R1, R2, R3, R7, R10, R11, R16, R18, R20, R22, R25 & R26, none of them produce any expert evidence on building condition and structural assessment. Thus, the only disputes were on expert evidence concerning the assessment of the market value of the corresponding units (which is usually referred to by the valuation profession as the Existing Use Value or simply the acronym EUV) and the RDV of the Lot, on the basis of which the reserve price for the prospective sale by auction, should the order for sale be granted, is fixed. The Evidence 7.The applicants have filed the following documents in support of the Application:
8.The respondents relied on the following reports by Mr Varty:
9.Mr Charles Chan and Mr Varty had also prepared two Joint Statements, one dated 13 December 2022 with a supplement dated 31 August 2023 and another dated 28 August 2023 (as amended on 31 August 2023). Live Respondents Remaining on Record 10.While Mr Mok Yeuk Chi (“Mr Mok”), as instructed by Messrs Lo, Wong & Tsui, Solicitors & Notaries, acted for the applicants, the respondents were represented by the following legal representatives, if any:
Whether the Applicants are entitled to make the Application 11.Section 3(1) of the Ordinance requires an applicant to have not less than 90% of the undivided shares in a lot before he can make an application. 12.Section 3(5) of the Ordinance provides that the Chief Executive in Council may, by notice in the Gazette, specify a percentage lower than the percentage mentioned in section 3(1) in respect of a lot belonging to a class of lots specified in the notice. 13.The Land (Compulsory Sale for Redevelopment (Specification of Lower Percentage) Notice was gazette on 22 January 2010 and came into operation on 1 April 2010 (“the Notice”). Section 3 of the Notice lowered the threshold for compulsory sale in respect of the classes of lots specified in the Notice from 90% to 80%. Those classes of lots include: “a lot with each of the building erected on the lot issued with an occupation permit at least 50 years before the relevant date (ie the date of the application under the Ordinance)”. 14.As mentioned, the OP for the Building was issued on 27 January 1959 (ie not less than 50 years before the date of the Application). The Notice is applicable and the threshold percentage should be 80%. 15.At the time of the filing of the Application, the applicants altogether owned 84.04% of the undivided shares of the Lot. I agree therefore that the applicants are entitled to make the Application under section 3(1) of the Ordinance. EUV as at 27 May 2019 16.By reference to section 4(1)(a) of the Ordinance, the Tribunal shall determine an application under section 3(1) by—
Assessment of G/F Units 17.By the Joint Statement dated 13 December 2022, Mr Charles Chan and Mr Varty agreed on the factual information of all the G/F shops as well as the conversion factor for the ancillary areas:
18.Mr Charles Chan and Mr Varty also agreed the unit rate of both the reference street shop (ie Shop 19 which fronts onto Haven Street at $704,000 per sq m) and the reference arcade shop (ie Shop 37 at $266,000 per sq m) as well as other adjustment factors save for the adjustment for frontage: Mr Charles Chan adopted 2% per 0.5m while Mr Varty adopted a less sensitive adjustment of 2% per 1m. 19.A wider frontage increases the visibility of a shop unit to passers-by and thus increases the value of the shop. In location where trading potential is high, the sensitivity of shop value to length of frontage is much more prominent. However, I do not consider the subject location having high trading potential as it is situated at the fringe of the commercial hub in the Causeway Bay district. 20.As well, in Tai Ping Restaurant Limited v Director of Lands, LDLR 1/2013 (unreported, dated 8 December 2014) in respect of resumption of a building at No 600 Shanghai Street, Kowloon, the Tribunal remarked at §48 that:
21.While this observation of the Tribunal has been generally followed and adopted, for instance, more recently in Peace Ever Limited & Others v Chan Sui Ching & Other, LDCS 28000/2018 (unreported, 1 August 2023) at §§97 & 398, Mr Charles Chan, who happened also to be the valuation expert in that case, tried to distinguish and suggested that a more sensitive adjustment is justified because of the better trading environment in the present case. With respect, I do not agree particularly when Haven Street on which Shop 19 is situated is a cul-de-sac. 22.Mr Charles Chan’s frontage adjustment can also be tested for instance by the combination of Shop 4 and Shop 5 around the corner of Leighton Road and Haven Street, as a result of which the frontage has been doubled from 3.2m to 6.4m. If Mr Charles Chan’s adjustment is adopted, it would increase the unit value by 12.8% which I find excessive.[2] Therefore, I prefer Mr Varty’s adjustment of of 2% per 1m. 23.Thus, I follow the EUV assessments of the various G/F units as proposed by Mr Varty and determine the EUV as follows:[3]
Assessment of U/F Units 24.Again, Mr Charles Chan and Mr Varty agreed on the factual information of all the upper floor domestic units as well as the conversion factor for the ancillary areas. They also agreed the unit rate of both the reference large domestic unit (ie Block E on 4/F at $149,350 per s q m) and the reference small domestic unit (ie Block J on 4/F at $153,470 per sq m) as well as other adjustment factors save for the internal condition of four units:
25.While the parties agreed that it had been some time since the relevant date of 27 May 2019, an inspection in the present day would serve little purpose when the conditions of the units concerned may have deteriorated. As a result, I did not inspect the above domestic units on 5 September 2023. Thus, I cannot but rely on the photographs taken by the two valuation experts for the purpose of assessing the internal conditions of the units in dispute. 26.At this juncture, I must point out that this is only a comparative judgment by reference to the internal condition of the reference large domestic unit and reference small domestic unit as at the relevant date when Mr Charles Chan made the following differentiation:[4]
27.The photographs of internal condition of the reference large domestic unit, ie Block E on 4/F were taken by Mr Charles Chan on 27 June 2022[5] and Mr Varty on 14 September 2022[6] respectively. They showed the unit was in relatively good condition though both experts agreed it as “fair”. 28.On the other hand, I agree with the two valuation experts that the internal condition of the reference small domestic unit, ie Block J on 4/F was “fair” by reference to the photographs taken by Mr Charles Chan on 27 June 2022[7] and Mr Varty on 14 September 2022[8] respectively. 29.I note that Mr Charles Chan was only able to inspect the four domestic units in question internally in January /February 2023[9] which did not differ significantly from that of Mr Varty. 30.Having reviewed the photographs of the corresponding units in question, I come to the following conclusion:
31.Following from the above, I determine the EUV of the various upper floor domestic units as follows:
Conclusion on EUV 32.Therefore, the total EUV of the Building is
and the pro rata shares of corresponding respondents’ interest are shown as follows:
Whether Redevelopment of the Lot is Justified 33.Section 4(2) of the Ordinance provides that the Tribunal shall not make an order for sale unless it is satisfied that the "age or state of repair" of the Building is justified and that the applicants have taken "reasonable steps" to acquire all undivided shares of the Lot. 34.In his opening submission, Mr Mok referred to the guidelines laid down in Top Sail International Limited v Cheng Kai Ming, LDCS 18000/2010 (unreported, dated 15 November 2011 (“Top Sail”) and Charmlink Limited v Lee Tong Hing & Others, LDCS 16000/2010 (unreported, dated 29 November 2011) (“Charmlink”) on the factors that the Tribunal should consider whether redevelopment is justified due to age and state of repair. 35.In Top Sail, the Tribunal stated:
36.Such a discretion by the Tribunal was followed in Charmlink:
37.For the age and state of repair requirements, the applicants adduced the expert evidence of 2 experts: Mr Benson Wong who is an Authorised Person and a building surveyor, and Mr So who is an Authorised Person and a structural engineer. Their expertise is not disputed. 38.According to Mr So in his Structural Assessment Report dated 28 July 2022, the Building was designed on the basis of the London Council By-law of 1938 while the current standards for the design of reinforced concrete buildings are those stipulated in the Code of Practice for Structural Use of Concrete 2013. The requirements of the LCC By-laws were however lower than the modern requirements in 7 aspects which could adversely affect the structural performance of the structural frames of the Building. They may include insufficient concrete cover to protect the reinforcement bars against corrosion and fire, inadequacy of the structural frames and foundation to withstand the effects of wind and inadequate robustness against “disproportionate collapse” in the event of an accident. 39.Mr So also found the following defects in the Building:
40.It is to note that the structural test samples were taken from areas of structural elements not carrying any apparent structural defects such as cracks and spalling. They were supposed to be chosen from locations that should give a representative picture of the actual state of the structural elements of the Building. On the basis of the above, Mr So opined that the deterioration the structural frames of the Building will continue steadily due to extensive carbonation and excessive chloride content of the reinforced concrete structural members. The process of carbonation and corrosion are irreversible. It is inevitable that new defects will occur and previous defects though repaired will relapse readily, requiring substantial repairs or even partial demolition and re-construction of some defective structural elements in the future when, for example, there are unacceptably high reductions in the structural performance factors in the reinforced concrete structural elements. Although repairs are possible, repair work will need to be carried out regularly in the future and that such repairs will be more and more extensive as the Building becomes older. Also, such costs of repair will escalate in future as the extent and seriousness of the deterioration of the structural elements increase with age. 41.Mr Benson Wong in his Condition Survey Report also dated 28 July 2022 stated that:
42.Mr Benson Wong also commented that the following defects and deficiencies found in the Building are of the nature and magnitude that cannot easily rectified by simple and piecemeal repairs:
43.Mr Benson Wong estimated a repair cost up to $48,985,459 or about 25% of the construction cost for a new similar superstructure would be required. Owing to the Building’s poor state of repair, Mr Benson Wong recommended the Building to be redeveloped rather than being repaired, particularly bearing in mind that the Building does not possess any historical value or architectural merit. 44.The respondents did not take issue on the "age or state of repair" of the Building being justified for redevelopment. The 2 experts were not cross-examined on the issue. More importantly, the respondents have not adduced any evidence, factual or opinion, in relation to the “age” and “state of repair” of the Building. 45.Notwithstanding the above, R7 submitted in the end of her closing submission dated 5 October 2023 that when the repair cost amounts to mere 3% of the EUV, the Tribunal should consider not to grant an order for sale. With respect, R7 had not considered the Building is aging and suffering from many items of physical and functional obsolescence and inherent structural deficiencies which cannot be remedied by the repairs recommended by Mr So and Mr Benson Wong. In any event, 3% of the EUV is not an insignificant amount and none of the respondents had given evidence that they were willing and ready to contribute to repair the Building back to tenantable condition. For instance, according to Mr Benson Wong at §5.15.4 of his Condition Survey Report dated 28 July 2022, the time for completing the proposed repair works would at least take 27 months.[14] Also, prolongation of the programme is commonly encountered due to extra time required by owners to agree on the way forward. 46.Having considered the evidence before the Tribunal therefore, I am satisfied that redevelopment of the Building is justified due to the age and state of repair. Section 4(2)(b) – Whether Applicants have taken reasonable steps 47.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. 48.By reference to the witness statement of Mr Lam Kei San, the investment director of Soundwill Holdings Limited, ie the parent company of the applicants, dated 29 July 2022, the applicants have made two rounds of offers to the respondents (save for R26) through their solicitors to acquire the units or interests they own: -
49.I am given to understand that each of the offers above was accompanied by Savills’ advice letters setting out the relevant valuation assessments and calculations of the apportioned share of the respondents’. 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 §334(3) that:
50.I also note that after commencement of the Application, the applicants have successfully made offers and acquired the interest of R12, R14, R15, R17 and R24. 51.More importantly, the Court of Final Appeal in Capital Well Ltd v Bond Star Development Ltd (2005) 8 HKCFAR 578, [2005] 4 HKLRD 363 has emphasized at §33 that:
52.Of particular interest is that when the applicants (ie the 1st applicant to be exact) made the 1st offer to R2 on 11 June 2019 (ie prior to the Application on 22 July 2019), the unit concerned was registered in the ownership of her late mother who passed away on 2 October 2018. Despite R2’s willingness to accept the offer as alleged in her witness statement dated 14 October 2022[22], she was not in the position to deliver vacant possession of the unit to the 1st applicant. According to her, one day before the scheduled signing off the Provisional Sale and Purchase Agreement, ie on 10 July 2019, the 1st applicant attempted to insert various terms (which were written in Chinese)[23], the main one of which was Clause 17(g) of the draft whereby the 1st applicant was given the right to terminate the transaction on 30 April 2020 or to wait for an unlimited period of time if R2 had not yet obtained the probate status by 30 April 2020. As well, R2 alleged that she was requested to deliver vacant possession of the unit to the 1st applicant by 30 April 2020 in any event even if the transaction had not completed. R2 was hesitant to sign the Provisional Sale and Purchase Agreement. 53.Negotiation with R2 was then put on hold even after the Letter of Administration was granted to R2 on 20 August 2020. And to her dismay, when the applicants made the 2nd offer to her on 14 January 2022, it was in the sum of $22,770,000 which represented a drop of 14.7% from the previous offer of $26,700,000. R2 is however not suggesting that her attempt to accept the offer and the negotiation that ensued had resulted in a binding agreement. 54.With regret, a clause similar to the Clause 17(g) mentioned above was in issue in Starex Development Limited v Yau So Ching & Others, DCCJ 2372 & 2374/2021 (unreported, dated 13 February 2023) where an intending applicant for compulsory sale inserted a clause that it could forgo the purchase by issuing a termination notice before a certain completion date. Then the District Court held at §31 that the agreements concerned were commercial contract and there was business efficacy in the clause so that it was not unfair, unreasonable or inequitable. See §32 of the judgment. 55.Furthermore, in Good Faith Properties Limited & Others v Cibean Development Company Limited, LDCS 42000/2011 (unreported, dated 31 May 2013, the Tribunal had decided that there is no requirement for the majority owner to take all reasonable steps to acquire before taking out the application. Instead, with a purposive interpretation of Section 4(2)(b), all reasonable steps before the making of a sale order to acquire the minority owner’s share in the Lot should be considered, be it post- or pre-Application. See §§35-61 of the judgment. 56.As regards R2’s complaint about water seepage starting from May 2020, it is not disputed that the water seepage does not affect the assessment of the EUV of her unit, the valuation date of which was 27 May 2019. If R2 wishes to make claims on the water seepage issue, I agree with Mr Mok that it will have to form the subject matter of another set of proceedings. 57.Bearing in mind the above, I am 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 Lot including negotiating for the purchase of such of those shares as are owned by the respondents on terms that are fair and reasonable. Disputes on the estimation of the RDV of the Lots Optimum Hypothetical Development Model 58.In fact, the main dispute in these proceedings is on the estimation of the RDV of the Lot, which shall become the reserve price for the public auction when the order for sale is granted. 59.It is undisputed that the Lot comprises a longitudinal site with frontage of 22.860 m onto Leighton Road and a longer frontage of 53.442 m onto Haven Street[24], rendering a total area of 1,221.66 sq m. With a permitted plot ratio of 15, the maximum gross floor area (“GFA”) that can be built in accordance with the prevailing Building (Planning) Regulations is 18,324 sq m. 60.Both Mr Charles Chan for the applicants and Mr Varty for the respondents agreed that there was no appropriate land sale for direct comparison purpose. They 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. 61.Initially, both Mr Charles Chan and Mr Varty opined the optimum development on the Lot would comprise a 25-storey commercial building with retail shops on the G/F to 2/F, podium garden on 3/F, mechanical floor on 4/F and office units on 5/F to 24/F.[25] Then, inter alia, there was dispute between the two valuation experts on whether setback was required under the Approved Causeway Bay Outline Zoning Plan No S/H6/17 the statutory notes of which state that: “For sites on the two sides of Haven Street, a minimum setback of 0.5m from the lot boundary fronting Haven Street shall be provided.” Haven Street, being not only a cul-de-sac, is a relatively narrow street of only 12.6 m in width. 62.In addition, there was dispute on whether provision of a communal podium garden would be required under Practice Note for Authorized Persons, Registered Structural Engineers and Registered Geotechnical Engineers (“PNAP”) APP-132 and APP-152. 63.Following from the above disputes, the parties had engaged the opinion of Authorised Persons, Mr Boris Yung (“Mr Yung”) for the applicants and Mr Raymond Chan for the respondents. 64.Particularly in §11.2 of Mr Varty’s updated RDV report dated 22 August 2023, he stated as follows:[26]
65.Mr Charles Chan and Mr Varty arrived then at the following on the basis of the respective hypothetical development model prepared by Mr Yung and Mr Raymond Chan:
66.In formulating the optimum development model, the applicants relied on a 24-storey commercial development[29] proposed by Mr Yung whereas the respondents relied on a 25-storey commercial development[30] proposed by Mr Raymond Chan on 21 August 2023. The main parameters of the two schemes are set out below:
67.In gist, the main difference between the two schemes is that Mr Yung proposed a smaller ground floor entrance towards the far end of the Lot along Haven Street which, via a pair of escalators, lead to the office lobby on 2/F so that more shops or commercial space would be provided on G/F and 1/F. In addition, a small lift lobby on Leighton Road, but away from the corner of the street with Haven Street, will serve the commercial spaces up to 2/F. 68.In comparison, Mr Raymond Chan’s proposal or in fact, the original assumption adopted by both Mr Charles Chan and Mr Varty before the engagement of the Authorised Persons, resembles a schematic drawing usually preferred by the Tribunal. For instance, in Cheer Capital Limited v Unibase Investment Limited & Another, LDCS 5000 & 6000/2013 (unreported, dated 12 June 2015), the Tribunal remarked at §175 that the hypothetical arcade design proposed on the ground floor level could not avoid the problem of making comparison analysis of the long depth of the site because arbitrary adjustments have still to be made to the arcade shops inside. Then another valuation expert in the same case admitted that “the exercise of ascertaining the gross development value was an averaging exercise”. 69.As well, in Pacific Base Holdings Limited & Others v Lee Hop Biu & Other, CACV 426/2020 (unreported, dated 31 May 2021), the Court of Appeal affirmed, at §43 of the judgment, that “(f)rom a practical point of view, since there is no requirement on the majority owners to submit a detailed redevelopment plan at this stage, the proposed redevelopment could only be presented to the Tribunal on a conceptual level with a high degree of generality.” 70.Then notwithstanding the “office” description of the hypothetical scheme, Mr Raymond Chan explained in his letter dated 5 September 2023[31] (in response to Mr Yung’s query dated 28 August 2023[32]) that his design for each upper floor, being open plan, would provide flexibility for use by prospective owners/tenants. Mr Raymond Chan further explained that at least 14 to 15 floors can be changed from office to retail use without breaching any requirement on discharge value pursuant to the Code of Practice for Fire Safety in Buildings 2011. While Mr Yung had, in his reply dated 7 September 2023[33], reservation on this arrangement which, according to him, may restrict marketing flexibility, I agree, for instance, with Mr Lee that it can be resolved by specifying the use of floors at the outset of the marketing campaign. 71.On the other hand, I have reservation on designating the entrance of the hypothetical development to the upper floors at some 38.5m into Haven Street which, as agreed by Mr Charles Chan, is occupied by trades like garages, recycling stores or other low-order shops on the other side of the street at Lei Ha Court, a similar run-down composite building like the Building. I am of an opinion that an entrance so far away from Leighton Road which is a main artery in Causeway Bay might detract the image of the upper floors as a Class B office building agreed and envisaged by the parties.[34] Mr Yung’s proposal of providing access to the upper floors of office buildings via escalators may be more common at prominent locations on main streets but not on a side street, not to mention a cul-de-sac which attracts limited pedestrian flow by itself. With respect, Mr Yung had not provided any comparable development as such in support of his proposal; his so-called comparable developments that include No 228 Wan Chai Road, No 8 Heung Yip Road and No 535 Jaffe Road[35] all have the escalators entrance abutting a main street. 72.For instance, the new development named Tower 535 at No 535 Jaffe Road comprises a 23-sotrey commercial/office building at the junction of Cannon Street and Jaffe Road, ie neighbouring World Trade Centre. Its escalators’ entrance lies not only on Jaffe Road but is also situated quite close (about 12 m) to the road junction.[36] 73.On the other hand, at trial, I had invited Mr Charles Chan to provide me with comparable developments in the vicinity that accommodate a large proportion of “food and beverage” uses.[37] Of the 17 developments that Mr Charles Chan provided, only Lee Garden Three at No 10 Hysan Avenue and V point at Nos 2-22 Tung Lung Street have office lobby on 3/F and 2/F respectively. All the others have the office lift lobby on ground level. 74.Nevertheless, I shall delve into the GDV valuation by Mr Charles Chan in reliance on the hypothetical development proposed by Mr Yung to see if it would yield the highest and best use of the Lot. Firstly, a comparison of the GDV assessed by Mr Charles Chan on the basis of Mr Yung’s proposal[38] and on the basis of Mr Raymond Chan’s proposal is shown in the table below:[39]
75.With respect, by designating the entrance of the hypothetical development to the upper floors at some 38.5m into Haven Street, Mr Charles Chan for the applicants can only achieve an increase of GDV by mere 7%. Mr Charles Chan had tried to explain that his proposed offices were all located on the higher floors with smaller unit sizes so that the average unit rate appears to be such high. However, as shall be seen in the later part of this judgment, Mr Charles Chan might have overestimated the value of the retail floors and underestimated the values of the upper floor offices of Mr Raymond Chan’s model. As admitted by Mr Charles Chan at trial, quasi-retail uses like gymnasium, beauty salons etc are commonly found on the upper floors of office buildings in the Causeway Bay district.[41] In my opinion, such quasi-retail users might still be concerned about the image of the building as well as the environment at ground floor level. 76.As well, as pointed out by me at trial, by having 5/F to 9/F specifically designated for “food and beverage” uses, Mr Charles Chan assessed an average rate of $283,000 per sq m which is not significantly higher than the unit rate that would be derived from the average rate of $291,000 per sq m for the upper floor offices. On the other hand, the predominant food and beverage uses render a loss of saleable areas due to the corresponding need to increase the required staircases for fire escape. More specifically, the efficiency ratio of these upper commercial floors would become very low due to provision of extra staircase area so as to satisfy the discharge value under the fire safety regulations. In addition, as commented by Mr Raymond Chan in his Joint Report with Mr Yung dated 15 August 2023, such provision of more food and beverage premises may attract more demand for electricity[42], and therefore a transformer room of larger capacity or size. Notwithstanding the latter, I agree with Mr Yung that Mr Raymond Chan’s single transformer room and switch room totaling 40 sq m is too small. To cover fire services installation, a flexible air conditioning system, lifts and future occupiers’ requirement, I tend to agree with Mr Yung’s proposal of 3 transformer room up to a total area of 150 sq m. Therefore, a further deduction of 110 sq m has to be deducted from the saleable floor area for 1/F[43], arriving at 827.19 sq m. 77.I also fully agree with Mr Mok’s closing submission dated 25 October 2023 at §11 that it is most necessary to examine what is the volume of market demand for the proposed uses of the hypothetical development of the Lot. He indeed gave an illustration that assuming market demand in terms of volume can only support one shop, while the shop can be physically placed at the top floor or any floor, there will be vacant shop spaces at the other floors. 78.As said, I have invited Mr Charles Chan to provide me with comparable developments in the vicinity that accommodate such a large proportion of “food and beverage” uses. Although Mr Charles Chan then came back with up to 17 developments, with respect, two are located in North Point which is another district quite different from Causeway Bay while most of the remaining ones are located on both sides of Hennessy Road which is the main distributor in Causeway Bay and the shopping hub of the district. Also, many of the developments have relatively small site of 500 sq m or smaller (around 300 sq m). Only two of them are located further away from Hennessy Road, closer to the Lot and they are found as follows:
79.Even so, these two developments are situated on the opposite side of Leighton Road, closer to the shopping hub of Causeway Bay. More particularly, Lee Garden Three accommodates 4 levels of carparks which can provide further attraction to food and beverage patrons. On the other hand, the occupancy of floors designated in HDH Centre for restaurant use did not fare particularly well by reference to the directory produced at trial: only one out of the 3/F to 8/F designated for restaurant use is so occupied. 80.Having said that, it is of interest to note that Tower 535, as said at §72 above, is designed with escalators leading up to 3/F and with the upper floors onwards up to the 12/F (or the 15/F when floor numbers 4, 13, 14 are not used) designed for both office/retail uses[44]. It is not included in the list of the 17 developments that accommodate a large proportion of “food and beverage” uses. Indeed, by reference to the photo of the directory provided by Mr Charles Chan[45], most of those floors are occupied by skincare, beauty salons, health centres, finance company and others not related to food and beverage. 81.Perhaps the hypothetical design by Mr Yung is instigated by the prospective conglomerate commercial complex of 100,000 sq m around the corner of Leighton Road and Caroline Hill Road, located two blocks to west of the Lot. That site, comprising an area of 14,802 sq m, being known as Inland Lot 8945, was sold by Government via public tender on 12 May 2021 fetching as much as $19,778 million or an accommodation value of $193,929 per sq m or thereabout[46]. While this sale was referred to by the parties at trial from time to time [47], that site, upon completion of development in 2025, will be connected to Causeway Bay MTR Station by a system of covered elevated walkways via Lee Garden Six, Lee Garden Five, Lee Garden Two and Hysan Place etc[48]. In other words, pedestrians coming to and fro the site will not necessarily cross Leighton Road, for instance, at the pedestrian crossings at the junction of Leighton Road, Yun Ping Road and Pennington Street. The Lot is indeed separated from that Caroline Hill site by Haven Street, Lei Shun Court which is a similarly aged composite building situated at Nos 106-126 Leighton Road and another section of Caroline Hill Road as well. The benefit deriving from or spill-over effect of the prospective conglomerate commercial complex would unlikely be significant and the attraction therefore of having “food and beverage” uses in the hypothetical will be limited. 82.At one point, Mr Charles Chan tried to justify the provision of so many floors for “food and beverage” uses by suggesting that there will be oversupply of Grade A offices in the coming years. However, when he was cross-examined by Mr Lee, he admitted that the supply of Grade A offices is not so relevant because the hypothetical development being envisaged is of Grade B. Later, Mr Charles Chan also appeared to have contradicted himself when he admitted Grade B offices are not alternative to Grade A offices. 83.Indeed, by reference to the published data by RVD, the supply of Grade B office in Wan Chai/ Causeway Bay has been dropping significantly from 8,500 sq m in 2022 to 4,400 sq m in 2023 and may drop further to 1,000 sq m in 2024.[49] 84.At this juncture, it is also useful to provide a perspective of the GDV assessments from 1/F to 9/F by Mr Charles Chan and Mr Varty:
85.Again, there is indeed not much difference in the assessment of the GDV from 5/F to 9/F. The main difference in the lower floors assessment is resulted from the reduced floor areas in Mr Yung’s proposal and the higher unit rates adopted by Mr Varty which are derived from a proportion of the G/F average unit rate, a common practice of valuing basements and upper floors when comparable evidence is not available[51]:
86.In view of the above analysis therefore, I doubt if the market demand can support all “food and beverage” uses of 5/F to 9/F. I prefer to proceed with the GDV assessment in the present case on the basis of a conventional commercial building as proposed by Mr Raymond Chan with 5 lifts running all floors with lift lobby on G/F some 25 metres off Leighton Road to the middle of the Lot on Haven Street[52], ie the Alternative Scheme. 87.As regards the issue of bonus plot ratio as a result of the setback requirement under the Outline Zoning Plan, I am directed to the intention of PNAP APP-108 which states that the Building Authority has the discretionary power to grant concessions in the form of exemption of certain floor areas from the gross floor area (GFA) calculations and in the form of additional plot ratio and site coverage in exchange for dedication of land or area for use as public passage. Here, I share the view of Mr Yung that when the setback is mandated under the Outline Zoning Plan, the Building Department is unlikely to regard such a dedication as substantial gain in public interests to warrant a bonus plot ratio. 88.Indeed, according to Mr Yung, if bonus GFA has to be obtained, a surrender instead of dedication of the setback area is required, pointing to paragraph 4 of APP-108:
89.In Success Active Limited v Harbouorview International Holdings Limited & Others, LDCS 31000/2018 (unreported, dated 19 April 2021) where Mr Charles Chan was also one of the valuation experts, he made the following statement as recorded at §218 of the judgment:
90.Although the facts in Success Active might be slightly different from the present case, I consider the same rationales applicable and therefore I would not take into account any bonus plot ratio as suggested by Mr Raymond Chan. 91.In any event, the proposal as it was last presented by Mr Raymond Chan or Mr Varty, ie the Alternative Scheme before the Tribunal did not incorporate the bonus plot ratio. I am content not to take such into account in determining the GDV of the hypothetical development. 92.On the other hand, Mr Yung incorporated a podium garden in his scheme for the purpose of satisfying the requirements of PNAP APP-132 and APP-151. Mr Yung explained that by incorporating such a podium garden, he would have maximized the site coverage for his hypothetical scheme and reduced the number of storeys from 26 floors to 24 floors, thus saving the areas for common parts in some 266.53 sq m. With respect, I fail to appreciate the significant benefit of having such a podium garden in the first place when the hypothetical development is not located at a prime location. There will also be on-going maintenance cost if not construction cost for the podium garden. Mr Yung’s reference to the development at No 228 Wan Chai Road, a redevelopment pursuant to a compulsory sale application in Alliance Fame Limited & Others v Mak Kam To & Others, LDCS 9000/2015 (unreported, dated 4 August 2017) and the development at Nos 25-31 Sugar Street, which was one of the comparables in Chancemore Limited v Yee On Enterprises Limited, LDCS 17000/2015 (unreported, dated 31 July 2017), may not be a good example because of their locational differences. 93.More particularly, I tend to agree with Mr Raymond Chan that the set-back would result in loss of valuable ground floor areas for the Lot which comprises a corner site. For instance, owing to the extra set-back proposed by Mr Yung, the floor plate on each of the G/F to 2/F would become smaller by as much as 266.53 sq m.[53] But for the set-back approach, these areas could have been applied to the saleable area of shops along Haven Street. The adjusted unit rate for G/F facing Haven Street assessed by Mr Charles Chan (though I do not agree) was between $374,170 per sq m to $930,810 per sq m, that for 1/F was between $326,944 per sq m and that for 2/F was between $299,744 per sq m to $308,176 per sq m[54]. Thus, these valuable saleable areas as assessed by Mr Charles Chan would have been shifted to the less valuable lower upper floors where there will be increase in site coverage and in turn the floor plate. 94.In addition, as commented by Mr Yuen, the podium garden in Mr Yung’s model would take up common area of some 157.33 sq m which is GFA accountable[55]. Applying the weighted average unit rate of the 2/F assessed by Mr Charles Chan at $304,000 per sq m, it would be a loss of GDV of $47.12 million. In spite of this, Mr Charles Chan did not separately apply an upward adjustment for the existence of the podium garden. While Mr Charles Chan explained that he had not done so because such adjustment would have been reflected in the age adjustment, I do not think so as the agreed age adjustment at 1% per 2 years seems to have nothing to do with the presence of the podium garden or otherwise. 95.A possible gain in the extra set-back would be, as suggested by Mr Yung, the saving of common area for two floors of some 133.69 sq m per floor. The benefit, as shall be seen later in this judgment, will also be attenuated when both Mr Charles Chan and Mr Varty agreed, as valuation experts, that the increase of floor level would enhance the unit value by 0.5% per floor. When the hypothetical scheme is envisaged to have more than 600 sq m per floor and valued at more than $300,000 per sq m for the upper floors, the two additional floors would add more than 600 sq m x $1,500 per sq m + 600 sq m x $3,000 per sq m = $2,700,000. 96.Lastly, there was a dispute between Mr Yung and Mr Raymond Chan on the provision of AHU room where air handling unit, commonly called an AHU, is the composition of elements mounted in large, accessible box-shaped units called modules, which house the appropriate ventilation requirements for purifying, air-conditioning or renewing the indoor air in a building or premises. According to Note 3(3) at p 3 of Appendix A to APP-151, AHU and A/C provisions are considered non-mandatory feature or non-essential plant room, the area of which can only be disregarded under regulation 23(3)(b) of the Building (Planning) Regulations if the development can comply with APP-151 and APP-152 by, for example, having a podium garden that improves permeability of a development to its neighbourhood. 97.On the one hand, Mr Yung argued that there serves a purpose to house the AHU provisions inside an AHU Room on each floor. “The AHU provisions include machines for fresh air intake from exterior and into the A/C system and to supply conditioned air to the units. The machines create considerable vibration and noise. The AHU Room also included pipe ducts in which runs the A/C piping to the roof chillers. Such AC piping runs in pipe ducts to protect them from disturbance and from the elements. The AHU Room houses the machines & associated ducts / pipes in appropriate manner to facilitate regular maintenance.”[56] 98.On the other hand, Mr Raymond Chan argued that “the non-essential plant such as chiller plants will be placed on top roof and AHU will be mounted at structural ceiling of each floor (in view of the high headroom of 5m) … Also, my proposed AHU in private ceilings can be accessed from the common areas for routine inspection and maintenance causing no disturbance to the occupiers.”[57] 99.I agree with Mr Yung that “AHU rooms provision is required and common practice among developers”[58]. I also agree with Mr Mok’s submission that Mr Raymond Chan could not produce any example of a commercial or office building of similar bulk which had adopted his approach of housing the AHU provisions at the ceiling. Therefore, I agree with applicants that there shall be the following deductions for AHU rooms:
100.A summary of the pros and cons of having the podium garden is set out below though the increase in saleable area by having a podium garden is misleading without taking into account the higher unit rate that can be achieved for the ground floor space:
101.Bearing in mind the above, I tend to agree with Mr Raymond Chan therefore that the gain would be hardly sufficient to set off the loss. I agree to adopt the Alternative Scheme which had not incorporated any setback under these APP-132, APP-151 and APP-152 as the basis for evaluating the RDV of the Lot. Assessment of the Value for the hypothetical shop units on G/F 102.On the basis of the Alternative Scheme, Mr Varty had set out the parameters of his hypothetical shops on G/F as follows with shop no 3 as the reference shop unit:[59]
103.Mr Varty then referred to the following transactions as his comparables and arrived at a unit rate of $956,600 per sq m[60]:
104.Valuation usually proceeds by way of comparison where the valuer looks for a market transaction that is as close as possible to that which he has to value. He then works on the premise that if the subject matter of his valuation were to be the subject of a similar transaction, it would command the same value as the comparable. Since the comparable will never be identical to the subject matter of the valuation, the valuer will have to make adjustments to the value revealed by the comparable in order to reflect the differences between the comparable and the subject matter of his own valuation. 105.Comparables GR1 and GR2 were in fact acquired by the same purchaser but are so occupied by two different brands, each selling high-end kitchenware. Although both Mr Charles Chan and Mr Varty agreed to a location adjustment of +10%[61], I have grave reservation on whether either of the high-end kitchenware shops would be willing to relocate to the hypothetical shop 3, not to mention paying 10% more. In fact, in his Rebuttal Report dated 11 November 2022 at §4.3.2.3, Mr Charles Chan acknowledged that: “Lippo Leighton Tower is located along Leighton Road which is a main street with high pedestrian flow” whereas the hypothetical shop 3 is situated on the fringe of Causeway Bay with pedestrian flow diluted by the presence of a school to its right. Notwithstanding this, I agree with Mr Varty’s approach of treating the two transactions as one but I also agree with Chan’ adding back 5% perhaps for the bulk discount. 106.For Comparable GR3, both Mr Charles Chan and Mr Varty agreed to a location adjustment of -10%. However, when I alerted Mr Charles Chan during cross-examination that this section of Sugar Street was swamped with domestic helpers during weekends that may results in the shops there fetching very high prices, he changed his mind, revising his adjustment to -15% instead. With respect, I consider the adjustment should be at least -30%. 107.Comparable GR4 was a relatively dated sale. It is situated just off the very busy Jardine’s Bazaar, a street flanked by a range of restaurants and eateries on G/F on both sides. Although both Mr Charles Chan and Mr Varty agreed to a location adjustment of +15%, I wonder if the adjustment would be excessive or even in the other way round. And because of this comparable being a dated sale and the divergence in opinion between me and the two experts, I am hesitant to adopt this as a comparable. 108.Comparable GR5 was even a sale of earlier date. Mr Charles Chan refused to adopt this as a comparable at all because it is situated at a very popular shopping location on Percival Street close to a busy pedestrian crossing at the street junction between Percival Street, Matheson Street and Russell Street on the latter of which the very popular shopping and entertainment complex, Times Square, is located. I agree with Mr Charles Chan that such location would cater for different trade mix and retail potential, especially when Mr Varty himself applied a location adjustment of as much as -35%. If this comparable has to be adopted, I would apply an adjustment of at least -50% for location. 109.Not only a dated sale, comparable GR6 is located on Lockhart Road which runs in parallel with Hennessy Road one block in the front. As said, this section of Hennessy Road is amongst the very popular shopping hub in Causeway Bay where Mr Charles Chan and Mr Varty were content to apply a location adjustment of -35% and -25% respectively to this comparable. I cannot agree with Mr Tsui, for instance that it is outside the core of Causeway Bay. Although I would prefer the adjustment proposed by Mr Charles Chan, I would again rather have this comparable disregarded. 110.Comparable GR7 was another dated sale though it is situated at a more comparable location on Leighton Road, which is however very close to a popular pedestrian crossing that lead pedestrians to and fro Happy Valley where the racecourse and other popular recreational facilities are located. This comparable is currently occupied as a bank[62]. Even if this comparable is adopted notwithstanding its dated sale, I would prefer Mr Charles Chan’s adjustment for location at -20%. 111.Comparable GR8 was even a further date sale. As well, it is situated on Jaffe Road very close to Tower 535. I would disregard this comparable and even if it be adopted, I prefer Mr Charles Chan’s location adjustment of -15% to Mr Varty’s +5%. 112.Comparable GR9 is again situated on Percival Street, though closer to its junction with Leighton Street. It is situated right opposite to a Uniqlo store on the ground floor of the popular shopping and entertainment complex of Lee Theatre. Mr Charles Chan refused to adopt this as a comparable while Mr Varty applied a location adjustment of -30% which I consider not adequate. For the time being, I prefer a location adjustment of at least -40%. 113.Save for the difference in opinion on the adjustments for location, return frontage and layout, Mr Charles Chan and Mr Varty have the following agreements or disagreement on other adjustment factors:
Adjustment for Time 114.Although Mr Charles Chan and Mr Varty have agreed to adopt Private Retail Price index published by RVD for time adjustment, it is trite that the use of indices is only acceptable when there is little evidence to go by, but their effectiveness is more diluted the longer the period over which they are used. This is particularly the case in Causeway Bay when, as accepted by Mr Charles Chan during cross-examination, the prices of shops had suffered more significantly than most of the other districts in Hong Kong because of the reduction of tourist traffic from Mainland China. Thus, the downward movement as indicated by the Private Retail Price index would have most probably underestimated the drop in value of shops in Causeway Bay. For this reason, I would treat the adjusted unit prices of those dated sales with caution and even disregard them as comparables. Adjustment for Frontage 115.For the similar reasons as discussed in the assessment of EUV for shops at §§19-22 above, Mr Varty’s proposed adjustment for frontage at 2% per 1m is preferred. Adjustment for Return Frontage 116.Here for Comparables GR1 and GR2, the return frontages referred to are rather the continuation of the display window for which both Mr Charles Chan and Mr Varty agreed to apply adjustment of -5%. This is equivalent to just 1% per 1.5 m or 1.8 m respectively. 117.Only Comparable GR4 can be regarded as having a return frontage because this comparable fronts not only Fuk Hing Lane but also has a secondary frontage onto Jardine’s Crescent which is a narrow street flanked by licensed hawkers’ stall on both sides. To the extent that this secondary frontage is a wall which has not been made use of for shop display or otherwise, I agree with Mr Varty that its value is minimum; I agree with the -5% adjustment applied by him. Adjustment for Layout 118.In the valuation of a shop, it is well understood that a shop with a wider street frontage (and hence, a bigger shop window) is more valuable than a shop of the same area but with a narrower shop front and a greater depth. Whereas the hypothetical reference shop unit has a long depth of 16.35 m or thereabouts, Mr Charles Chan had applied adjustments for layout at -18%, -18%, -17%, -22% and -14% to Comparables GR1, GR2, GR3, GR4 and GR8 respectively. In contrast, Mr Varty had applied much less. 119.Particularly in respect of Comparables GR1 and GR2, there are two extraordinary large columns which are supposed to be included in the calculation of saleable area. Mr Varty considered such columns not usable at all but I consider otherwise because of their shiny appearance which may attract attention of prospective customers. 120.As regards Comparable GR3, the agreed depth of 5.7 m is misleading as it did not take into account the depth of a longitudinal tongue-shape corridor leading to the end of Shops 1A1. According to Mr Varty, and as evidenced from the floor plan, this corridor is less than 1m in width. Balancing the depth of 5.7 m and the peculiar layout of this shop, I would prefer nil adjustment for layout. 121.Similarly for Comparable GR4, the depth agreed by the valuation experts did not take into account the small trapezium area at the back of the shop. I agree therefore with Mr Varty’s proposed adjustment of -10% instead. 122.While such adjustment for layout may be subjective and depend on professional judgment, I, having reviewed the layout of the various comparables by reference to their floor plans, am prepared to determine the adjustments as follows;
123.Thus, my analysis of the comparables is shown as follows:
124.In view of the disparate results found from the above analysis, with the most reliable comparables GR1 and GR2 in terms of timing and location fetching the lowest value, I had, at trial, enlightened the parties there are at least two premises in the close vicinity available for sale in the market:
125.Whereas even the sale price of an apparently normal transaction may sometimes not reflect open market value, sales details of properties that are being marketed and unsold are hardly conclusive evidence of value[71]. However, in some circumstances, it might be reasonably expected that some figure below the asking prices can be achieved in due course[72] though to assume that such properties will sell for a particular percentage of the asking price is highly speculative. 126.As regards the two premises being marketed as afore-mentioned, ie A1 & A2, Mr Charles Chan and Mr Varty also had different opinion on the adjustment for location:
127.Having conducted the joint inspection on 5 September 2023, I prefer to adopt -40% to Mr Charles Chan’s -50%. This adjustment of -40% for A2 indeed conformed with my view on the location adjustment for GR5 and GR9 above. There being no adjustment for time necessary, the various adjustments applicable to these two marketing premises are as follows:
128.However, at trial, Mr Charles Chan alleged that according to the agency department of his firm, the vendor would seriously consider to accept any offer not less than $110 million. By the time when the applicants filed in the closing submission, Mr Charles Chan’s allegation was vindicated when newspapers or the press had reported the asking price had been reduced to $108,000,000 or a unit asking price of $881,633 per sq m. Later on 20 November 2023, it had been confirmed that A2 was sold for $98,680,000. Thus the table in the preceding paragraph should become:
129.It is of interest to note that this A2 was acquired by the present vendor for $208,000,000 on 26 May 2017 when the Private Retail Price Index published by RVD was 550.0:
This analysis confirms that shops in the popular area of the Causeway Bay shopping region dropped more substantially than the Private Retail Price Index which is more or less an average in nature across the territories. 130.On the other hand, Mr Varty suggested an a +10% adjustment to reflect enhancement of trading potential because of the new development:[73]
131.With respect, as stated by me at §§81 & 105 respectively above, the hypothetical development when completed will still be located at the fringe of the Causeway Bay, separated from the shopping hub by Leighton Road and situated sideway of the forthcoming conglomerate commercial complex on Caroline Hill Road but separated by an old composite building, ie Lei Shun Court. I agree with Mr Charles Chan that, with a lot of competing developments in the vicinity, the hypothetical development of mere 18,325 sq m in this area might be too small to change the trading potential of the locality. I further agree with Mr Charles Chan that the footbridge system will “cut off” pedestrian flow to the hypothetical development. 132.Nevertheless I agree that there will be some +5% enhancement in trading potential upon completion of the hypothetical development. Having reviewed the above, I consider the market rate applicable to the hypothetical shop 3 should be $550,000 per sq m and therefore the GDV for the hypothetical G/F is assessed as follows:[75]
133.At this juncture, I note that Mr Varty had referred to the unit rates of the hypothetical shop units arrived at $1,000,000 per sq m and $740,000 per sq m in Lead Harvest Group Limited & Others v Cheong Wing Electric Limited & Another, LDCS 6000/2018 (unreported, 7 February 2022)[76] and Peace Ever Limited & Others, supra[77] in support of his unit rate of $956,600 per sq m. With respect, this reference is neither here nor there as the decision on values of the Tribunal depends largely on the evidence presented in each case; strictly speaking, such decisions on values are not comparables. In addition, they are decisions on the basis of different valuation dates. 134.But in case settlements by parties have to abide by, Mr Charles Chan and Mr Varty had agreed the unit rate of the reference shop street shop of the Building, ie Shop 19 at $704,000 per sq m as at 27 May 2019 when the Private Retail Price Index was 582.2. Currently the index for September 2023 was 500.4 and if the trend of the market price has to be followed, the same shop would have a unit value of some $605,000 per sq m[78] only. Assessment of the Value for 1/F-3/F (Retail) 135.While Mr Varty derived the unit value for 1/F to 3/F from a proportion of the G/F average unit rate, Mr Charles Chan referred to the sales of 3 floors, more particularly 20/F, 19/F and 26/F in Emperor Watch and Jewellery Centre at No 8 Russell Street as comparables:
136.Emperor Watch and Jewellery Centre comprises a 29-storey commercial building built in 2001 which has been designed with a single shop on each of the upper floors. It is situated at a strategic location opposite Times Square across the street with a variety of popular brand shops on G/F. Notwithstanding Mr Charlies Chan’s calculation of a saleable floor area of 298.6 sq m on each upper floor, sales agents allege each floor having a gross floor area of 4,718 sq ft (438.31 sq m) or thereabouts. 137.In fact, Mr Varty suggested, and I agree, that Mr Raymond Chan’s hypothetical development was modelled on this Emperor Watch and Jewellery Centre. 138.While Mr Varty had proposed the unit value of these floors on the basis of a proportion of that for G/F, Mr Charles Chan adopted the following adjustments:
139.In terms of location, Mr Charles Chan proposed an adjustment of -25%. I agree. I also follow Mr Charles Chan’s other adjustments to arrive at the following on the basis of a hypothetical shop space on 2/F with a saleable floor area around 300.00 sq m:
140.Once again, the above analysis confirms that the prices of shops in Causeway Bay had suffered more significantly than most of the other districts in Hong Kong and the Private Retail Index by RVD is not so applicable. 141.In such regard, I just adopt the adjusted unit for the latest sale which is $250,000 per sq m and compare with the method proposed by Mr Varty on the basis of a proportion of the unit value for the G/F subject to that I adopt the value for 1/F at 60% of the average ground floor unit value instead of 50% as proposed by Mr Varty:
142.Whereas the average unit rate derived from the above is $258,542 per sq m, this is only marginally higher than $250,000 per sq m derived from comparables adopted by Mr Charles. I prefer to adopt GDV for the 1/F-3/F at $636,762,000. Assessment of the Upper Floor Office 143.In assessing the GDV for the upper floors, Mr Charles Chan and Mr Varty relied on the following comparables:
144.Interestingly, Lippo Leighton Tower, Guangdong Tours Centre and Emperor Watch and Jewellery Centre all share the following features with Mr Raymond Chan’s and Mr Varty’s hypothetical development model:
145.And again, save for the adjustment for location, Mr Charles Chan and Mr Varty had the following agreements (or disagreement) on the other adjustment factors:
Adjustment for Location 146.In regard of the location adjustment, Mr Charles Chan applied -15% to the office units at Lippo Leighton Tower. This adjustment is completely contrary to his +10% for comparables GR1 & GR2 which lie at the same building. This explains why I have grave reservation on the latter’s correctness in §105 above. Retail premises is supposed to be more sensitive to the location than offices. Here for the location of offices, I prefer Mr Varty’s adjustment of -5%. 147.Similarly, I prefer Mr Varty’s location adjustment of -5% to the office unit in Guangdong Tours Centre. Adjustment for Exclusive Use of Lavatory 148.According to the proposal of Mr Raymond Chan, the upper floors of the hypothetical development will accommodate at most two self-contained units of about 317.0 sq m each with exclusive lavatories so as to facilitate the trades envisaged such as gymnasium, beauty parlour, medical centre etc.[80] In such regard, I agree with Mr Varty that adjustment of +5% has to be applied to those comparables, ie Lippo Leighton Tower and Guangdong Tours Centre that have to share the use of the communal lavatories. 149.I am not persuaded by Mr Charles Chan that for office accommodation of such a large size, it would be undesirable to have exclusive use of lavatories. Mr Charles Chan’s argument is that the provision of exclusive lavatories would reduce the saleable floor area by some 10%. On the other hand, he conceded that for food and beverage uses, it is desirable to have exclusive use of lavatories[81]. Bearing in mind the trades envisaged such as gymnasium, beauty parlour, medical centre etc, I consider the advantage of having exclusive use of lavatories would outweigh the loss of saleable area and the maintenance problem alleged by Mr Charles Chan. Indeed, I agree with Mr Varty that the latter is not a problem at all as it is easy to have agreement with the management office that cleaners can obtain access to the exclusive lavatories. This phenomenon is also well supported by the comparables adopted by Mr Charles Chan in Emperor Watch and Jewellery Centre which happen to have saleable area similar to the hypothetical office unit on 15/F of the hypothetical development proposed by Mr Raymond Chan and have exclusive lavatories. 150.As well, in Double Top Development Limited & Others v Kentone Limited & Others, LDCS 16000/2019 (unreported, 4 April 2023) when Mr Charles Chan also happened to be one of the valuation experts, he agreed to adopt a +5% adjustment to comparables without exclusive lavatory for the reference office unit to reflect the advantage of having such exclusive lavatory.[82] 151.As the result, I get the following analysis on the basis of a hypothetical office unit on 15/F of the hypothetical development which would have a saleable area of 317 sq m or thereabout and a headroom of 5m:
152.It is of particular interest to note that all the comparables above are of very small sizes from saleable area of 38.7 sq m in Guangdong Tours Centre to various sizes up to 120.1 sq m in Lippo Leighton Tower. These comparables perhaps limited the choice of design for the hypothetical development if they were to compare like to like. Then the three sales in Emperor Watch and Jewellery Centre came to light and may therefore provide justification for Mr Varty to increase the size of his hypothetical office units. 153.Thus the applicants had been criticizing Mr Varty’s sudden change of his design from “6 units per floor each about 112.8 sq m” in his first RDV assessment in October 2022[83] and even his design of 6 units per floor, each of 105 sq m in his Updated RDV Report dated 22 August 2023[84] to 2 units per floor in his joint statement with Mr Charles Chan on 31 August 2023. This may be owing to Mr Varty’s oversight of the three sales in Emperor Watch and Jewellery Centre but as an expert, he should be entitled to change his mind on review when new comparables were available[85]. I agree that Mr Varty was entitled to rely on them as additional office comparables:
154.Firstly, while the intended used of the upper floors is quasi-retail uses like gymnasium, beauty salons etc rather than pure office use, I prefer to adopt location adjustment of -20% which is mid-way between the -25% proposed by Mr Charles Chan and the -15% proposed by Mr Varty; as I said earlier at §146, retail premises are supposed to be more sensitive to the location than offices and vice versa. 155.On the other hand, I do not agree with Mr Varty that an adjustment for view is required. I cannot envisage that the hypothetical development will enjoy a superior view than that of Emperor Watch and Jewellery Centre which lies opposite Times Square. 156.And thirdly, once again, I consider only the latest sale of the 20/F should be adopted. 157.As a result, I get an adjusted value of $315,022 per sq m for the latest transaction which is within 2% of $311,157 per sq m arrived earlier. Thus, I am prepared to adopt $315,000 per sq m as the value of the hypothetical office unit on 15/F of the hypothetical development proposed by Mr Raymond Chan. 158.The determination of the GDV of the office floors is therefore as follows:[86]
Gross Floor Area v Saleable Area 159.Despite R7 had also appointed Mr Varty as her valuation expert, I regret that she had not clarified her queries on certain technical or professional issues with him in the first place. 160.For instance, R7 challenged the provision of common area of 3,875.521 sq m[87] as provided by Mr Yung in his hypothetical development excessive. In such regard, R7 seemed fail to pay attention to the common area of 3,793.43 sq m also proposed by Mr Raymond Chan[88], an insignificant difference of about 2%. 161.Indeed, R7 unwisely made reference to other developments in Causeway Bay, like 333 Hennessy Road[89], Novo Jaffe and Oliv etc but without proper researches. Incidentally, sales of units in both 333 Hennessy Road and Novo Jaffe were referred to as comparables in Crown Centre Development Limited & Another v Wong Wai Ping & Others, LDCS 12000/2021 (unreported, dated December 2022) and while sales of units in Oliv were referred to in Chancemore Limited v Yee On Enterprises Limited, LDCS 17000/2015 (unreported, 31 July 2017) as comparables whereby the Tribunal was informed of the particulars of these three developments:
162.With respect to R7, she was obviously not comparing like with like. The requirement of any common area should not be determined arbitrarily as suggested by R7. It must conform to the type and size of the development – a development of larger size certainly requires more common facilities and therefore larger common areas. It is therefore more reasonable and fair to compare the value of premises in terms of saleable area instead of gross floor area. 163.All the more, and with regret, in formulating her misconception, R7 had been referring to the wrong information as contained in sales pamphlets used to be adopted by duplicitous estate agents. For instance, she found from those pamphlets suggesting a total gross floor area for 333 Hennessy Road at 29,793 sq ft[90] which is equivalent to 2,767.84 sq m, ie not conforming with the approved gross floor area by the Building Authority at 2,603.129 sq m. Then arbitrarily, she or the estate agent concerned applied 60% to arrive at a saleable area of 17,876 sq ft which is equivalent to 1,660 sq m. This must be wrong as the layouts and sizes of the G/F and the upper floors of a building must be different owing to the application of the Building (Planning) Regulations. 164.Similarly, and regrettably, R7 referred to another pamphlet suggesting most of the floors in Novo Jaffe[91] having a gross floor area of 2,243 sq ft[92] which is equivalent to 208.34 sq m. As can be seen from the table in §162 above, the saleable area of a typical floor of Novo Jaffe is 112.3 sq m. 165.At trial, R7 also queried why the valuation experts are relying on saleable areas instead of the gross floor areas. With respect, the term gross floor area has been loosely used by the market and particularly unscrupulous estate agents who intend to mislead the prospective purchasers or tenants. Such practice has been criticized by the courts on numerous occasions. 166.For instance, as early as in Haw Hong International Limited v Kei Oi Wah, Linia & Another, HCA 3582/1989 (unreported, dated 8 May 1990), where the plaintiff issued a writ claiming rent, management fees and air-conditioning charges under a 3 years’ lease of new ground floor shop premises in Chatham Road to the defendants, the Court of First Instance remarked the following at §3:
167.And more recently, I had made the following remark in Fullytech Holdings Limited v Tao (TW) Limited, LDPE 1146/2018 (unreported, 2019年3月19日):
168.Thus, as explained by me in court, the term “saleable area” has been widely and commonly used by particularly valuation experts who are members of the professional institutions. In Citilite Properties Limited v Innovative Development Company Limited, HCA 8407/1992 (unreported, dated 21 February 1997), the Court of First Instance had recorded the following:
Interest Rate 169.Mr Charles Chan and Mr Varty differed in their opinion on interest rate: Mr Charles Chan adopted 5.5% by reference to the Hong Kong Dollar Interest Settlement Rate published by Hong Kong Association of Banks and the Hong Kong Best Lending Rate published by HSBC:[93]
170.On the other hand, Mr Varty, referring to recent compulsory sale judgments, adopted 5.0% initially. With respect, it serves no purpose by referring to past compulsory sale judgments when interest rate is not a constant in the residual valuation but subject to changes because of the changes in the economic environment. 171.At trial then, Mr Varty referred to a list of bonds issued by the developers in Hong Kong as of 4 September 2023:[94]
172.While the above shows the returns that investors expect, the real estate developers would incur costs in issuing the bonds. That said, I am prepared to adopt 5.5% as the interest costs in the residual valuation. Development Profit 173.As in many of the compulsory sale proceedings, the determination of developer’s profit to be adopted in a residual valuation is subject to dispute or disagreement by experts. 174.By reference to the Modern Methods of Valuation by Eric Shapiro, David Mackmin and Gary Sams, 12th Ed, 2019, Routledge at p222, the development profits as required in a residual valuation is described as follows:
175.Developer’s profit is normally included as a percentage of the costs involved, or sometimes as a percentage of the GDV. The level of profit should represent the return that a hypothetical developer will require for undertaking the project and should be commensurate with the risk involved. By para 3.6.4 of the HKIS Guidance Notes on Valuation of Development Land published in 2016, the related risks include marketing risks for sales and lettings, risks of construction difficulties and cost overruns, and delays in obtaining relevant development approvals. 176.In a residual valuation, developer’s profit is included in a broad brush nature in the absence of a fully researched risk analysis. Thus, the level of return is only meaningful as a comparative figure but must be related to the risky nature of the hypothetical development and to the length of the project. Without a reasonable profit to be factored in, it would mean that the developer would be purchasing a piece of land for redevelopment expecting no return. This should not occur in reality because there are always alternative investments available in the market with fixed or guaranteed return over a period of time, e.g. Government or corporate bonds which are supposed to have no risk. 177.Perhaps without appreciating this concept, those acting in persons, eg R7 in the present case criticized the inclusion of the developer’s profit in the residual valuation arrived at by the two experts. With respect, there are always risks associated with any investment particularly when the capital to be incurred is rather substantial, e.g. a real estate development. A developer undertaking such development will seek to make a reasonable profit out of his investment. The profit is the gross profit to the developer before meeting the developer’s general overheads and tax. While this profit is sometimes related to the value of the project, it is more appropriate to relate the same to the costs to be injected in the project and is equivalent to profit margin. 178.Reverting to the present case, Mr Charles Chan initially adopted a developer’s profit of 20% in his Supplemental Report dated 28 July 2022[95]. He even maintained this view when he prepared the Joint Statement with Mr Varty dated 13 December 2022.[96] Lately when he prepared the updated RDV report dated 22 August 2023, he changed his opinion to 25%. 179.Apart from stating that the developers were expecting a drop in selling price of the project[97], Mr Charles Chan explained his change in opinion on the following grounds:[98]
180.To counter the above pessimistic economic outlook depicted by Mr Charles Chan, Mr Tsui suggested the reverse, saying that the relations between China and the West are improving as a result of high level contacts, the Federal Reserve of the US had opted to maintain the interest rate level at its meeting in late September 2023, the government has implemented the Enhanced Supplementary Scheme allowing employers in different sectors to import labour up to technician level after failed recruitment for 4 weeks etc. 181.With respect, such economic and political arguments fail to provide a light in the tunnel at least for the moment. All the more, I am however concerned about the so many "economic and political conditions" stated by the parties. In such regard, I must refer to the similar concern raised by the Court of Appeal in Fineway Properties Limited v Sin Ho Yuen Victor, CACV 95/2009 (unreported, 28 May 2010) at §36 that further indulgence of or delving into the macro-economic factor and political climates as enlisted by Mr Charles Chan may end up with a host of references to the works of economic theorists/political commentators whose opinions vary and are sometimes biased.[99] For instance, I fail to see the relations between China and the West are improving when the US, for instance, are still adopting the "small yard, high fence" approach towards China and there are so many sanctions on trades such as sweeping semiconductor export controls. Neither can I find any economic indicator that supports Mr Tsui’s argument that the economy is in an upward trajectory. 182.While Mr Mok is correct to point out that the property market has entered a period submerged in a pervasive atmosphere of gloom and doom, there is always a limit to the range of risk premium within which that can vary because the real estate developers will, to an extent, finance most of their projects on their balance sheets, eg the debt used to finance the investment comes from corporate debt issues that are guaranteed by the corporation as a whole.[100] As well, when firms use their companywide WACC to evaluate their investments, the equity risk premium has the phenomenon of mean reversion over time horizons from 3 years up to 15 years.[101] Therefore, firms placing a risk premium too high would likely be outbid by their competitors if the project is not specialized or unique. That explains why the level of return is only meaningful as a comparative figure. 183.On the other hand, Mr Varty had been all along maintaining a developer’s profit of 15%. In his opinion, the subject site lies at the Lee Gardens / Causeway Bay area which is one of Hong King’s must sought after retail and commercial districts. Mr Varty also opined that the market sentiment had improved over the past year, with COVID and the related restrictions gone behind us and a very noticeable influx of tourists in particular from Mainland China.[102] 184.With respect, I am afraid that Mr Varty’s opinion was too much optimistic by reference to what we understand from the news everyday. Indeed, the Private Offices Price Index (Grade B) published by RVD for the year 2023 shows the picture is not as good as painted by Mr Varty:
185.While not accepting Mr Varty’s over-optimistic view, I am of the opinion that Mr Charles Chan’s relatively high developer’ profit was premised on the innovative scheme initiated by Mr Yung. Striking the balance, I am prepared to adopt a developer’s profit of 22.5%. Other Development Parameters 186.Notwithstanding the above, Mr Charles Chan and Mr Varty had agreed on the following development parameters:[103]
Finding on RDV and the Reserve Price 187.Thus, subject to what I have stated above, I determine the land value of the Lot at $2,425,000,000 (ie accommodation value of $132,334/m2) as shown in Appendix of this judgment. 188.I shall adopt the estimated RDV of $2,425,000,000 as the Reserve Price for the auction of the Lot. Other Incidental Matters 189.The applicants propose to appoint Mr Anthony Chow and Ms Anna Chow, both being consultants of Messrs Guantao & Chow, Solicitors & Notaries, as the sale trustees. Based on the information on their background and experience as set out in their letter dated 31 August 2023, I am satisfied that they are proper persons to be appointed as trustees to discharge the duties imposed on trustees under the Ordinance. The remuneration package proposed in the said letter appears to be reasonable. 190.The applicants have prepared a set of draft Particulars and Conditions of Sale of the Lot of even date. Subject to any amendment that may become necessary as a result of our ruling on the arrangement of auction above, the particulars and conditions of sale of the Lot by public auction submitted by the applicants are also reasonable. Order 191.This Tribunal make the following orders:
Costs 192.I make a costs order nisi that:
193.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. 194.Finally, should any respondent acting in person require interpretation of this judgment into Chinese, he/she should approach my clerk to make prior appointment with court interpreter to arrange for the same.
Mr Mok Yeuk Chi, instructed by Messrs Lo, Wong & Tsui, Solicitors & Notaries, for the 1st to 3rd Applicants 1st Respondent, absent Mr Ross M Y Yuen, instructed by Messrs Woo Kwan Lee & Lo, Solicitors, Notaries, Agents for Trademarks & Patents, for the 2nd Respondent Mr Raymond W N Tsui, instructed by Messrs Peter Mo & Co, Solicitors for the 3rd, 11th, 18th, 20th, 22nd and 25th Respondents 4th Respondent, absent 5th Respondent, absent 6th Respondent, absent 7th Respondent, not legally represented and appeared in person by Ms Lai Leung Yuk 9th Respondent, absent Mr Jonathan Lee, instructed by Messrs Cheung, Chan & Chung, Solicitors & Notaries, Agents for Trademarks & Patents, for the 10th Respondent 13th Respondent, absent 16th Respondent, absent 19th Respondent, absent 21st Respondent, absent 23rd Respondent, absent Attendance of Messrs V Hau & Chow, for the 26th Respondent, was excused [1] By virtue of section 2(3)(a) of the Ordinance, a mortgagee in possession of any property on a lot shall be deemed to be the owner of the undivided shares in the lot which relate to that property. However, the section does not specify whether the deemed ownership is in addition to or in replacement of the registered ownership. [2] Of course, when the saleable area has been doubled from 24.2 sq m to 48.5 sq m, the quantum adjustment as agreed by Mr Charles Chan and Mr Varty at 2% per 5 sq m would reduce the unit value by 9.7%, resulting in a net increase in unit value by 3.1%. However, in general, in the absence of change of other factors, combining two units should reduce unit value instead of increasing unit value. [3] See Exhibit AR 1. [4] See Bundle F1/19. [5] See Bundle F3(4)/477e. [6] See Bundle F2/270-271 and F3(4)/503e-504e. [7] See Bundle F3(4)/479e. [8] See Bundle F2/272 and F3(4)/506e. [9] See Bundle F3(4)/461e-462e. [10] See photographs at Bundle F3(4)/465e-467e and 489e-490e. [11] See photographs at Bundle F3(4)/469e-470e and 492e-493e. [12] See photographs at Bundle F3(4)/472e and 495e-496e. [13] See photographs at Bundle F3(4)/474e-475e and 498e-500e. [14] See Bundle D1/93. [15] Half share. [16] Half share. [17] Half share. [18] Half share. [19] Half share. [20] Half share. [21] The Court of Final Appeal stated further at §36 of the judgment that: “What the Tribunal must do is to consider whether, in the circumstances of each case, the offer falls within a band of what represents a fair and reasonable assessment of the value of the minority owner’s interest reflecting a proportionate share of the redevelopment value of the whole site.” [22] See Bundle C/38 at §7. [23] See Bundle A/66 at §7. [24] The presence of Section P of Inland Lot No 2147 is disregarded as stated in §2 at the beginning of this judgment. [25] See Bundle F2/379 at §4.1.2. [26] See Bundle F3(2)/467b. [27] See Bundle F3(4)/550d. [28] See Bundle F3(4)/618d which has replaced F3(2)/525b. [29] See Bundle F4/463d & 466d. [30] See Bundle F3(2)/513b. [31] See Exhibit R1. [32] See Bundle F3(4)/519d. [33] See Exhibit A1. [34] In that regard, Mr Charles Chan had applied a discount of -2% to the GDV of the entire building tower. [35] This site was in fact the subject of compulsory sale in Intelligent House Limited v Chan Tung Shing & Others, LDCS 11000/2006 dated 23 June 2008 which has been reported as [2008] 4 HKC 421. [36] See Bundle F3(2)/614a. [37] See Exhibit R2. [38] See Bundle F3(4)/550d. [39] See Bundle F3(1)/558a and Exhibit A6 (which replaces Bundles F3(4)/573d). [40] The saleable areas adopted by Mr Charles Chan were at slight variance with (or marginally smaller than) those adopted by Mr Varty. [41] See Exhibit A2. [42] See Bundle F4/466f. [43] Mr Raymond Chan agreed with Mr Yung in their joint report dated 15 August 2023 that the transformer rooms should be located on 1/F. See Bundle F4/465f. [44] Its 21/F & 22/F are also designed for restaurant uses. [45] See Exhibit A7. [46] It is of interest to note that the accommodation value assessed by Mr Varty for the Lot at $190,817 per sq m was only marginally lower than that for the mega site at $193,929 per sq m. [47] This sale was also referred to in Lead Harvest Group Limited & Others v Cheong Wing Electric Limited & Another, LDCS 6000/2018 (unreported, 7 February 2022) at §§149-152. [48] See the plans at Bundle F3(2)/531b & 532b. [49] See Exhibit R5. [50] The saleable areas adopted by Mr Charles Chan were at slight variance with (or marginally smaller than) those adopted by Mr Varty. [51] See Peace Ever Limited & Others v Chan Sui Ching & Others, LDCS 28000/2018 (unreported, dated 1 August 2023) at §§415-416. [52] See F3(2)/504b. [53] See Bundle F3(4)/533d. [54] In the present proceedings, there is no evidence on the loss of ground floor spaces for Nos 25-31 Sugar Street on Gloucester Road which the site abuts as well. [55] See Exhibit A1 at p 4. [56] See Exhibit A1 at p 5. [57] See Exhibit R1 at p 4. [58] See Bundle F4/469f. [59] See Bundle F3(2)/516b. [60] On the other hand, Mr Charles Chan arrived at $710,000 per sq m assuming a reference shop of larger size and different configuaration. [61] For the avoidance of doubt, Mr Charles Chan’s reference shop unit is at a similar location as that of Mr Varty, though of a larger size at 139.415 sq m. See Bundle F3(1)/562a. [62] For instance, I cannot imagine that a bank would be content to have its branch at the subject location where the reference shop unit is situated. [63] The calculation of frontage disregards the length of the return frontage or more properly the display window. [64] Ditto. [65] The calculation of depth disregards a narrow longitudinal strip extending some 5 m beyond the main proper of the shop. [66] The shop indeed comprises two portions which are divided between a wall extending to the full depth. This being the case, the frontage to depth ratio of the portion that lies beside the entrance corridor to the building may have to be doubled to 1:4 or more. [67] This unit value is about 7% lower than the unit rate of $710,000 derived by Mr Charles Chan before he made the concession on the location adjustment for GR3. [68] On the basis of Exhibit R3. [69] As found by both Mr Charles Chan and Mr Varty, the shop was acquired by the present owner at $208,000,000 on 16 June 2017. If the acquisition price is adjusted today by reference to the Private Retail Price index, ie -9.7%, it becomes $187,824,000 which is about 12% higher than the asking price. To an extent, it demonstrates the price of shops in the vicinity has dropped much more than the price index, something doubling the drop of the index. [70] On the basis of Exhibit R6. [71] See John H Lee v The Hong Kong & Shanghai Hotels Ltd, LDLA 15/1983 (unreported, 3 August 1983) at §18. [72] See Bennett v Birmingham Airport Limited [2022] UKUT 00228 (LC) at §§94-96 and Roberts and Bagwell v. The Queen (1955), [1956] 1 DLR (2d) 11 (Ex Ct) [Roberts], 1955 CanLII 312 at 23-24. [73] See F3(2)/473b. [74] See F3(2)/531b & 532b. [75] See Bundle F3(2)/516b. [76] See §80 of the judgment. [77] See §409 of the judgment. [78] Incidentally, this was the unit rate for shops decided by the Tribunal in China Orchid International Limited & Others v Fujitec (HK) Company Limited & Others, LDCS 7000/2018 (unreported, dated 5 May 2023). Why didn’t Mr Varty cherry-pick this unit rate instead? [79]See Bundle F3(4)/589d. [80] See Bundle F3(4)/596d. [81] See Bundle F3(1)/572a. [82] See §48 of the judgment. [83] See Bundle F2/296. [84] See Bundle F3(2)/521b. [85]See Tin Kung Investment Limited v Secretary for Transport, LDRW 16/2001 (unreported, 27 August 2004). [86] See Bundle 523b. [87] See Bundle F3(4)/505d. [88] See Bundle F3(2)/531b. [89] Incidentally, each upper floor unit of 333 Hennessy Road is designed with exclusive lavatories. [90] See Appendix 1 to R7’s opening submission. [91] The pamphlet got the spelling for the building name wrong by referring to it as Novo Jeffe instead of Nov Jaffe. [92] See Appendix 2 to R7’s opening submission. [93] See Bundle F3(4)/463d. [94] See Exhibit R7. [95] See Bundle F1/154. [96] See Bundle F2/485. [97] See Bundle F3(1)/514a. [98] See Bundle F3(1)/515a. [99] See also the remark of Mr Litton VP of the Court of Appeal (as he then was) in Chan Pui Ki v Leung On & Another [1996] 2 HKLRD 401 at 425. [100] See §171 above. [101] https://blogs.cfainstitute.org/investor/2022/07/29/equity-risk-premium-forum-term-structure-mean-reversion-and-cape-reconsidered/ [102] See Bundle F3(2)/477b. [103] See Bundle F3(4)/463d-465d. Appendix 1
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cases cited in this judgment
Further hearings and rulings under LDCS 23000/2019