Kerryford Holdings Ltd and Others v. Profit Valley Ltd and Others
Read the full judgment text of LDCS 8000/2022 on BabelCite. This LDCS judgment was delivered on 21 August 2025.
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 the following lots (which are hereinafter identified as 1 st Lot, 2 nd Lot and 3 rd Lot or where appropriate, collectively as the Lots) with the corresponding three buildings (which are hereinafter identified as 1 st Building, 2 nd Building and 3 rd Building or where appropriate, collectively as the
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LDCS 8000/2022 [2025] HKLdT 46 IN THE LANDS TRIBUNAL OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION LAND COMPULSORY SALE MAIN APPLICATION NO. 8000 OF 2022 __________________________
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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 the following lots (which are hereinafter identified as 1st Lot, 2nd Lot and 3rd Lot or where appropriate, collectively as the Lots) with the corresponding three buildings (which are hereinafter identified as 1st Building, 2nd Building and 3rd Building or where appropriate, collectively as the Buildings) erected thereon:
2.These three buildings were built in accordance with the same set of building plans of reference no 2/2235/58 approved by the Building Authority on 24 December 1959. They are governed by a Deed Granting Mutual Rights dated 23 May 1961 vide memorial UB343929[1] whereby an open-air common right of way (“the Right of Way”) straddles over the flat roof on 1/F of the 1st Building, the 2nd Building and the 3rd Building, running in parallel to Percival Street/ Lee Garden Road (as coloured red on the plan annexed thereto) with an exit leading to Russell Street. 3.The 1st Building comprises two groups of building fronting Percival Street and Lee Garden Road respectively, separated by the Right of Way on 1/F. Fronting Percival Street are two pairs of 9-storey commercial/ residential tenement buildings at Nos 54, 56, 58 & 60 Percival Street each of which is served by two common staircases leading from Percival Street and the Right of Way. Fronting Lee Garden Road are two pairs of 6-storey commercial/ residential tenement buildings at Nos 5, 7, 9 & 11 Lee Garden Road each of which is served by a common staircase leading from Lee Garden Road. According to an occupation Permit No H1 dated 4 January 1963, the ground floor of the building was permitted for shops for non-domestic use while the upper floors of the building was permitted for domestic use with particulars as per the approved building plan dated 24 December 1959 as follows:
4.The 2nd Building, which is named Happy Mansion, comprises also two groups of building fronting Percival Street and Lee Garden Road respectively, separated by the Right of Way on 1/F. Fronting Percival Street are two pairs of 9-storey commercial/ residential tenement buildings at Nos 62, 62A, 64, 64A, 66, 66A, 68 & 68A Percival Street each of which is served by two common staircases leading from Percival Street and the Right of Way. Fronting Lee Garden Road are two pairs of 6-storey commercial/ residential tenement buildings at Nos 13, 15, 17 & 19 Lee Garden Road each of which is served by a common staircase leading from Lee Garden Road. According to an occupation Permit No H31 dated 26 February 1963, the ground floor of the building was permitted for shops for non-domestic use while the upper floors of the building was permitted for domestic use with particulars as per the approved building plan also dated 24 December 1959 as follows:
5.The 3rd Building likewise comprises two groups of building fronting Percival Street and Lee Garden Road respectively, separated by the Right of Way on 1/F. One group comprises two pairs of 9-storey commercial/ residential tenement buildings at Nos 70 & 72 Percival Street and Nos 74 & 76 Percival Street respectively. The buildings at Nos 70 & 72 Percival Street are served by two common staircases leading from Percival Street and the Right of Way. The buildings at Nos 74 & 76 Percival Street are served by two common staircases leading from Percival Street, the Right of Way and Russell Street on which an additional shop (which is also sub-divided into two) is provided on G/F. The other group of buildings at Nos 21, 23, 25 & 27 Lee Garden Road comprise two pairs of 6-storey commercial/ residential tenement buildings each of which is served by a common staircase. According to an occupation Permit No H14 dated 24 January 1963, the ground floor of the building was permitted for shops for non-domestic use while the upper floors of the building was permitted for domestic use with particulars as per the approved building plan also dated 24 December 1959 as follows:
6.The 1st Building is governed by a Deed of Mutual Covenant dated 21 January 1964 vide memorial UB424882 at the Land Registry whereby, inter alia, each of the ground floor unit at Nos 54, 56, 58 and 60 Percival Street has been allotted to 2/96 equal and undivided shares of the corresponding lots on which the 1st Building stands whereas each of the upper floor units of the 1st Building has been allotted to 1/96 equal and undivided shares of the corresponding lots. Details of the ownership and the undivided shares and the allotted individual unit are summarised at Appendix 1 herein. 7.The 2nd Building is governed by a Deed of Mutual Covenant dated 21 March 1963 vide memorial UB394753 at the Land Registry whereby, inter alia, each of the unit of the 2nd Building has been allotted to 1/108 equal and undivided shares of the corresponding lots on which it stands save that an additional 2/108 equal and undivided shares have attached the roofs at Nos 13, 15, 17 and 19 Lee Garden Road. Details of the ownership and the undivided shares with allotted individual unit are summarised at Appendix 2 herein. 8.The 3rd Building is governed by a Deed of Mutual Covenant dated 22 February 1963 vide memorial UB394096 at the Land Registry, whereby, inter alia, each of the unit of the 3rd Building has been allotted to 1/93 equal and undivided shares of the corresponding lots on which it stands. However, by a Sub-Deed of Mutual Covenant dated 4 May 1989 in respect of Ground Floor at No 74 Percival Street vide memorial UB4106527[2]:
9.Furthermore, by a Sub-Deed of Mutual Covenant dated 20 July 1990 in respect of the Left Portion of the Ground Floor of No 60 Russell Street and Portion of the Rear Portion of the Ground Floor of No 74 Percival Street vide memorial UB4505229[3],
10.On the other hand, by an Assignment dated 23 September 1967 in respect of the Rear Portion of the Ground Floor of No 25 Lee Garden Road vide memorial UB600804 at the Land Registry, the Vendor:
11.Similarly, by an Assignment dated 1 March 2005 in respect of the Remaining Portion of the Ground Floor of No 60 Russell Street and the Remaining Portion of the Ground Floor of No 74 Percival Street vide memorial 05033002070039 at the Land Registry, the Vendor agreed to assign:
12.By virtue of the above, the 40th respondent became the owner of (1) Remaining Portion of the Rear Portion of No 74 Percival Street, (2) Remaining Portion of No 60 Russell Street and (3) Rear Portion of No 25 Lee Garden Road. These shops are amalgamated to form a single shop unit (hereinafter referred to collectively as “the Merged Shop”). 13.As well, the 39th respondent became the owner of (1) Portion of the Rear Portion of No 74 Percival Street and (2) Left Portion of No 60 Russell Street. They are also amalgamated to form a single shop unit (hereinafter referred to collectively as “the Combined Shop”). 14.Details of the ownership and the undivided shares with each allotted individual unit of the 3rd Building are summarised at Appendix 3 herein. 15.By reference to the record of ownership thereof[4], as at the date of Application on 23 May 2022, the applicants collectively owned the Lots as follows:
16.Upon the Application being made, there were 51 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. 17.Subsequently, the applicants acquired the following interests and the proceedings against the corresponding owners have been discontinued:
18.Thus, as at the 1st day of trial, the applicants collectively owned the Lots as follows:
LIVE RESPONDENTS REMAINING ON RECORD 19.There are 11 respondents, including R12, R13, R29, R30, R31, R32, R43, R44, R48, R49 and R50, who cannot be found and service on them had been dispensed with by order made under section 3(4) of the Ordinance. There remain 28 “live” respondents. However, R14 and R28 have never appeared in the proceedings despite being continually served with all documents to their last known addresses. Most of the remaining respondents are legally represented:
ISSUES IN THE APPLICATION 20.Mr Mok Yeuk Chi (“Mr Mok”), leading Mr Adrian But (“Mr But”), represented the applicants at this trial. 21.By reference to the opening submissions of all trial counsel, particularly that from Ms Chow on behalf of R2 & R42, there are the following issues to be determined by the Tribunal, namely:
THE EVIDENCE 22.The applicants have filed the following documents in support of the Application:
23.Some of the Remaining Respondents (more particularly R2/R42, R4/R5/R6, R7, R8/R9/R10, R15/R38/R46, R16/R19/R39, R18, R27, R20/R21/R22/R23, R33, R36 and R40) appointed Mr Patrick Lai as their single joint valuation expert. Mr Patrick Lai has filed the following reports:
24.In the meantime, the two valuation experts have also prepared two joint statements as follows:
25.In addition, whereas the two valuation experts have prepared their RDV valuations on the basis of the advice of their corresponding Authorised Persons appointed by the parties, the two Authorised Persons, Mr Ng Chi Ho (“Mr Ng”) and Mr Remus Wong Wai Kong (“Mr Remus Wong”) respectively, have also prepared a joint statement dated 27 September 2024. 26.Then at trial, the two valuation experts had prepared a set of tables consolidating their valuation opinions on EUV and RDV[6]. 27.In addition, the following respondents have filed witness statements listed in the table below:
28.By consent, it was ordered by Deputy Judge Michelle Soong (as she then was) 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”. They were so adduced. The Applicants factual witness, Mr Hui, gave evidence in terms of his witness statements. 29.The other respondents did not file any witness statement. WHETHER THE APPLICANTS ARE ENTITLED TO MAKE THE APPLICATION (Issue 1) 30.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. 31.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. 32.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”. 33.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%. 34.Without prejudice to the above, section 3(2) of the Ordinance stipulates that an application under section 3(1) may cover:
35.Section 2 of the Ordinance defines “lot” as follows:
36.Mr Mok and Mr But summarised in their opening that at the time of the Application, ie 23 May 2022, the applicants collectively owned 85.42%, 80.09% and 90.32% of the undivided shares in the 1st Lot/ 1st Building, 2nd Lot/ 2nd Building and 3rd Lot/ 3rd Building respectively. 37.They also referred to Annex A of their opening whereby each of the “sections” with the 1st Lot, 2nd Lot and 3rd Lot constitutes and means a “lot” under section 2 of the Ordinance. Obviously, the applicants’ ownership of undivided shares in all the relevant sections surpassed the statutory threshold of 80%. 38.At the Pre-Trial Review on 16 September 2024, none of the respondents, save for R2 and R42, indicated that they would take issue on the ownership or threshold under section 3 of the Ordinance. 39.After the Pre-Trial Review, by the letters of Messrs Grandall Zimmern Law Firm, the solicitors of R2 and R42, dated 26 September 2024 and 3 October 2024, R2 and R42 made the following clarification of their position:
40.We agree with Mr Mok & Mr But that there appears to be a misunderstanding by Messrs Grandall Zimmern Law Firm of the basic legal nature of co-ownership of landed interest operated by the holding of undivided shares in a lot or lots as regulated by a DMC. For instance, section 3(2)(a) of the Ordinance permits the Application to cover 2 or more lots where the majority owner owns not less than the requisite percentage. In the present case, ownership of a unit in the 1st Building is attached to ownership of 1 or 2 out of 96 share(s) of each of ML365 sARP, ML365 sCRP and IL29 sWss1RP. Each of the owners in the 1st Building is a tenant-in-common who is entitled to unity of possession of all the sections (or “lots” as defined under section 2 of the Ordinance) making up each of the 1st Lot. There is no dichotomy among the ownership of the undivided shares in either of the sections. And the same principle applied to the ownership of a unit in the 2nd Building. 41.Indeed, the Court of Appeal in Pacific Base stated at §18 that:
42.In other words, the Court of Appeal confirmed that the Ordinance is constructed on and has adopted the regime of co-ownership as tenants-in-common of section(s)/lot(s) by undivided shares usually regulated by a DMC. The judgment did not rule that the Ordinance is DMC based or otherwise. To the contrary, as submitted by the applicants and we agree, the Court of Appeal accepted that the undivided shares of section(s)/lot(s) set out in a DMC is the way co-ownership of landed interest operates in Hong Kong and confirmed that the Ordinance adopted and is constructed on this mechanism. There is no dichotomy between “lot based” and “DMC based” as alleged by R2 and R42. 43.Once again, we hold that, on the proper construction of section 3(1) of the Ordinance, the applicants have satisfied the ownership threshold of the 1st Lot and the 2nd Lot (and, of course the 3rd Lot) under section 3 of the Ordinance in the present proceedings. EUV AS AT 6 MAY 2022 (Issue 4) Assessment of EUV of G/F Units 44.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 Chan in his Application Report dated 19 May 2022. 45.The Buildings altogether stand on a site which is rectangular in shape. It is bounded by Percival Street on the southwest and Lee Garden Road on the northeast close to their respective junctions with Hennessy Road as well as a short section of Russell Street, a pedestrian precinct, on the southeast. Percival Street is an artery in the locality that leads from the business hub of Causeway Bay at Hennessy Road to its junction with Leighton Road that leads further to the Happy Valley district. Lee Garden Road runs in parallel to Percival Street but is of lesser width and lesser popularity, though at its junction with Hennessy Road lies the Hysan Place which is a popular shopping and office development in the district. 46.A more famed landmark commercial development, Times Square, which comprises two office towers and a shopping mall of over 10-storeys, abuts Russell Street when the latter runs further west from the Buildings across Percival Street. 47.These streets therefore enjoy different pedestrian flow and thus different retail potential. For instance, apart from being in proximity to Times Square, Percival Street enjoys high pedestrian flow coming from Hennessy Road which is a main distributor in the locality. In addition, a footbridge across Hennessy Road is located along Percival Street with one exit fronting onto Lockhart Road and another exit in front of the shop at No 54 Percival Street, bringing pedestrians all the way from the northern part of the Causeway Bay district which is also one of the popular shopping areas in the vicinity. The Foo Ming Street tram stop is located right in front of the 2nd Building on Percival Street generating a great number of commuters passing along the shops on Percival Street in the Buildings. 48.On the other hand, the ground floor shops in the Buildings close to the junction of Lee Garden Road and Russell Street enjoy high pedestrian flow coming down from Kai Chiu Road which leads its way around Hysan Place from Jardine’s Crescent where an exit from the MTR Causeway Bay station is located. 49.The location and layout of the shops in the Buildings are shown in Appendix 4 of this judgment. Their uses or occupation as at 6 May 2022 are as follows:
Disputes on Saleable Areas/ Effective Floor Areas of Shops 50.By reference to the 1st Joint Statement dated 28 December 2023[8], Mr Chan and Mr Lai had the following agreements on the particulars of the various shop units on G/F of the Buildings (save for the converted values of the ancillary areas which result in different effective floor areas):
Dispute on Saleable Area of G/F, No 76 Percival Street 51.As can be seen from the table above, Mr Chan and Mr Lai could not agree on the saleable area of G/F, 76 Percival Street. In his Application Report dated 19 May 2022, Mr Chan stated that the saleable areas and ancillary areas (if any) were assessed “(a)ccording to the measurement of the Approved Building Plans and the assignment plans of the respective units”. He arrived at 32.7 sq m. 52.Interestingly, as submitted by Ms Chow on behalf of R42, the dimensions of the area of G/F, No 76 Percival Street as stated on the Approved Building Plan[10] are (15’7½” – 3’8”[11]/2) x (30’1” – 3’6”[12]) = 370 sq ft or 34.37 sq m. Furthermore, according to the assignment plan vide memorial UBM 447741 reproduced in the inspection bundle, it stated “AREA: 472.51 SQ FT” which is equivalent to 43.90 sq m. This 43.90 sq m however includes 1.8 sq m with headroom of 2 m above and 3.4 sq m with headroom below 2 metres agreed by both valuation experts. If these latter areas are excluded, the saleable area would become 38.70 sq m. 53.R42 instructed an Authorised Land Surveyor to conduct an on-site measurement which revealed a total floor area of 41.2 sq m including the 1.8 sq m with headroom of 2 m above and 3.4 sq m with headroom below 2 metres[13]. Thus, Mr Lai adopted the net area of 36.0 sq m as the saleable area. 54.In general, we agree that actual measurements on-site should be preferred to measurements from plans which might be subject to distortion and building error. A prospective purchaser of the unit, especially shop unit, would only place his/ her bid on the basis of the actual unit he/ she finds unless access is not available. In Haw Hong International Limited v Kei Oi Wah, Linia & Another, HCA 3582/1989 (unreported, dated 8 May 1990), for instance, the tenant complained that the actual usable area of the shop premises was much less than that suggested by the developer. 55.For the reasons explained above, Mr Lai’s adoped 36.0 sq m is preferred. Unauthorised Shopfront 56.On the other hand, Mr Chan asserted that, at G/F, No 76 Percival Street, there exist two strips of land (which are marked and coloured yellow) on the floor plan contained in his Rebuttal Report dated 23 November 2023[14] (which has been reproduced in the Inspection Bundle on page 29) being unauthorised shopfront extension onto the pavement of Percival Street and Russell Street. According to him, these strips of land should not be regarded as saleable area but they were included in the “Surveyed Occupation Area” measured by the Authorised Land Surveyor. 57.When the survey plan which was dated 19 October 2023[15] is compared with the Approved Building Plan, Ms Chow submitted that the area as measured by the Authorised Land Surveyor fell completely within the building line and therefore there is no unauthorised extension onto the pavement as asserted by Mr Chan. We cannot agree. The frontage of G/F, No 76 Percival Street onto the pavement of Russell Street as measured by the Authorised Land Surveyor from the depth of the shop adds up to (0.18 m + 3.635 m + 0.495 m) = 4.31 m or about 14’1½” which is longer than the depth from the Approved Building Plan at 13’9½” by some 4 inches. Similarly, the frontage onto the pavement of Percival Street extends at least up to 0.18 m or 7 inches on Government land. 58.Indeed, certain other G/F shops in the Buildings had similar unauthorised shopfront extensions onto the public pavement. They are:
59.In Mr Chan’s opinion, such extensions lie on Government land beyond the boundary of the Lots; they face a high risk of enforcement action from the Building Authority and the Lands Department. Any potential purchasers of these shops would be aware of the high risk and would not pay any additional price for the unauthorised shopfront extensions. Mr Chan therefore assigned no value to such unauthorised shopfront extensions. 60.Indeed, on 5 February 2018, the Building Authority issued a Superseding Order No CTS02/TB11/SU/0008/17/HK pointing out “A shopfront extension extending onto the pavement of Percival Street and Russell Street” and requiring the demolition thereof[16]. However, from evidence of the different paving materials on the pavement of Percival Street and Russell Street when compared with the photograph attached to the Superseding Order, according to the observation of Mr Benson Wong, the unauthorised shopfront extension subject to this Superseding Order appears to have been demolished. That notwithstanding, this Superseding Order had not been withdrawn or discharged[17]. According to Ms Chow, R42 had only taken steps to meet the Buildings Department’s requirements which resulted in the shrinking of its once “extended portions”. 61.On the other hand, Mr Lai was given to understand from the owners of those shops that the relevant sections of the pavement had been occupied for the purpose of the shop spaces for a very long period of time. However, his assertion that the occupation of such pavement had not been subject to any interruption or enforcement action by any government departments and/or objection from the other owners of the Buildings is rebutted by the Superseding Order mentioned above. 62.Nevertheless, upon our joint inspection on 17 October 2024, we found such remaining extensions have marginal width only and have merged with the shop front of the corresponding shops. Such extensions are hardly distinguishable from the shop front of the corresponding shops. As admitted by Mr Mok and Mr But in their Closing Submission at §52:
63.More importantly, by reference to the photograph taken on 31 March 2022 by Mr Chan[18], the traces of the reinstatement are obvious. As at the relevant date of 6 May 2022 and up to the present, there appears to have been no further enforcement action by the Government. Therefore, we agree with Mr Lai that those unauthorised shopfront extensions have become an integral part of the shop spaces. 64.In Wealth Plan Development Limited v Xiu Chuan Limited & Others, LDCS 21000/2018 (unreported, dated 27 December 2019), there was government land of about 167.2 sq m adjacent to Unit A on G/F which was also occupied by the existing tenant. The Tribunal was of the view that a prudent purchaser would pay a higher price to acquire Unit A on G/F in the circumstances at say 10% increase in value[19]. 65.By comparison with the present case, we agree further with what Mr Lai stated in his Valuation Report dated 26 October 2023 at §2.7.5 as follows:
66.We note however from the same judgment of Wealth Plan Development at §30 where the Tribunal was referred to Land (Miscellaneous Provisions) Ordinance, Cap. 28, whereby occupation of government land without permission is a potential criminal offence (i.e. s.6(4); any person occupying unleased land who without reasonable excuse does not cease to occupy the same as required by a notice shall be guilty of an offence), and engaging in the erection of a structure on government land is a criminal offence (i.e. s.6(4A)). 67.However, in Yip Alice and others v Wong Shun (No 2) [2003] 2 HKC 528, Le Pichon JA (as she then was) reasoned that:-
68.Likewise, Yuen JA also pointed out in the same case:
69.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, authorised or unauthorised. 70.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:
71.More recently, in Newbigin (VO) v SJ & J Monk (A Firm) [2015] 1 WLR 4817, Lewison LJ discussed “the reality principle” in these terms:
72.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 recognised 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.” 73.Thus, for the purpose of the present proceedings, we are content to treat the unauthorised shop fronts as having the same value as the saleable areas adjoining thereto. In fact, as demonstrated by the facts and discussions in Li Yan Ping v Multi Elite Limited & Another, HCA 1486/2014 (unreported, 22 October 2020), many purchasers of shop premises either have full knowledge of or were indifferent to the presence of “unauthorised or illegal structures”. They were prepared to take the commercial risk of the “unauthorised or illegal structures”. 74.This same fact can also be demonstrated by reference to the tenancy agreement in favour of the former tenant of G/F, Left Portion of No 60 Russell Street & Portion of Rear Portion of No 74 Percival Street dated 6 December 2018. This was in fact a renewal of an earlier 3-year tenancy commencing from 18 April 2016. Clause 9 of the renewal tenancy allowed the tenant to carry out works to the interior and facade/ signboard of the premises in accordance with the plans in the Third Schedule thereto. By comparing Section B-B and Section C-C of the shopfront design as shown in the Third Schedule thereto[22] to the G/F Plan[23] and Section A-A Plan[24] of the Buildings, it appears that the shopfront extensions (as well as the foundation pads below ground that extend beyond the site boundary) had already existed. 75.And during the joint site inspection on 17 October 2024, we noted that the existing tenant (which is different from the one in 2016) placed the wooden easel with promotional messages right up to the edge of the shopfront extension[25]. Similarly, the occupiers of G/F, Remaining Portion of 60 Russell Street & Remaining Portion of the Rear Portion of 74 Percival Street & Portion A of 25 Lee Garden Road (which is owned by R40) and G/F, No 76 Percival Street also displayed their clothing mannequins or clothing racks right up to the edge of the shopfront extensions[26]. We do not agree with the applicants that a tenant is not willing to pay more rent to the landlord for such encroached portions that is “de minimis and unnoticeable when viewed in parallel with the existing building line of other shops nearby” [27]. 76.In any event, as will be seen, we are going to adopt the zoning approach in assessing the EUV of the shop premises of the Buildings. Zoning takes as its basic assumption that the most valuable part of a shop is the area closest to the frontage and areas of sales space further back into the shop are less valuable. As a result, inclusion of the unauthorised shopfronts as saleable area in the valuation would push the areas of space beyond the first zoning depth to the next zone. Thus, the effect of including the unauthorised shopfronts as saleable area would be reduced by half when the halving-back approach is adopted. 77.Reverting to G/F, No 76 Percival Street, however, while we are prepared to accept the extended shop fronts having the same value as the saleable area of the unit, we find the inclusion of the column beside the common staircase that abuts Russell Street questionable. 78.By reference to the Code of Measuring Practice published by the Hong Kong Institute of Surveyors, the saleable area of a unit should comprise the floor area “contained within the enclosing walls of the unit measured up to the exterior surface of an external wall… Enclosing walls separating a unit from … a common area, shall be deemed an external wall and its full thickness shall be included. All internal partitions and columns within the unit shall be included.” 79.Nevertheless, in our opinion, the column in question lies not “within the unit”. In Good Faith Properties Limited and Others v Cibean Development Company Limited, LDCS 42000/2011 (unreported, dated 31 May 2013), the Tribunal agreed with the expert in that case that the columns in shops do have potential to attract customers. More recently, in Tai Ping Restaurant Limited v Director of Lands, LDLR 1/2013 (unreported, dated 8 December 2014) (“Tai Ping Restaurant”), Member Ng of the Tribunal said at §38:
80.Upon our joint inspection on 17 October 2024, we found the advertising signage mounted on the column in question had no connection whatsoever with the prevailing occupier of G/F, No 76 Percival Street. Ms Chow confirmed that R42, ie the owner of the shop unit, had not derived any income from that signages. In such regard, the area marked Rear Area under Sunken Ceiling with Headroom of 2.4 m or Below 81.By reference to §2 above, the Right of Way runs in parallel to Percival Street/ Lee Garden Road in the middle of each group of the Buildings on their 1/F level. Because of the difference in level, all ground floor shops of the Buildings that fronts Lee Garden Road have sunken ceilings at the rear. According to the Approved Building Plans of the Buildings, the headrooms at the front of the shops range from 4.4 m to 4.7 m while the headrooms at the rear under the sunken ceilings of the shops range from 2.1 m to 2.4 m. These areas under the sunken ceiling of each shop amount to some 34% to 36% of the total floor area of the shop. An elevation plan copied from the Approved Building Plan which shows the sunken ceiling is attached at Appendix 5[28]. 82.In Mr Chan’s opinion, the portions of the shops with lower headroom render them less visible and less usable. According to him, they are occupied usually as back-of-house and storage areas. Mr Chan considered therefore the portions of the shops with lower headroom less valuable than the front portion with headrooms of 4.4 m to 4.6 m. He has adopted a conversion factor of ½ for such areas. 83.Mr Lai disagreed. In his opinion, the shop areas under the sunken ceilings still enjoy a headroom of 2 m or above and should command the same value as the shop spaces in the front. Mr Lai explained that for shops with relatively long depth, it is very common that the shop spaces at the back at a distance from the shop front are used for back-of-house or storage areas even if they are of headrooms similar to those in the front portion. Mr Lai further elaborated that the use of these shop spaces for back-of-house or storage purposes was due to the fact that they are situated at a distance some 9.2 metres from the shop front[29]. 84.During our joint inspection on 17 October 2024, we had gone inside the shops at No 5 Lee Garden Road, 17 Lee Garden Road and No 58 Percival Street. We agree with Mr Lai that those areas under the sunken ceiling can be put to good uses like the seating area of a restaurant, kitchen or cashier counter. Take G/F, 5 Lee Garden Road as an example, it is occupied as a sitting area of a restaurant, “Spicy Girls”. If Mr Chan is correct, the saleable area together with the rear area under the sunken ceiling will give an effective area of 41.1 sq m + 85.In contrast, Mr Lai adopted the total of 41.1 sq m + 21.3 sq = 62.3 sq m subject to an adjustment in ceiling height or headroom at 6% per 1 m for the rear sunken area. That is, assuming the headroom has a height of 2.3 m, the rear area will be subject to a discount of 13.8% or thereabouts, which we consider about right. As a result, we shall adopt the saleable area of the main area together with the rear area under the sunken ceiling at 59.46 sq m. Area under Common Staircases and Landing with Headroom exceeding 2 m 86.Similar to the rear areas under sunken ceilings, the two experts disagreed on the conversion factor applicable to areas under common staircases or landing areas with headroom exceeding 2 m. Such areas are scattered at the rear and the middle part of the shops and are intermingle with some columns and walls inside. The headroom of some of these areas are uneven or tilted. According to Mr Chan, the lower and uneven headroom hinders the shop from, for instance, erecting a larger and useful cockloft; they are mostly occupied as back-of-house areas or storage spaces and some of them are even enclosed and not in use at all. 87.Again, Mr Chan valued these areas under common staircases at half the unit rate of the shop proper but Mr Lai argued that they should fetch the same rate. 88.Like the treatment for areas under the sunken ceilings[31], we consider the discount by Mr Chan excessive. We shall adopt a discount of 20% for such areas under common staircases instead. Area under Common Staircases and Landing with Headroom between 1.2 m to 2 m 89.In addition to the above, each of the shops at No 66 Percival Street and No 68 Percival Street contains an area about 1.5 sq m under common staircases and landing areas with a headroom of between 1.2 m and 2 m. A similar area is also found in the shop at No 27 Lee Garden Road but has a larger area of 4.5 sq m:
90.These areas are mostly located at less conspicuous parts of the shops. The headroom for some of them are uneven and tilted. As such, they have limited vertical spaces. According to Mr Chan, they can only be used to store very limited items or are not usable at all. 91.Mr Chan valued such areas at 1/8th of the floor proper while Mr Lai valued them at ½. Here again, we agree Mr Lai[32]. Area under Common Staircases and Landing with Headroom of less than 1.2 m 92.Obviously, there could be little use for those areas under common staircase and landing areas with a headroom of less than 1.2 m. Here, Mr Lai again valued such area at half of the unit rate of the floor proper which is excessive. We prefer to adopt a conversion factor of 1/10th as proposed by Mr Chan. Unauthorised Cocklofts 93.There is an unauthorised cockloft at G/F, No 62 Percival Street which is owned by R15. Ms Mo, Property Management Head, General Affairs Department of R15, stated in her Witness Statement dated 1 June 2023 as follows[33]:
94.Initially, Mr Lai considered that the conversion rate of 1/6 should be adopted for the unauthorised cockloft. He did not assign any value to another unauthorised cockloft at G/F, No 68 Percival Street. He explained in his Valuation Report dated 26 October 2023 as follows:
95.According to Mr Chan, however, unauthorised cocklofts are also built inside G/F, Nos 62, 64 and 68 Percival Street. 96.Subsequently, by their Joint Statement dated 28 December 2023, Mr Chan and Mr Lai agreed the conversion factor for unauthorised cockloft at 1/12th of that of the floor proper. However, they could not agree which unauthorised cockloft was to be assigned such a unit value[34]. 97.Mr Suen, on behalf of R15, submitted that, by reference to photos of the cocklofts at G/F, No 64 Percival Street[35] and G/F, No 68 Percival Street[36] for instance, that cockloft at G/F, No 62 Percival Street appeared in better condition and therefore ought to have been accorded with a higher conversion rate than the other two. More particularly, Mr Suen drew our attention to the cockloft at G/F, No 62 Percival Street having been installed with proper toilet facilities[37] which the unauthorised cocklofts for the other two are lacking. 98.We agree with Mr Suen and would assign 1/6th of the unit rate proper to that of the cockloft at G/F, No 62 Percival Street. Additional Shop Signage 99.A large sign, though unilluminated, is installed on the beam facing Russell Street across the entrance to the Right of Way. Mr Lai made reference to the approved building plans and on the basis of his own measurement, the signage had the width of 2.12 metres. It was not part of the interest assigned to anybody by reference to the assignments, for instance, of the Remaining Portion of G/F, No 60 Russell Street and the Remaining Portion of the Rear Portion on G/F, No 74 Percival Street and Portion A (Rear Portion) on G/F, No 25 Lee Garden Road (ie the Merged Shop). However, upon site inspection, it was used by the Merged Shop’s occupier as such. According to Mr Lai, the occupation and use of the beam for such purpose had not been subject to any interruption and objection from other owners of the Buildings. We are not provided with evidence to the contrary and we are convinced that a prospective purchaser of the Merged Shop would take into account the enhancement for exposure. Mr Lai considered the signage an extended frontage of the shop and proposed that the enhancement in value of the frontage would be as much as 1/3 of the width of the signage. Mr Chan rebutted at para 3.3.5 of his Rebuttal Report dated 23 November 2023 that, by adding 1/3 of the width of the signage to the frontage of the shop, the value of the shop would have increased substantially by about $4,000,000[38]. However, we consider this enhancement proposed by Mr Lai not unreasonable as it accounts for only some 2.65% of the total value. 100.In light of the above discussions, we set out the effective floor areas in respect of the various G/F shops of the Buildings in the following:
Direct Comparison Approach 101.Mr Chan considered the retail units on G/F of the Buildings have distinctive characteristics as they front onto different streets, namely Percival Street which is an artery in the locality that leads from the business hub of Causeway Bay at Hennessy Road and Lee Garden Road which though it runs in parallel to Percival Street is of lesser width and lesser popularity. He chose therefore two reference units as the basis of comparison:
102.On the other hand, Mr Lai just adopted the latter as the reference unit and used one set of comparables for valuation. 103.The comparable method works on the substitution principle that the value of one property can be derived by comparing it with prices achieved from transactions of similar properties because a buyer will not pay more than the cost of acquiring an equivalent substitute. However, comparable evidence is only as good as the comparables are similar to the property being valued, ie the principle of comparing like with like. The more adjustments a valuer needs to make to the comparable evidence, the less weight can be attached to it. Thus, in theory, Mr Chan’s approach should be preferred if he adopted a set of comparables which bear much similarity to the reference units. In this regard, the location of the comparables is usually the most important factor in a direct comparison exercise. 104.For instance, Mr Chan relied on the following Comparables R1 to R4 as comparables for the Reference Typical Ground Floor Retail Unit and the following Comparables R5 to R7 as comparables for the Reference Prime Ground Floor Unit. Mr Lai just relied on Comparables R1, R2 and R7 as comparables[39]:
105.Thus, on the basis of the different approaches and different comparables adopted by Mr Chan and Mr Lai, they determined the EUV of Portion B (Front Portion) of G/F, No 25 Lee Garden Road at a unit rate of $3,185,000 per sq m and $2,692,827 per sq m respectively. 106.In respect of the comparables adopted by the valuation experts, however, Comparables R3 and R4 are situated on Lockhart Road or Jaffe Road at positions which are much inferior in location. For instance, Mr Chan himself applied as much as +55% adjustment for location. In addition, these two transactions took place in late 2021 and late 2020 respectively when Hong Kong was suffering from the Covid-19 pandemic. On 6 December 2021, for instance, the Government announced the requirement for using the "LeaveHomeSafe" (LHS) mobile application in entering all premises regulated under the Prevention and Control of Disease (Requirements and Directions) (Business and Premises) Regulation (Cap. 599F) [40]. But the Covid-19 epidemic situation in Hong Kong evolved drastically and on 5 January 2022, the Government began to tighten social distancing measures starting from 7 January 2022 including the cessation of mass events and dine-in services at catering businesses from 6 pm to 4.59 am. Then on 8 February 2022, the then Chief Executive announced further that while the maximum number of people permitted for group gatherings in public places would be lowered from four to two[41], the Government would, for the first time, impose restrictions on group gatherings in private premises by limiting multi-household gatherings in private premises to two families. Such social distancing measures were further tightened from 10 February 2022 after the Chinese New Year on 1 February 2022[42]. From 24 February 2022, people entering all scheduled premises, including the six new categories of places of worship, shopping malls, department stores, supermarkets, wet markets and hair salons, had to adhere to the vaccine pass arrangements by using the LeaveHomeSafe mobile app and presenting their vaccination record. During that interim period, except club-houses and hotels or guesthouses, all scheduled premises regulated under Cap. 599F had to suspend operation. 107.On 22 February 2022, the Government announced further tightening of social distancing measures and its intention to maintain the relevant measures until April 20 2022[43]. For most catering businesses, for instance, from 6pm to 4.59am of the subsequent day, a person responsible for carrying on a catering business must cease selling or supplying food or drink for consumption on the premises of the business, and close any premises or part of the premises (whichever is applicable) on which food or drink is sold or supplied by the business for consumption on the premises. 108.Retail businesses in the tourist or popular retail hubs had fallen into the doldrums since then. It is no wonder why the two valuation experts could not find any sales comparable around the relevant date. From the Private Retail Price index published by the Rating and Valuation Department (“RVD”) as shown below, shop values in general between January to April of 2022 were hard hit. Of course, during such period, it is doubtful if, for instance, the private retail price index published by RVD could provide reliable guidance on the movement of the retail shop prices in the subject vicinity:
109.In Billion Glory Properties Limited & Others v Li Baozhu & Others, LDCS 23000/2019 (unreported, dated 29 February 2024), the Tribunal ruled, for instance, at §114 that “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.” 110.In fact, in his Second Supplemental Report dated 10 September 2024, Mr Chan gave an illustration at para 11.1.12[44]. Then at para 11.1.13 & 11.1.14, Mr Chan stated as follows:
111.In view of the above, even Mr Chan admitted that there was a lack of relevant sales comparables around the date of valuation. In this regard, we do not consider there are adequate comparables to justify Mr Chan’s approach in dividing the comparables he collected into two groups and on the basis of two reference shop units. In any event, if as Mr Chan testified at trial the location difference “should be 20% to 25%”[45], such adjustments would be readily accommodated by the use of one set of comparables. 112.More particularly, Mr Lai commented in the 1st Joint Statement as follows:
113.While we may not totally agree with Mr Lai’s statement above, as shall be seen, Mr Chan’s decision on where to draw the line between typical and prime shops was arbitrary. This will become more evident when we proceed to value G/F, No 72 Percival Street and G/F, No 74 Percival Street both of which have in fact been occupied by the same tenant. And in view of the lack of comparables, we are prepared to adopt Portion B (Front Portion) of G/F, No 25 Lee Garden Road as the only Reference Ground Floor Unit, particulars of which are repeated as follows:
114.Whilst we shall make progressive adjustments for differences in location in assessing the EUV of the other ground floor shop units in the Buildings in view of the deterioration of the trading environment in Causeway Bay, the adjustments will not be as aggressive as suggested by Mr Chan. 115.And for such reason that “shops in Causeway Bay, a tourist and shopping hotsport, were one of the districts worst hit”, we have doubled the changes in index in the analysis that follows, hoping to reflect better the effect on price changes as suffered by shops in the vicinity. 116.Returning to the comparables themselves, Comparables R5, R6 and R7 are too small to be comparable to the subject shop premises. 117.Having said that, Comparables R1 and R2 appear to be the only comparables left though Comparable R1 lies on the opposite side of Percival Street. Interestingly, Comparable R1’s occupier then, Chui Yuen Sweet Soup Restaurant (翠苑甜品專家)[47] has recently moved to Comparable R2 to continue its business[48]. As at the sale of Comparable R2 then, it was occupied by Maxim’s Cake Shop. 118.Unfortunately, Comparables R1 and R2 appear to show disparate results with unit price at some 23% to 29% difference. Thus, notwithstanding the shortcomings of the other comparables, we are prepared to refer to all of them for further analysis. 119.Save for location and layout which are unique for each comparable, Mr Chan and Mr Lai had the following adjustments and disagreement for the comparables[49]:
120.For the purpose of analysis when location is the primary factor for adjustments, the other adjustments proposed by Mr Lai are adopted[51]. The differences between Mr Chan and Mr Lai on these other adjustments are negligible when compared with the adjustments for location. 121.Particularly in respect of the cocklofts, unauthroised or otherwise, they are supposed to be ancillary areas which are normally analysed and valued as a fraction of the unit value of the ground floor proper. Thus, if the ground floor proper is valuable, so would the ancillary area be. It appears unreasonable for Mr Chan to adopt conversion factors with such significant differences between 1/8 and 1/20 or 1/30 as the case may be simply for the differences in location for the shops which lie in close proximity. 122.And as afore-mentioned, Comparable R1 lies on the side of Percival Street closer to Times Square which is a magnet for pedestrian flow. It was then occupied by a dissert house (ie 翠苑甜品專家). Mr Chan did not consider this comparable to the Reference Shop Unit at G/F, No 25 Lee Garden Road because he considered its location much inferior, to which we agree. For this reason, we consider the location adjustment proposed by Mr Lai at +30% grossly inadequate. For the purpose of this analysis, we apply a location adjustment at +60%. 123.In addition, this comparable has a narrower frontage and longer depth. It is not reasonable for Mr Lai not to make allowance for layout and we therefore adopt the adjustment at -15% proposed by Mr Chan. 124.Comparable R2 lies on the opposite side to Comparable R1 but is on the same side of the Buildings along Percival Street. As at 6 May 2022, Maxim’s Cakes Shop had moved away and the shop had fallen vacant along with others along this side of the street[52]. This may explain the vast difference in unit value between Comparables R1 and R2. 125.At this juncture, we note there existed a sale of Shop D, G/F, Po Ming Building, 96-106 Percival Street on 4 November 2022 which was only some 6 months after the relevant date on 6 May 2022. Mr Chan and Mr Lai did not adopt this transaction for the EUV assessments but took it as a comparable, Comparable NRST-5, for assessing the gross development value (“GDV”) of the hypothetical development:
126.While the address of this Comparable NRST-5 appears to be quite close to Comparable R2, it happens to be separated from Comparable R2 by Foo Ming Street and lies further away from the Buildings. By adjusting just to the sale of Comparable R2 in October 2021 by doubling the time index difference, Comparable NRST-5 might have been worth $1,200,000 per sq m which is still substantially less than $1,664,182 per sq m by some 28%. While both Mr Chan and Mr Lai were content to adopt these two transactions as comparables without questioning their reliability, their devalued transaction rates may confirm that shops only some distance apart can vary considerably owing to differences in location or else, even doubling the time index difference cannot reflect the change in price of shops along Percival Street during the period. 127.Having reviewed the above, we prefer not to adopt Comparable R2 at all especially for the reason that it took place in October 2021 which was some 7 months earlier than the relevant date. 128.Comparable R3 lies on Lockhart Road approximately midway between its junction with Canal Road East and Percival Street, opposite Causeway Bay Plaza 2. As well, the transaction took place in September 2021 when the Government maintained social distancing measures under Prevention and Control of Disease Ordinance. There was then the prohibition on group gatherings of more than four persons in public places. As said, even Mr Chan considered this an inferior location when compared with G/F, No 64 Percival Street and applied a location adjustment up to 55%. Mr Lai did not adopt this comparable whatsoever. This comparable was vacant as at 4 June 2022[53]. We are not going to adopt this as a comparable. 129.Comparable R4 even took place much earlier in December 2020. It should be discarded as a comparable. 130.Comparable R5 is situated amidst the busiest spot of Causeway Bay spanning the corner of Hennessy Road, Great George Street and Yee Wo Street, directly exposed to the ultra-high pedestrian flow at one of the most popular crossing junctions outside SOGO which is crowned as the ‘Shibuya Crossing” of Hong Kong. As fairly pointed out by Mr Yuen and Mr Wong in their Closing Submission dated 4 December 2024 at §22(1), this comparable was, as at the relevant date, occupied by a bakery and is currently occupied as a takeaway coffee shop[54] which resembles similar trades running at G/F, 11, 15, 17 and 19 Lee Garden Road. Mr Chan applied a location adjustment as much as +40% which we consider excessive and unreasonable. Despite its size, this comparable has all the characteristics of a prime shop. At most, we prefer nil adjustment for location. 131.Mr Lai did not adopt this as a comparable because of its significantly small size. Even when we apply the conversion factor of the cockloft at 1/6 instead of 1/20, the effective area of this shop is only 15.8 sq m (whereas Mr Chan adopted 14.4 sq m). 132.In such regard, we consider the concept of zoning method most applicable in the present circumstances as the means of comparison. As explained by Mr Leung on behalf of R33 in his closing submission dated 4 December 2024 at §4(7),
133.Mr Yuen and Mr Wong, in their Closing Submission dated 4 December 2024 at §7, also challenged Mr Chan for not having applied the zoning method to shops fronting Percival Street. 134.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 away 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 leasing comparables, rates for the other zones in the rear will be derived formulaically and from that the value for the shop is analysed whereby a process, often known as ‘halving back”, is used most extensively. 135.Zoning is a method of analysis that takes depth into account. 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. 136.In Zhuang PP Holdings Limited & Others v Lam How Mun Peter & Others, HCA 1589/2003 (unreported, dated 19 August 2009), Deputy High Court Judge To analysed a few past decisions on the application of the zoning method in Hong Kong. At §107, he remarked as follows:
137.In the present case, for instance, for the sake of this Comparable R5, the Zone A depth would be 3.9 metres, ie the whole of its depth to which the resultant unit rate $4,227,848 per sq m for this transaction applies[55]. Thus, on the basis of this “comparable”, the analysed unit rate for the Reference Shop Unit is $3,083,842 per sq m instead of $4,227,848 per sq m:
138.While the address for Comparable R6 is on Percival Street, it lies in fact on Matheson Street close to the pedestrian crossing that leads to Times Square. However, its saleable area is even smaller than that of Comparable R5 and the sale took place earlier in 2021. Like Mr Lai, we do not consider it as a comparable at all. 139.Comparable R7 also took place earlier in 2021 but it lies close to Comparable R5. It helps to verify the analysis of Comparable R5 above. When we apply the conversion factor of the cockloft at 1/6 instead of 1/20, the effective area of this shop is only 28.22 sq m (whereas Mr Chan adopted 26.6 sq m). If we adopt, like that for Comparable R5, the Zone A depth of 3.9 metres, we arrive at a Zone A value of this “comparable” in the amount of $3,466,205 per sq m:
140.When we apply this Zone A value of $3,466,205 per sq m to the Reference Shop Unit, we get an average unit rate of $2,528,291:
141.Alternatively, if we assume the longer depth of 5.8 of Comparable R7 as a Zone A depth instead, the analysed unit rate is $2,915,690 per sq m instead of $4,227,848 per sq m:
142.Thus, on the basis of these two alternative analysis:
143.In light of the above, we can safely assume a value of $3,083,842 per sq m as derived from Comparable R5. 144.Thus, we have only Comparables R1 & R5 both of which took place in January 2022, ie the closest to the relevant date of 6 May 2022 and after the Government’s announcement on 5 January 2022 to tighten social distancing measures:
145.But the social distancing measures were further tightened from 10 February 2022 after the Chinese New Year on 1 February 2022. If we triple the difference of the time index instead, our analysis above would have become:
146.While the Tribunal has always emphasised that a location adjustment as much as 60% would indicate that the transaction could hardly qualify as a comparable at all, we prefer to adopt $2,800,000 per sq m as the value of the Reference Shop Unit, (ie Portion B (Front Portion) of G/F, No 25 Lee Garden Road) as at 6 May 2022. That is, its EUV is determined at:
147.However, when compared with other shop units on Lee Garden Road, the Reference Shop Unit at No 25 Lee Garden Road (Front Portion) has relatively shorter depth of 8.1 metres only. We are prepared to determine its Zone A value for the purpose of assessing the EUV of the other shops:
148.As the Reference Shop Unit lies on Lee Garden Road, we are prepared to determine the EUV of the other shop units on Lee Garden Road in the first place. As this juncture, it is undisputed that there exist 6 tall ventilation shafts standing off Hysan Place on the opposite side of Lee Garden Road. If a pedestrian walks from Kai Chiu Road towards Russell Street, we agree that the views towards G/F, Nos 5 – 17 Lee Garden Road would be blocked. Save the latter, we adopt the location adjustments proposed by Mr Chan. As set out in the table in the next paragraph, the location adjustments proposed by Mr Lai (which are in parenthesis) appear to be excessive. For instance, it is hard to believe that for the two shops at Nos 23 and 25 Lee Garden Road lying side by side and without any break in view or pedestrian flow it can be justified to have 20% difference in value. Worst still, the locational difference between Nos 23 & 27 Lee Garden Road proposed by Mr Lai turns out to be 60% or more:
149.Our determination of the EUV of the shops on Lee Garden Road is set out below:
150.In respect of those shops which front onto Russell Street, Mr Chan just adopted the same location adjustment of +10% like that for No 27 Lee Garden Road while Mr Lai proposed a location adjustment of +30%. Once again, we prefer to adopt +15% instead[58]. Our determination of the EUV for shops that front onto Russell Street as well as for shops around the corner onto Percival Street is set out below:
151.Then we come to assess the EUV of the other shops that front onto Percival Street. Here both Mr Chan and Mr Lai agreed that there be no location difference between G/F, 25 Lee Garden Road and G/F, 74 Percival Street[60]. Furthermore, Mr Lai stated in Valuation Report dated 26 October 2023 as follows:
152.In spite of the above, Mr Lai applied substantial location adjustments to the G/F shops at Nos 54-72 Percival Street[62]. While Mr Chan commented in his Rebuttal Report dated 23 November 2023 at §4.4.27 that Mr Lai’s adjustments were “unjustifiable and untenable”[63], his adjustments were no better:
153.Our assessments of the EUV of the shops at G/F, 54-72 Percival Street is determined as follows:
Assessment of EUV of 1/F -2/F Units with Commercial Potential 154.While the upper floors of the Buildings were originally designed for domestic uses, by reference to the following list of occupation, many of the upper floor units had been converted into non-domestic or commercial uses around 23 May 2022:
155.In Wing Hong Investment Company Limited v Fung Sok Han & Others, [2016] 1 HKLRD 1, Chan J (as he then was) found at §235 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. Thus, the non-conformity of the property with the Occupation Permit is a non-issue. 156.Mr Chan and Mr Lai agreed that the following units in the Buildings, though designed for domestic use, might have commercial potential:
157.In respect of the assessment of the EUV for the upper floor units with commercial potential, Mr Chan and Mr Lai were able to adopt 1/F, No 15 Lee Garden Road, having a saleable area of 41.2 sq m, as a reference domestic unit with commercial potential. Initially they could not inspect this unit internally but assumed that the internal condition of this reference domestic unit with commercial potential was “poor” by reference to the following classifications[65]:
158.Mr Chan and Mr Lai were also able to agree the unit value of the reference commercial unit at $200,000 per sq m as at 6 May 2022. 159.They further agreed on the following adjustments to be applicable:
160.They did not however agree on the adjustments for location, floor and visibility, exposure and internal conditions. 161.Furthermore, 1/F of Nos 5, 7, 9, 11 & 13 Lee Garden Road have been converted into a single unit for commercial use for many years by the same owner. Mr Chan and Mr Lai could not agree on whether these units should be assessed as five individual units as they were then designed or on the basis of what they exist now or as at 6 May 2022. Mr Chan assessed the premises as five individual units whereas Mr Lai assessed them as a single unit. 162.On the one hand, Mr Chan referred to the Condition Survey Report prepared by Mr Benson Wong at Appendix 9 where a total cost of reinstating the premises to five individual units was estimated at only $403,660[66] which had already included domestic facilities such as kitchens and bathrooms. Mr Chan considered such cost even lower if they were to be converted into five commercial units. He then compared his total assessment as individual units on the basis of Lai’s calculations which is in the sum of $41,710,000 with the lump sum as a single unit as assessed by Mr Lai at $27,800,000[67]. Mr Chan found the difference of $6,240,000 was more than enough to justify the cost of dividing the combined unit back into individual units. Therefore, he considered Mr Lai had not determined the highest and best use of the units by assessing them as a single unit. 163.We agree with Mr Chan. 164.We also agree with Mr Chan that in the assessment of the corresponding units on basis of commercial uses, no adjustment for their internal conditions is necessary as potential occupiers would generally fit out the units for their own uses or purposes. 165.As regards the adjustments for location, we note that both Mr Chan and Mr Lai had applied substantial adjustments to these upper floor units despite they both agreed that “domestic units on the lower floors with commercial potential would be less sensitive to the changes in the levels of pedestrian flow in front of the relevant buildings”[68]. We consider their adjustments unreasonable. Shop’s values vary considerably because of vital differences in their positions and exposure to the streets or pedestrian flow[69]. The position of shopping “breaks” such as intersecting roads, eg Foo Ming Street separating Comparable R2 and Comparable NRST-5, bus stops and traffic lights, and width of pavements and streets may have their influence on value. However, first floor sales’ space would not be so sensitive to the above factors unless they are interconnected and occupied together with the ground floor shop below. 166.Therefore, we are prepared to apply more mild adjustments shown as follows:
167.As can be seen from the table at §154 above, most of the rear units on 1/F were occupied for residential purposes. The only exceptions were the ones on 1/F, 70 Percival Street, Rear Portion and 1/F, 74 Percival Street, Rear Portion. 168.Notwithstanding the above, both Mr Chan and Mr Lai agreed that these rear units suffered from lack of exposure to the street and were content to apply a discount of 20%. As a result, we consider the highest and best use appropriate for most of the rear units (except 1/F, Rear Portion of No 74 Percival Street) as at 6 May 2022 would be for domestic purposes instead. This would be particularly the case when the marginal businesses would be forced into liquidation by the Covid-19 pandemic. 169.In addition, Mr Chan or Mr Lai were content to apply a discount of 10% and 15% respectively for those units on 2/F. While we prefer the -15% adjustment proposed by Mr Lai, this would result in further reduction in their potential values for commercial use, if any. Indeed, Mr Chan and Mr Lai agreed that those 2/F units for Nos 5 Lee Garden Road to 19 Lee Garden Road had no such commercial potential. 170.In Peace Ever Limited & Others v Chan Shui Ching & Others, LDCS 28000/2018 (unreported, 1 August 2023), the Tribunal had explained at §279 that a non-domestic use must fetch higher value than domestic use is an illusion. In the present case, for instance, Mr Chan and Mr Lai agreed that the domestic unit on 4/F, 13 Lee Garden Road, ie the Reference Domestic Unit, which has a saleable area of 41.2 sq m could fetch $182,500 per sq m. This is only less than $200,000 per sq m by some 8%. 171.Having stated the above, our determination of the corresponding units assuming they enjoyed commercial potential as at 6 May 2022 is shown as follows:
172.And for the purpose of assessing the EUV of the domestic units, Mr Chan and Mr Lai had the following agreements:
173.They could not however agree on the adjustment for nuisance or noise, if any, for those units that front on the Right of Way which had become a dumping ground for rubbish[71]. For instance, Mr Lai adopted an upward adjustment of 2% for nuisance/ noise for the domestic units on 7/F and 8/F of the Rear Portions of Nos 54 Percival Street, 56 Percival Street, 58 Percival Street, 60 Percival Street, 70 Percival Street, 72 Percival Street, 74 Percival Street and Nos 62A Percival Street, 64A Percival Street, 66A Percival Street and 68A Percival Street. But he adopted a downward adjustment of -2% for those domestic units on 1/F to 6/F on the ground that these units suffered from “very bad smell and a very unhygienic condition” as well as noise from air-conditioning units installed on the external walls of the Buildings. 174.According to Mr Chan, however, during his inspection of the Right of Way around March 2022, he was unable to detect any strong bad smell that emanated from the garbage deposited thereon. He suspected that that garbage or dumping occurred when the occupiers of the Buildings moved out since 2023. With respect to Mr Chan, we cannot agree with him by reference to the photographs that he took on 31 March 2022 which are contained in his Rebuttal Report dated 23 November 2023[72]; most noticeably, a signboard of a message parlour had been dumped there near the entrance of the Right of Way. We can imagine that the occupants of those rear units on lower floors could hardly dare to open the windows. We agree wth Mr Lai’s proposed adjustments. 175.In addition, whereas those units at Nos 25 or 27 Lee Garden Road front onto the junction of both Kai Chiu Road and Lee Garden Road, Mr Lai applied a -3% allowance for nuisance if they were devoted for domestic purposes. We agree wth Mr Lai’s proposed adjustments. 176.The EUV of the domestic units from 1/F to 2/F is determined as follows:
177.For those units marked with “*” in the table above, Mr Lai arrived at a higher value only because he made a substantial adjustment of +15%, +25% or +35%[74] for location which we consider unjustified. Assessment of EUV of Upper Floor Domestic Units 178.Mr Chan and Mr Lai agreed the following particulars for the upper floor domestic units of the Buildings:
179.As afore-said, in respect of the assessment of the EUV for the upper floor domestic units, Mr Chan and Mr Lai were able to adopt 4/F, No 13 Lee Garden Road, having a saleable area of 41.2 sq m, as a reference domestic unit. Initially, they could not carry out inspection of this reference domestic unit but assumed that the internal condition of this reference domestic unit was “poor”. However, having conducted the joint inspection of 17 October 2024, Mr Chan and Mr Lai agreed this reference domestic unit was “fair”. 180.Despite the above, Mr Chan and Mr Lai agreed that the unit value of the reference domestic unit was $182,500 per sq m as at 6 May 2022 on the basis of “poor’ condition. 181.They further agreed on the following adjustments to be applicable:
182.They did not however agree on the adjustments for nuisance, internal conditions, lighting & ventilation floor and view. 183.In §174 above, we stated that we agree with Mr Lai’s proposed adjustments for nuisance. Mr Lai further adopted a downward nuisance/noise adjustment of -3% for domestic units of Nos 25 & 27 Lee Garden Road, Nos 74 and 76 Percival Street and No 60 Russell Street. Mr Chan agreed however the downward adjustment only for the domestic units of Nos 74 and 76 Percival Street because of the presence of the LED advertising screens erected on the building façade of Nos 73 and 75 Percival Street. He disagreed with the downward nuisance/noise adjustment for the other domestic units of Nos 25 & 27 Lee Garden Road and No 60 Russell Street. We agree with Mr Chan. 184.As regards those rear units that are situated on 7/F & 8/F (ie well above the top floor units abutting Lee Garden Road), Mr Chan and Mr Lai agreed however that they would enjoy a +2% for nuisance. 185.And in addition, for the rear units on 7/F or above, Mr Lai proposed +3% for lighting and ventilation. We consider the adjustment reasonable. 186.The EUVs of the domestic units on 3/F or above are determined as shown in Appendix 6, Appendix 7, Appendix 8, Appendix 9, Appendix 10 and Appendix 11 at the end of this judgment. Total EUV for the Buildings 187.Thus the total EUV of the Application adds up to $2,654,833,000 on the basis of the following:
188.The corresponding shares of the respondents’ interest are shown in the following table:
WHETHER REDEVELOPMENT OF THE LOT IS JUSTIFIED (Issue 2) 189.Section 4(2) of the Ordinance provides that the Tribunal shall not make an order for sale unless it is satisfied that due to the "age or state of repair" of the Buildings redevelopment is justified and that the applicants have taken "reasonable steps" to acquire all the undivided shares of the Lots. 190.The Live 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. 191.The applicants referred to the well-established approach in Intelligent House v Chan Tung Shing and Others, LDCS 11000/2006, [2008] 4 HKC 421 at §§145-152 and §165 on the general test to be applied:
192.Further, 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. 193.In Top Sail, the Tribunal stated that:
194.Such a discretion by the Tribunal was followed in Charmlink:
195.There is no argument on the principles set out in Top Sail and Charmlink. 196.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 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 Order of the Tribunal dated 1 March 2022. 197.In his Structural Assessment Report dated 3 March 2023, Mr C M Wong conducted a structural assessment of the Buildings on the basis of the following tests/surveys:
198.Mr C M Wong found the Buildings all in poor conditions with the following defects:
199.The design working life of a building, if designed based on Code of Practice for Structural Use of Concrete 2013, is 50 years. But 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 where deterioration would accelerate. Such process would be irreversible so that frequent maintenance and repairs would be required. While patch repairs can be carried out to visible defects, the underlying problem of corrosion of the reinforcement bars would still exist and remain not remedied[81]. 200.Mr Benson Wong, in his Condition Survey Report dated 3 March 2023, remarked that the Buildings are all over 60 years in age and buildings after reaching this age will inevitably be fraught with building condition problems. He identified defects and deficiencies in, inter alia, the following aspects of the Buildings:
201.Owing to the multi-ownership of the Buildings, space and costs contraints, Mr Benson Wong opined that the afore-said aspects of obsolescence were extremely difficult, if not impossible to be rectified or improved unless the Buildings are demolished and redeveloped. 202.As regards the state of repair of the Buildings, Mr Benson Wong found that the components, finishes and building services of the Buildings have been suffering from various deterioration resulted from unauthorised 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 $93,099,620[82] are required to be carried out in order to restore the Buildings to a fair state of repair. This amounts to over 35% of the construction costs for new similar superstructures. 203.In addition, Mr Benson Wong opined that the implementation of the repair works and discharge of other repair obligations will be disturbing, onerous and lengthy to the existing occupiers and building owners. While the cost and scale of future repairs will depend greatly on the defects occurring in the future after implementing the necessary repairs, given the current conditions of the structural frames, components, finishes and service installations of the Buildings as found, the deterioration of the Buildings will continue and grow more rapidly. It is inevitable that new defects will occur and previous defects though repaired will recur readily, requiring more frequent and substantial repairs in future. 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. 204.Having carried out the joint inspection on 17 October 2024 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) 205.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. 206.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[83]:
207.By reference to the corresponding offer letters, the above offers of the Applicants had taken into account Savills’ valuation assessments and calculations of the share of the respondents. As demonstrated from the table above, the prices offered by the Applicants on 29 April 2022 were higher than the EUVs of most of the respondents’ units as at 6 May 2022 save for the following:
208.In Intelligent House Limited v Chan Tung Shing & Others [2008] 4 HKC 421 where the majority owner relied on its valuation expert which happened to be Mr Chan to formulate some of the offers, the Tribunal ruled at paragraph 334(3) that:
209.Unfortunately, as we stated at §152 above, when Mr Chan adopted the two reference units in assessing the EUV of the ground floor shops of the Buildings, he failed to realise that he had inadvertently applied a discount of 45% for location to G/F, 72 Percival Street when compared with G/F, 74 Percival Street. These two shops lie side by side with no shopping “breaks” though G/F, 74 Percival Street is fronting directly onto the pedestrian crossing towards Times Square on Russell Street. Otherwise, the location adjustments with respect to G/F, 72 Percival Street are in a similar trend with that of the Tribunal[84]:
210.Notwithstanding the above, Mr Lai arrived at figures generally even above those of Mr Chan. Mr Lai’s assessments were still short of the applicants’ offers on 29 April 2022 save for that of G/F, 19 Lee Garden Road that belongs to R36. This latter difference is however less than 7% which is acceptable and reasonable. In Singer and Friedlander Limited v John D Wood & Co (1977) 243 EG 212; (1977) 2 EGLR 84, Watkins J stated: "The valuation of land by trained, competent and careful professional men is a task which rarely, if ever, admits of precise conclusion. Often beyond certain well-founded facts so many imponderables confront the valuer that he is obliged to proceed on the basis of assumptions. Therefore he cannot be faulted for achieving a result which does not admit of some degree of error." 211.More particularly, the relevant date of 6 May 2022 was amidst the time when the economic or shopping environment in Causeway Bay was hardest hit by the Covid-19 pandemic. The property market especially for shops in the Causeway Bay district was gloomy and indeed falling with a dearth of transactions that may provide evidence of market values of the properties concerned during the period. 212.Also, if we do not adopt the zoning approach in valuation, we might have arrived at a value for Remaining Portion of G/F, 60 Russell Street, Remaining Portion of Rear Portion of G/F, 74 Percival Street & Remaining Portion of G/F, 15 Lee Garden Road a little lower than $182,254,000:
213.If this be the case, the offer of $163,000,000 would be just 7.8% below. 214.In Capital Well Ltd v Bond Star Development Ltd (2005) 8 HKCFAR 578, Ribeiro PJ on behalf of the Court of Final Appeal emphasised at §33 that:
215.The Court of Final Appeal stated further at §36 of the judgment that:
216.In light of the above, bearing in mind the downward trend of the property market, we are satisfied that, on the evidence available, the offers of the applicants on 29 April 2022 fell “within the range of what may broadly be regarded as fair and reasonable compensation for the interest in question.” 217.It might be the case that the respondents regret or consider they missed the opportunity to accept the applicants’ offers in the falling market. In Gain Union Limited v Leung Chi Man, LDCS 5000/2021 (unreported, 17 January 2023) where the Tribunal dismissed an application for leave to appeal by Mr Leung, the Tribunal referred to Bwllfa & Merthyr Dare Steam Collieries (1891), Ltd v Pontypridd Waterworks Co [1903] AC 426 at §17 of the decision. In this latter case, the House of Lords held that where the valuation task involves a forecast into the future, then if that valuation is later judicially reviewed, it is proper to take into account facts not known at the date the forecast was made. Lord Macnaghten at page 431 of the judgment justified this sensible approach in these term:
218.We certainly appreciate that the offers by the applicants on 17 September 2024 were much lower. It is crystal clear that the property market condition has deteriorated quite significantly throughout the years. Although the Tribunal in Good Faith Properties Limited & Others v Cibean Development Company Limited, LDCS 42000/2011 (unreported, dated 31 May 2013) had at §40 commented that “(t)he time for the Tribunal to be satisfied is at trial and not before”, this did not mean that a post-application offer had to be made. “There can be offers made to acquire the minority interest even after the filing of the Application” but it did not say post-application offers were a must. It only addressed the question of whether post-application offers could be taken into account in considering the question of reasonable steps that had been taken by the applicant to satisfy the Tribunal:
219.In the present case, when the offers by the applicants on 29 April 2022 were generally very high with the benefit of hindsight, it does not prevent the Applicants revising the offers downwards in making any subsequent offers. Recently, §31 of Starex Development Limited v Yau So Ching & Others, DCCJ 2372 & 2374/2021 (unreported, dated 13 February 2023) had affirmed that the offers in the acquisition scheme are matters of commercial decision. We agree with the judgment in that same paragraph that “the peculiar factual matrix” had to be viewed as a whole. An offer that had given a minority a better or higher offer does not mean that the same or even a much better offer had to follow. It is never the legislative intent or spirit of the Ordinance to mandate that offer(s) made later in time must be better than the earlier one(s). Whether or not the minority owners have missed the opportunity to accept an earlier (higher) offer is irrelevant to whether the “reasonable steps” requirement was fulfilled. 220.Similarly, it is wrong for Mr Suen and Mr Liu to suggest on behalf of R15 & R46 in their closing submission dated 4 December 2024 at §101 that “the Applicants should have offered at least the EUV amount to the owners … as at the time of making the present application in May 2022”. Unlike section 10(2)(a) of the Lands Resumption Ordinance, Cap. 124 which requires the Tribunal to determine the compensation (if any) payable on the basis of the value of the land resumed and any buildings erected thereon at the date of resumption, there is no similar provision in Part 3 of Schedule 2 to the Ordinance. In any event, the Lots or the Buildings have not yet been sold. They will only be sold if ordered by the Tribunal subject to a reserve price as at the current date. In Fineway Properties Limited v Sin Ho Yuen Victor [2010] 4 HKLRD 1, Hon Le Pichon JA stated at §25 that: “I do not consider that the court has any jurisdiction under the Ordinance to make an order against the applicant in favour of the respondent in respect of the ‘shortfall’”. 221.R21, in his closing submission dated 18 November 2024, suggested that “the long-term value of properties in Hong Kong is rising.” This might be true in the past but there is no guarantee that history would repeat especially in the short term. There is a famous quote by renowned economist John Maynard Keynes in one of his earlier works, The Tract on Monetary Reform, in 1923:
222.As well, in the present case, there is evidence of mediation conducted between the applicants and the respondents in late 2022. Some of the offers successfully ended up in settlements leading to the discontinuance of actions against some of the respondents as stated in §17 above. 223.In view of the above circumstances, not only are we satisfied that the offers made by the Applicants on 29 April 2022 fell within the range of what may broadly be regarded as fair and reasonable but we also find that the applicants have taken reasonable steps to acquire all the undivided shares of the Lots. Issue (4) is answered in the affirmative. DISPUTES ON THE ESTIMATION OF THE RDV OF THE LOTS (Issue 5) Optimum Hypothetical Development Model 224.The Lots comprise a total site area of 1,842.306 sq m. Whereas they together comprise a corner site that abuts 3 specified streets none of which is less than 4.5 m wide, they constitute a Class C site under the Building (Planning) Regulations. 225.However, the Lots fall within an area zoned “Commercial (2)” under the Approved Causeway Bay Outline Zoning Plan No S/H6/17 gazetted on 18 January 2019 (“the OZP”). As explained in the statutory notes appropriated for the OZP, this zone is intended primarily for commercial developments, which may include uses such as office, shop, services, place of entertainment, eating place and hotel, functioning as territorial business/financial centre(s) and regional or district commercial/shopping centre(s). More particularly, under this zoning, a minimum setback of 1.5m from the lot boundary of 1-27 Lee Garden Road fronting Lee Garden Road shall be provided to improve the pedestrian circulation and walking environment in the Planning Scheme Area[85]. This would become a non-building area as much as 84.66 sq m. 226.While both Mr Chan and Mr Lai agreed to resort to the residual valuation method in determining the RDV, it is because of the above non-building area that the two valuation experts could not agree on the total gross floor area (“GFA”) or more particularly the plot ratio of the optimal hypothetical development that may be erected on the Lots. Without this agreement, they could not assess the gross development value (“GDV”) of the completed optimum development from which development cost (including construction costs, professional fees, finance costs etc) and developer’s profit in conducting their respective residual valuation. 227.In order to resolve this dispute, Mr Chan and Mr Lai had relied on the advice of their corresponding Authorised Persons appointed by the parties, Mr Ng and Mr Remus Wong respectively. Mr Ng and Mr Remus Wong have also prepared a joint statement dated 27 September 2024. Bonus Plot Ratio 228.Mr Remus Wong took the view that bonus plot ratio can be applied for and obtained under Reg 22(1) of Building (Planning) Regulations, Cap. 123 (“B(P)R 22”) which reads as follows:
229.The Building Authority (“BA”) has issued a Practice Note for Authorised Persons and Registered Structural Engineers APP-108 (“PNAP APP-108”) which sets out the general guidelines on proposals to dedicate land or area within a building for use as public passage and the concessions which the BA may grant upon acceptance of such dedication. Paragraph 2 of PNAP APP-108 emphasises that BA’s power to grant concessions in the form of exemption of certain floor areas from the 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 is discretionary. Furthermore, paragraph 7 of PNAP APP-108 states that:
230.As regards the lot boundary fronting Russell Street, Mr Remus Wong referred further to Practice Note for Authorised Persons and Registered Structural Engineers APP-152 (“PNAP APP-152”) which promulgates guidelines on building design which will enhance the quality and sustainability of the built environment in Hong Kong (“Sustainable Building Design Guidelines or SBD Guidelines”). 231.According to paragraph 7 of the SBD Guidelines,
232.The requirement of a pre-requisite for GFA concession in new building development is illustrated in Practice Note for Authorised Persons and Registered Structural Engineers APP-151 (“PNAP APP-151”). As stated in paragraph 5 of this PNAP APP-151, for instance, bonus GFA and/or GFA exemptions relating to dedication for public passage or surrender for road widening and building setback in accordance with the SBD Guidelines will not be subject to the overall cap on overall cap at 10% of the total GFA of the development. Appendix A of this practice note sets out that “public passage” under PNAP APP-108, “covered setback area” under PNAP APP-152 and “bonus GFA” under PNAP APP-108 are not features subject to the pre-requisites and overall cap of 10%. 233.For the reasons above, Mr Remus Wong assumed the bonus GFA or plot ratio would be readily granted by BA and had prepared his development model accordingly. 234.Mr Ng however disagreed. He referred to paragraph 7 of PNAP APP-108 and suggested that the rationale of the scheme under B(P)R 22 and PNAP APP-108 is to incentivise and encourage landowners to voluntarily dedicate privately-owned lands for the purpose of public passage upon satisfaction of the Government that such dedication would be essential and necessary to the effect that it would genuinely bring about enhancement or improvement to public safety and convenience as a result:
235.In Mr Ng’s opinion, BA is unlikely to exercise its discretion to grant bonus GFA if landowners are already required under existing obligation to provide for public passage as mandated under the OZP. The setback requirement under the OZP itself is not a suitable justification per se. The BA will consider the increased density and risks of congestion to be contributed by the proposed bonus GFA and would cautiously act to ensure that the benefits shall not be over-provided unless there is substantial merits and incentives to grant such exception. 236.It is noted that even without the grant of bonus GFA, the developer is still allowed by the Buildings Department’s policy to utilise the “set-back portion” as mandated under the OZP to be included as part of the site area for the purpose of calculating the overall site coverage and plot ratio of the redevelopment scheme. 237.Mr Ng further explained that, for “dedication” (as opposed to “surrender”), onerous management and maintenance obligations will be imposed against the landowner. According to his experience, the Government is highly reluctant and skeptical against “dedication” proposals: in return for the dedication of land or floor areas of a building for use as public passage, a Deed of Dedication incorporating all the relevant terms and conditions would be required whereby the Government has to exercise continuous supervision and enforcement over the dedicated portion, and it can easily be prone to non-compliance or potential abuse (similar to “provision of open spaces within private developments” (POPS))[86]. When compared with “surrender” which results in permanent loss of ownership, the justification for awarding bonus plot ratio for “dedication” will be relatively weaker since ownership is still vested with the landowner. That is why the Government in recent years did not (or very rarely) accept “dedication” in exchange for bonus GFA under B(P)R 22 and preferred “surrender” instead. 238.On the other hand, Mr Suen SC, Mr Yuen and Ms Chow argue that the Applicants have failed to point to any policy or rule which suggests that the BA will not grant bonus plot ratio in the material circumstances. There is no basis, and it would be incorrect as a matter of principle to suggest that the BA has a “secret policy” whereby it would fetter its discretion in dealing with applications for bonus plot ratio. The Applicants’ failure to point to any published policy which suggests bonus plot ratio would not be granted if an application were made by the hypothetical developer, is crucial. This negates the contention of Mr Ng that the BA has a settled pattern of not granting bonus plot ratio in cases like the present. We accept Mr Ng’s evidence included that there is no definitive policy or guideline preventing the granting of bonus plot ratio for dedication under the OZP, at least as a matter of theory and principle. His assertion that landowners “cannot obtain bonus plot ratio” if they were already under an obligation to provide public passage under the OZP is not to be taken as a blanket prohibition. There is no doubt but that the BA has a discretion. 239.As regards Mr Remus Wong’s referral to “Clarification of Overall Cap on GFA concession in PNAP APP-151”, it was misleading as paragraph 5 of PNAP APP-151 is merely stating the fact that the bonus GFA and/or GFA exemption that had been already granted based on “their own individual acceptance criteria” is not subject to the overall cap. It does not have any implication or effect that providing any building setback based on SBD Guidelines will automatically obtain bonus GFA and/or GFA exemptions from the BA. According to Mr Ng, it is merely a pre-requisite to obtaining bonus GFA for exemption of “Green and Amenity Features” and nothing more. 240.Mr Ng explained that since GFA concession can be enjoyed through full compliance with the SBD Guidelines, bonus GFA on top of the concession will not be allowed. By reason that the proposed setback is provided in compliance with the SBD Guidelines, the BA will not exercise the discretion to favourably consider the application for extra GFA. Having said that, Mr Ng emphasised the first issue of PNAP APP-151 and PNAP APP-152 was January 2011, any precedent case referred to by Mr Remus Wong with approval, for example, Hotel Panorama at Nos 6B-6E Hart Avenue, which was approved by BA before this implementation date are irrelevant in such regard[87]. 241.As regards another “precedent” referred to by Mr Remus Wong, the development of K11 Art Mall at No 18 Hanoi Road, Tsim Sha Tsui, the approval was in 2008, ie before the promulgation of PNAP APP-151 and PNAP APP-152. Again, the setback requirements along Hanoi Road, Mody Road and Carnarvon Road are neither stated in the then OZP No S/K1/22 nor the current S/K1/28. 242.On the other hand, there are examples of recent developments cited by Mr Chan in Appendices 4 and 5 of his Rebuttal Report dated 23 November 2023, being 512 Jaffe Road, Aura on Pennington, 36 Jardine’s Bazaar, Park Haven all being situated in the Causeway Bay area, which show that no bonus GFA under B(P)R 22 was granted by the BA where there were already obligations under the OZP to set-back or provide for public passage. According to Mr Ng, these examples illustrate the tightened approach of the BA in not granting additional GFA when the OZP and/or other requirements are already in place to achieve the same purpose of improving road safety or significant enhancement of public convenience. In the case of Park Haven, even when there were additional voluntary “set-back” exceeding the requirement under the OZP, the BA did not award any bonus plot ratio. 243.We accept that some of the examples Mr Ng relied upon had not exhausted their maximum GFA or plot ratio so they did not require bonus plot ratio and therefore take the matter no further as they do not substantiate his point. The record plans of 512 Jaffe Road show the actual plot ratio was 4.603 so permitted plot ratio of 6.7 had not been reached, thus bonus GFA was not even an issue. Similarly, 36 Jardine’s Bazar record plans show actual plot ratio of 9.292 is smaller than the maximum plot ratio of 9.5 so this cannot support the submission that no bonus GFA was granted because existing obligation and there is no information as to whether there was ever any application. The examples do not evidence what would happen if there were consideration of dedication in the present circumstances. 244.A more persuasive example is perhaps the development of Hysan Place where a setback of more than 5 metres had already been provided along Lee Garden Rod but it is stated clearly on the G/F plan approved on 6 March 2012 that there was “No dedication for bonus plot ratio”. On the other hand, the total width of the pedestrian walkway outside the Buildings along Lee Garden Road is 2 metres but the setback requirement under the Outline Zoning Plan is only 1.5 metres. In such regard, Mr Ng considered the setback no longer “essential by government, taking into account alternative public passages available in the vicinity”. This was before the material OZP. 245.Mr Remus Wong had referred to previous compulsory sale applications, being Spotting Bright Limited & Others v The Personal Representative of Cheng Yu Chun, deceased & Another, LDCS 12000/2019 (unreported, dated 30 November 2020) and Fortress Jet Limited & Others v Tang Hoi Yip & Others, LDCS 3000/2015 (unreported, dated 11 August 2017), where the grant of bonus GFA under B(P)R 22 were accepted by the Tribunal for the purpose of determining the development potential of the corresponding lots. 246.However, nothing about the bonus GFA or plot ratio was canvassed by the Tribunal in the two cases. Spotting Bright concerned a lot situated at Cannon Street also in Causeway Bay. Although the development potential including the bonus plot ratio for setback from existing lot boundary was proposed by the applicants’ valuer who happened to be Mr Chan therein[88], the judgment did not disclose which part of the pavement was assumed to be “dedicated” for valuation purpose. The matter as to whether bonus GFA would be accepted by BA was neither discussed nor argued on its substantial merits. In fact, in that case, the compulsory sale application was unopposed because the respondents were not represented and did not appear at trial. In contrast, a recent development nearby at “512 Jaffe Road/7 Cannon Road”[89] is an example which shows that no bonus GFA was actually awarded by the BA. 247.Fortress Jet concerned two adjoining lots situated at Nos 21 & 21A Ashley Road. In that case, again, the Tribunal was not required to determine whether bonus GFA would likely be granted by BA: the bonus plot ratio was agreed by the parties’ valuation experts. However, when the lots at Nos 21 & 21A Ashley Road were developed together with the adjoining lots to become 21 Ashley, a new purpose-built building for health care services with professional facilities, no bonus GFA was in fact awarded by BA[90]. 248.In his Closing Submission dated 4 December 2024 at §132(6) & (7), Mr Kenny Kwok on behalf of R38 challenged Mr Ng for failure to exhaustively check all cases on Buildings Department’s website to prove that “no bonus GFA had been granted when OZP or the BO already mandates the landowner to setback”. However, the law requires someone who asserts something to prove his/her case. So far as the persuasive burden is concerned, the burden of proof lies upon the party who substantially asserts the affirmative of the issue. In the nature of things, a negative is more difficult to establish than an affirmative. It may turn out to be a mission impossible to ask Mr Ng to prove something that might not exist at all. The evidence before the Tribunal is that there is no precedent showing that when the OZP requires a setback, the Buildings Department awards a bonus plot ratio under B(P)R 22. 249.Having considered the above, we accept the evidence of Mr Ng which is more persuasive and convincing. No Deed of Dedication or the resulting administration is required where the developer has merely to comply with the set-back requirement of the OZP. Any “dedication” under B(P)R 22 is redundant and in particularly is no longer “essential and necessary”. 250.Ms Chow tried to convince the Tribunal otherwise by referring to paragraph 4 of PNAP APP-108 and suggested that BA would definitely abide by his own practice note. Paragraph 4 of PNAP APP-108 reads as follows:
251.As pointed out by the Tribunal at trial, the word “Hence” in the second sentence shows that this paragraph only refers to the case of “surrender” instead of “dedication”. We believe the word “dedication” was omitted on purpose. 252.Ms Chow’s further reliance on §7.8(b) of the Explanatory Notes of the OZP is misconceived. That paragraph reads as follows:[91]
253.This provision only deals with a situation where bonus plot ratio is granted in the first place. It sheds no light whatsoever on the question of whether bonus plot ratio will be granted. 254.Mr Suen acknowledges that ultimately the Tribunal must be guided by the fact that the BA has a discretion under BPR regulations 22(1) and 22(2) for dedication and that the BA has published PNAP APP 108 as general guidelines as to how the discretion will be exercised. The OZP does not restrict the exercise of such discretion as suggested. Mr Suen says that the issue before the Tribunal is whether anything can be said about the underlying planning intention such that it impacts the prospects of grant of bonus plot ratio. 255.We have fully taken into account and given weight to the Explanatory Statement of the OZP. It is common ground that there is a mandatory setback requirement under the OZP. 256.The Respondents submit that there is sufficient material before the Tribunal which serve as the assurance to take into account the bonus plot ratio in assessing RDV in the present situation while the Applicants say there is not and that on the materials it would not be. In so far as experts depart from published policies no weight is given. The Respondents urge the Tribunal to focus on the objective wording of the published policies and legislative provisions which as a matter of principle are to be applied indiscriminately in all cases. 257.We accept that the OZP Explanatory Statement is the objective guide for how government departments would construe and apply the planning intent and objectives. The Applicants ask “is dedication still essential when the OZP is already in place?” The Applicants answer is no while the Respondents’ answer is in the affirmative. The award of bonus plot ratio is discretionary. The burden is on the Respondents. The matter is not simply evenly balanced. Given that the setback is already mandated the Respondents need to establish why the discretion would still more likely than not be exercised in their favour. Some material or evidence sufficient to tip the balance the other way. The Respondents have not been able to show examples, or even one example of bonus plot ratio being granted where a setback is already mandated. At least then the Tribunal could consider the circumstances and draw appropriate inferences. In all of the circumstances we are not persuaded that bonus plot ratio may be granted. Hypothetical Development 258.In his updated RDV Report dated 9 September 2024 at para 3.3.1[92], on the basis of Mr Remus Wong’s schematic diagrams and advice, Mr Lai proposed a 27-storeyed commercial development over 3 levels of basement carpark:
259.The G/F plan and 1/F plan as prepared by Mr Remus Wong are attached herewith in this judgment at Appendix 12[93] and Appendix 13[94] respectively. In gist, the main entrance of the proposed development would be opposite one of the two entrances to the lobby of the office floors in Hysan Place. There will be a pair of escalators that lead from the ground level to 1/F on which there will be altogether 5 lifts including the firemen’s lift[95]. Including the bonus GFA, the total GFA of the development proposed by Mr Remus Wong or Mr Lai will be 28,274.24 sq m. A typical floor from 5/F to 24/F would have a GFA of about 1,089.4 sq m. 260.In his explanation letter dated 3 September 2024, Mr Remus Wong even “conducted a relative detail check” to compare his provision of lifts with Hysan Place[96]:
261.Mr Remus Wong further explained as follows[98]:
262.On the other hand, Mr Ng had responded in his joint statement with Mr Remus Wong dated 27 September 2024 at paragraph 7.2[99] and his reply dated 5 October 2024[100] to Mr Remus Wong’s revised hypothetical scheme (which was produced just one day prior to joint statement) as follows:
263.We agree with Mr Ng’s comment. In fact, the Tribunal in Alliance Fame Limited & Others v Mak Kam To & Others, LDCS 9000/2015 (unreported, dated 4 August 2017) had made a similar comment at §137:
264.Regrettably, as an Authorised Person, Mr Remus Wong made a similar mistake again. A fortiori, during cross-examination, Mr Remus Wong conceded that in his calculation, he had failed to take into account that Hysan Place is served by escalators all the way up to the 14/F. Therefore, clearly even the simple calculation by Mr Remus Wong must be wrong. 265.Mr Ng indeed compiled a table comparing the number of lifts provided in other shop/office developments in the vicinity with the hypothetical developments proposed[101]:
266.For the sake of further comparison, we also set out the number of passenger and service lifts provided in the retail and commercial development in Lee Theatre Plaza, 99 Percival Street relied on by Mr Ng as follows[102]:
267.Lee Theatre Plaza was built in mid-90s, comprising a total of 29,331.212 sq m, which is only marginally higher than that of the hypothetical development proposed by Mr Remus Wong at 28,274.24 sq m. But Lee Theatre Plaza has altogether 10 lifts including 2 service lifts but excluding 2 specific lifts for the cinema originally planned. There are also escalators leading up to the 16/F from which onwards, the upper floors are served by 6 passengers plus 2 service lifts. Even without a more sophisticated formula, the lift service proposed by Mr Remus Wong fares much worse. 268.The second comparable retail and commercial development relied on by Mr Ng is V Point at 18 Tang Lung Street[103]:
269.V Point was built in 2016 comprising a total of 12,502.772 sq m which is less than half of that of the hypothetical development proposed by Mr Remus Wong at 28,274.24 sq m. But in comparison, V Point has 7 lifts plus escalators serving the lower floors as opposed to merely 4 or 5 lifts (but without escalators) proposed by Mr Remus Wong. 270.The 3rd comparable retail and commercial development relied on by Mr Ng is Tower 535 at No 535 Jaffe Road:
271.Tower 535 was built in 2016 comprising a total of 21,311.524 sq m which is about a quarter less than that of the hypothetical development proposed by Mr Remus Wong at 28,274.24 sq m. But in comparison, Tower 535 has 8 lifts serving the upper floors from 5/F onwards as opposed to a mere 4 or 5 lifts proposed by Mr Remus Wong. Without counting the 6/F and a service lift, a total of 15,243.725 sq m is served by 7 lifts. And even if Mr Remus Wong’s simple and inappropriate formula is followed, the GFA serviced by a lift is approx. (859.088 sq m /7) = 122.73 sq m per lift. Mr Remus Wong’s proposed number of lifts is obviously and grossly inadequate. 272.In his letter dated 21 October 2024, Mr Remus Wong tried to defend his mistaken calculation by suggesting that if more lifts are provided, “the usable floor area of the development would be reduced …”[104] Alas, the duty of an Authorised Person as an expert in the present case is to assist the Tribunal in determining the most optimum hypothetical development instead of maximizing the usable/ saleable area of the development at the expense of market reality. 273.During cross-examination, Mr Remus Wong tried to explain away the inadequacy of the lift provision by referring to certain “advanced intelligent lifts” programme, for instance, installed at Jardin House in Central. Intelligent lifts differ from traditional ones in being equipped with an intelligent group control system and new button panels that enable them to adjust to the landing call according to the demand of users. Mr Remus Wong had not provided us with any calculation on how the inadequacy can be resolved though as early as at the beginning of the Pre-Trial Review on 16 September 2024, we had provided counsel for the parties with the following documents/articles for reference:
274.To be fair to Mr Remus Wong, when his attention was drawn to the above documents/articles, he did try to provide an example of calculation in respect of the development of 49 Hankow Road. This calculation did take into account the assumed population, average waiting time, average time to destination, interval, nominal travel time, peak passenger demand etc. However, Mr Remus Wong failed to provide more particulars of this development except that, according to the calculation provided by him, there will be 3 lifts that would serve this development. In fact, that development resulted from an order for compulsory sale in Asia Rich Incorporation Limited & Others v Wealth Step Holdings Limited & Another, LDCS 15000/2019 (unreported, dated 1 February 2023). That development has a site area of 1,074.46 square meters. It has been developed into a 24-storey commercial building over a 3-level basement up to a gross floor area of 13,104.96 square meters. That development is of much smaller scale, at about half the size of the hypothetical development on the Lots. As commented by Mr Ng in his letter dated 23 October 2024, 49 Hankow Road is a totally different development at another location. 275.Thus, Mr Remus Wong’s alternative reason for providing lifts with advanced intelligent programme is unconvincing. In fact, such “advanced intelligent lifts” programme is not new. As at 2003, the buildings in which the intelligent lift system had been installed at least included Devon House of Taikoo Place and AIA Tower in North Point[106]. More particularly, for instance, such “advanced intelligent lifts” programme is installed at Tower 535 where altogether 8 lifts service the 5/F to 26/F. Mr Ng’s comment is as follows[107]:
276.We agree with Mr Ng. We agree further with Mr Ng’s comment on Mr Remus Wong’s intention to play down the inadequacy of “lift provision” by distinguishing standards applicable to offices from that of a commercial building as envisaged in the hypothetical development[108]:
277.The above may also be compared with Lee Garden Three, which is situated further away from the busiest hub of the Causeway Bay district. Built in late 2017, Lee Garden Three stands on a site of 2,895 sq m or thereabouts, so a little larger than that of the Lots. Having a total gross floor area of approximately 43,408.709 sq m, Lee Garden Three comprises 3 levels of shopping arcade surmounted by a 21-storey Grade-A office tower. In addition to 2 service lifts and 4 cargo lifts, its upper floors are served by 12 lifts, four of which are assigned to serve the low zone (from 5/F to 11/F), the mid zone (from 15/F to 21/F) and the high zone (from 22/F to 29/F without 24/F) respectively with each floor extending to 1,750 sq m or thereabouts:
278.Obviously, the hypothetical development vertical circulation proposed by Mr Remus Wong is dwarfed. 279.Mr Yuen and Mr Wong also referred to Lead Harvest Group Limited & Others v Cheong Wing Industrial Limited & Another, LDCS 6000/2018 (unreported, dated 7 February 2022) where the number of lifts proposed for a hypothetical Grade A office development was only 3 + 3 instead of 4 + 4 in the present case. With respect, the hypothetical development in Lead Harvest Group was situated in a wholly different location in Quarry Bay. Then the hypothetical development did not comprise any shop or restaurant elements. 280.Another material mistake of Mr Remus Wong is that when he proposed the hypothetical development on the basis of his schematic drawings, he failed to take into account the thickness of walls in his provisions. When the Tribunal raised the query and directed Mr Remus Wong to provide all dimensions in his drawing, for instance, for the ground floor[110], his mistake was exposed. Such mishap not only caused feasibility problems of potentially reducing the “clear width” of required staircases, but has also fundamentally rendered the dimensions and saleable areas of the retail shops and upper floor units to be wrong and wholly unreliable. 281.Counsel for the respondents tried to come to Mr Remus Wong’s rescue by referring to Pacific Base, supra, where the Court of Appeal acknowledged at §43 that:
282.The comment by the Court of Appeal should not be read out of context. The Court of Appeal was then canvassing the application of section 4(2) of the Ordinance. At §49 that ensued, the Court of Appeal concluded:
283.The Court of Appeal was only concerned with Section 4(2)(a) on whether an order for sale should be granted; it did not determine what matters have to be taken into account, for instance, in the valuation aspects in determining the reserve price pursuant to Schedule 3 of the Ordinance. Otherwise, any expert can devise a castle in the air so as to support his hyperbole in value. This is again where the market reality principle applies so that “one only excludes the human realities to a limited and necessary extent”. 284.As the UK Supreme Court confirmed in Secretary of State for Transport v Curzon Park Ltd and others [2023] UKSC 30, when constructing the hypothetical scheme world, the local planning authority or, as the case may be, the Upper Tribunal was required:
285.This ‘broad brush’ test had been applied by the English Upper Tribunal in Pro Investments v Hounslow LBC [2019] UKUT 319 (LC). The English Upper Tribunal said this:
286.In view of the above, we consider Mr Remus Wong’s evidence and his proposed hypothetical development not reliable. Indeed, even in his last attempt to provide an additional lift for his hypothetical scheme on 21 October 2024[111], Mr Remus Wong failed to provide Mr Lai with updated calculations on saleable areas. We disregard his proposal in toto. We are able to and do rely on Mr Ng’s proposed hypothetical development for the purpose of determining the RDV of the Lots. Layouts of G/F and 1/F of the hypothetical development proposed by Mr Ng are attached at Appendix 14[112] and Appendix 15[113] respectively of this judgment. 287.In fact, by reference to Mr Ng’s proposed hypothetical development, the layout arrangement does to a certain extent resemble that proposed by Mr Remus Wong, save that a greater number of lifts are provided to serve the upper floors. Another feature that we prefer is that Mr Ng’s proposed entrance to the upper floors via escalators is shifted, towards the junction of Kai Chiu Road and Lee Garden Road, where pedestrian flow will be attracted[114]. In Billion Glory, supra, for instance, the Tribunal had at §71 reservation on designating the entrance of the hypothetical development to the upper floors at some less bustling position. Also, the more spacious office lobby appears to be more apt given that “the proposed commercial development would be finished to a Grade A office standard” and comparable to that of Tower 535. 288.In addition, we agree with Mr Ng’s concern that in Mr Remus Wong’ scheme, there is no direct lift access from the upper floors to the basement or vice versa. To reach a visitor parking at the basement from upper floors, one needs to either change lift at ‘Lift – FS1’ at G/F or take the escalator to G/F from 1/F and transfer to ‘Lift – B1’ and ‘Lift – FS2’. It is less preferable. 289.On the basis of Mr Ng’s proposed hypothetical development, Mr Chan set out the particulars as follows:
290.Counsel for the respondents queried if, for instance, the provision of Shop / Restaurant on the low zone from 4/F to 10/F is reasonable. They referred to Billion Glory, supra, where the hypothetical development also proposed by Mr Chan in that case comprised a Class B office building at a secondary location “at the fringe of the commercial hub in the Causeway Bay district” [115]. In that regard, the Tribunal questioned if the hypothetical development comprising all “food and beverage” uses of 5/F to 9/F could be supported by market demand[116]. The Tribunal then invited Mr Chan to provide evidence of comparable developments in the vicinity that accommodate such a large proportion of “food and beverage” uses. In Billion Glory, “Charles Chan then came back with up to 17 developments, … 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.”[117] 291.In the present case, however, the hypothetical development, as agreed by all the parties, will be located in the busiest hub of Causeway Bay district. The applicants had also referred to the building designs of Causeway Bay Plaza I and II, Kyoto Plaza, Hysan Place, Island Beverley, V Point, Lee Theatre Plaza and Times Square which had designated different floors or zones to be used as restaurants or eateries. Bearing in mind the above, the Tribunal need not invite Mr Chan again to provide evidence of comparable developments in the vicinity that accommodate such a large proportion of “food and beverage” uses. In our opinion, the provision of Shop / Restaurant uses on the low zone is reasonable. Assessment of G/F GDV 292.Mr Chan adopted Shop P4 which abuts Percival Street as the Reference Shop Unit with the following particulars:
293.Mr Chan had relied on the following comparables for the purpose of assessing the market value of the Reference Shop Unit:
294.Although the sale of Comparable NRST-1 took place closest to the present day, it was transacted more than 1 year ago. Mr Chan applied +45% adjustment for location while Mr Lai refused to consider it as a comparable because Lockhart Road “was a secondary road in the subject neighbourhood. The location character of the area in front of the shop comparable was very different from that on Percival Street which was considered to be a shopping hub in this part of Causeway Bay district. In view of the great difference in terms of location character, I consider any adjustments for the factor of location would be meaningless and therefore it should be rejected.” 295.We agree with Mr Lai’s comment. 296.Regrettably, Comparable NRST-2 is not much better as a comparable. While this comparable is also situated on Lee Garden Road, it is far away from the Buildings, separated by Russell Street and Foo Ming Street. While Mr Chan applied a location adjustment of +25%, Mr Lai adopted +50%, which we prefer. 297.Comparable NRST-3 is also situated in another business hub of Causeway Bay, in particularly close proximity to the MTR Causeway Bay station. As well, it is situated behind Sogo, a popular department store and magnet in the area. For instance, it is occupied by Le Creuset, a famed kitchenware retailer. However, this unit is situated at a relatively recessed position inside the building. In this regard, we prefer to take the average of Mr Chan’s location adjustment at -25% and that of Mr Lai’s +20%, ie -10%. 298.Comparable NRST-4 comprises a shop situated on Sugar Street close to its junction with Hennessy Road. Currently it has been subdivided into two shops, one being a pawn shop and another a cosmetics retailer. Mr Lai refused to adopt this as a comparable, referring to Billion Glory, supra, where the Tribunal commented at §106 that “this section of Sugar Street was swamped with domestic helpers during weekends that may results in the shops there fetching very high prices”. We consider Mr Chan’s location adjustment at +55% acceptable. 299.Although Comparable NRST-5 is situated on Percival Street, it is located far away from the Buildings, being separated by Russell Street and Foo Ming Street. We prefer Mr Lai’s location adjustment at +30% to Mr Chan’s +10%. 300.As regards the remaining comparables, they are in fact the comparables proposed for the assessment of the EUV of the existing shop premises. We are not prepared to consider them as comparables as they are dated. 301.Apart from the differences in opinion on location adjustments, Mr Chan and Mr Lai had other disagreements on other adjustment factors:
302.As regards the adjustment for building age, the Tribunal has, on many occasions, stated that shop values would not be so sensitive to age of the buildings in which they are situated because the most important factor affecting values for shops is their location. The prospective buyers are likely, in nearly every case, to attempt some estimate of the trade in those premises in that location. Thus, even shop premises in historic buildings can command considerably high prices irrespective of their ages; the adjustments for age of the building concerned are mainly focused on the costs of repair and maintenance only. For instance, the consideration paid for Comparable NRST-1 was $81,800,000. The adjustment on the basis of Mr Lai’s formula at 1% per 2 years difference would result in an allowance of 30.5% which is equivalent to $24,949,000, a very substantial sum for repair and maintenance. In the present case, therefore, we consider Mr Chan’s proposed adjustments for building age more reasonable. 303.In respect of size, the Reference Shop Unit has a saleable area of 76.1 sq m. Save for Comparable NRST-4 and NRST-6, the other comparables have area differences within a 50% range when compared with the Reference Shop Unit. In this regard, we are going to adopt 1% per 5 sq m difference for these comparables but 1% per 3 sq m difference for Comparable NRST-4 and NRST-6. 304.In respect of the adjustment for frontages, the Tribunal has always referred to its decision in Tai Ping Restaurant Limited v Director of Lands, LDLR 1/2013 (unreported, dated 8 December 2014) at §48 that there should not be 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. In the present case, this concept is particularly manifested by Comparable NRST-4 which concerns the sub-division of one shop into two shops. It is unreasonable, for instance, for the two shops which have approximately half the width of the original that one shop would command substantially lower values because of the smaller frontage upon subdivision. Thus, the 2% per 1 m difference as proposed by Mr Chan is preferred. 305.In a similar vein, when shops are of reasonable heights, the differences in headroom should not affect their value much. Thus, the 4% per 1 m difference proposed by Mr Chan is accepted. 306.And having reviewed the floor plans of the comparables, we are prepared to adopt the layout adjustments proposed by Mr Chan. 307.As a result, we set out hereunder our assessment of the unit rate for the Reference Shop Unit for the hypothetical development:
308.On the basis of the above, the Reference Shop Unit P4 will be assessed at $1,090,000 per sq m x 76.1 sq m = $82,949,000 say $82,900,000. 309.Indeed, Mr Chan, like his approach in assessing the EUV of shops in the Buildings, adopted another shop in the hypothetical development, ie Shop R4 which abuts Russell Street as another Reference Shop Unit. However, Mr Chan relied on Comparables R5, R6 and R7 which were transacted on 27 January 2022, 6 May 2021 and 15 January 2021 as comparables in the present day. We find that these transactions were all dated and we prefer not to adopt them. 310.Rather, we would devalue the $82,900,000 into zonal values, assuming a zonal depth of 6 metres for each zone:
311.This Zone A value may be compared with that of G/F, No 66 Percival Street (which lies at the approximate location of Reference Shop Unit P4):
312.Regretably, the resultant Zone A value based on the comparables turns out to be relatively low. Perhaps, this is the result of all the comparables above suffering from substantial time adjustments and location adjustments, rendering them not reliable. Thus, both Mr Chan and Mr Lai adopted the income capitalisation approach of valuation for checking purposes:
313.In terms of location, Comparable NRL-1 is closest to the hypothetical development on the opposite side of Russell Street. Unfortunately, this comparable still requires a lot of adjustments. For instance, it occupies a corner location with return frontage onto Lee Garden Road for which we consider an adjustment of -20% appropriate. In addition, we consider its location much superior to the reference shop unit P4. Following the pattern of location adjustments adopted for assessing the EUV of the shops in the Buildings, we deduct another 25%. A fortiori, this shop is relatively small and has a shorter depth for which we deduct further -5.9% for size, -9.0% for frontage and -20% for layout, etc. 314.Despite its address, Comparable N-1 lies in fact on Matheson Street at the back of Percival House but facing Times Square. It was occupied by Hannah, a boutique trading European top brands clothing and handbags. The tenancy agreement was signed on 23 July 2024 but it did not commence until only recently on 1 June 2025, subject to a rent-free period of one month until 30 June 2025[125]. This is a pre-lease which, in such a prime location, on most occasions the prospective tenant would be eager to secure the premises before it is too late. This is particularly the case when it turns out that the tenant is Milan Station, a competitor of Hannah, who has another shop at Area E-F & K, G/F, Percival House, 83 Percival Street, so at the back of this comparable. There was virtually no vacancy in the vicinity when we conducted our inspection on 17 October 2024. In our opinion, most probably, Milan Station was eager to secure the premises. While Mr Chan did not apply any adjustments to this comparable, Mr Lai proposed 25% for location. We prefer an adjustment of 10%. 315.Comparable N4 happened to be situated next to Comparable NRRP-1. According to the news media, this comparable had been long occupied by CR Care, a health product chain. It announced however in early October 2024 that it had decided to close all its 19 Hong Kong branches on November 2024, citing “external uncertainties” and various “operational challenges.” Unfortunately, this news was misleading because according to the tenancy agreement dated 9 December 2024 retrieved from the Land Registry[126], it was relet to China Resources Pharmaceutical Trading (HK) Limited, a company closely associated with CR Care. The letting was for a term of approximately 2½ years at $170,000 per month from 1 December 2024 to 7 June 2025 and $180,000 per month from 8 June 2025 to 7 June 2026. 316.Assuming the previous tenancy commenced in July 2022 or earlier, this drop of 27% or thereabouts appears to be excessive even when compared with twice the change in Private Retail Rental Indices since the period:
317.Only Mr Chan adopted NRRT-1 as comparable and applied a location adjustment up to +40% to arrive at an adjusted unit monthly rental of $2,033 per sq m. Mr Lai did not adopt this as a comparable because he considered the rental unreasonably low though it is situated opposite to G/F, No 56 Percival Street across the street. We agree with Mr Lai. 318.Both Mr Chan and Mr Lai adopted NRRT-2 as comparable. Whilst Mr Chan applied a location adjustment of +10%, Mr Lai applied +20%. We consider +20% more reasonable. 319.Again, only Mr Chan adopted NRRT-3 as comparable and applied nil location adjustment. Mr Lai did not adopt this because he noted that the tenancy agreement was made on 28 May 2024 whilst the term of the tenancy would only commence on 1 January 2025, so some half year later[127]. Mr Lai was of the view that the parties to the tenancy agreement had made a forecast of the rental level in January 2025 based on the market sentiment prevailing in May 2024. In his opinion, there have been changes in the market sentiment since then and therefore the tenancy agreement serves no useful purpose in assessing the rental level of the Reference Shop in the updated position. However, Mr Lai was contradicting himself when he was willing to adopt Comparable N-1 as a comparable. 320.As a matter of fact, this is a renewal of the tenancy in favour of the existing occupier, Sandes Crystal Limited. Where a comparable is a reletting to an existing tenant, there might be a tenant’s inertia or willingness to pay a rent above the prevailing market rent to avoid the cost and inconvenience of relocating. At trial, we also understood from the press that artist Ms Natalie Tong newly rented G/F, 116 Percival Street, towards the end of Percival Street. 321.In terms of location, we do not agree with Mr Chan’s nil adjustment. It is one block away from the busiest junction of Percival Street and Russell Street. We prefer an adjustment of +30%. 322.Comparable NRRT-4 is situated on the other side of Hennessy Road on Lockhart Road. In terms of location, this rental transaction fares no better than those adopted for direct comparison purpose. When compared with the direct comparison method, the income capitalisation method serves a more tortious route. In Fan Chun Keung v The Secretary for the Environment, Transport and Works, LDMR 5/2004 (unreported, dated 2 November 2005), the Tribunal stated its concern at §21 in its review decision:
323.We share the Tribunal’s view in Fan Chun Keung and for the reason that NRRT-4 is located quite far away from the Buildings in a different neighbourhood, we are going to disregard this as a comparable. 324.Again, only Mr Chan adopted NRRT-5 as comparable and applied a location adjustment of +20%. On the other hand, Mr Lai considered Jardine’s Bazaar a secondary road with character very different from that of Percival Street. However, we consider the location adjustment of +20% proposed by Mr Chan reasonable to reflect the difference. 325.Both NRRT-6 and NRRT-7 took place in 2023 which was more than 12 months from the present day. We are not going to adopt them as comparables. 326.Comparable NRRP-1, though situated on the other side of Hennessy Road, is in close proximity to the entrance to the footbridge that crosses Hennessy Road onto the area the Buildings are situated. Only Mr Lai had adopted this as a comparable while Mr Chan considered its size too small as a comparable. In terms of location, Mr Chan applied 50% while Mr Lai applied nil adjustment. We adopt 50%. 327.In addition to the above, we note from the news articles there were the following tenancy agreements. Although both Mr Chan and Mr Lai could not verify their veracity, we consider worthwhile to include them for analysis when they are situated in close proximity with the Buildings:
328.Comparable N3 is situated directly opposite Times Square across Russell Street. We would apply a location adjustment of -30%. It was occupied by a retailer of housewares – 天上野. According to the news media, the retailer rented the premises since April 2022 at a monthly rent of $200,000 for a term of 3 years which would not have expired until April 2025. However, it intended to move out before the tenancy expired and there is a newcoming tenant which is a cosmetic and beauty retailer who is willing to pay $240,000 per month, an increase of 20% when compared with the rental in April 2022. This information, however, runs an opposite trend against the Private Retail Rental Indices:
329.A similar situation appears for Comparable N2. These premises are situated on Russell Street next to the retailer of Tissot opposite the Remaining Portion of No 60 Russell Street in the 3rd Building. According to the news article, this unit was recently rented by DJI, a renowned producer of camera drones and stabilizers, at a monthly rent of $400,000. But the unit was previously rented for $300,000 with the tenancy unexpired before August 2025. The new rental as reported appears to be 33% more than the previous rental entered perhaps 2 years ago. This appears again to be opposite to or against the trend of the Private Retail Rental Indices. 330.On the other hand, at trial, both valuation experts agreed that the retail property market along Percival Street was recovering. And in view of the low vacancy rates in the vicinity, we agree with Mr Suen and Mr Liu’s closing submission dated 4 December 2024 at §83. They stated that:
331.Thus without making any time adjustment, we carry out our analysis of the rental comparables in the following manner:
332.During the trial, there was specific discussion on the reliability of Comparable NRL-1 in view of its very high unit rental. The following are noted:
333.Notwithstanding the above, we are of the view that the rental achieved for Comparable NRL-1 is obviously out of tone. In particular, this high rental is not supported by Comparable N2 which lies in close proximity to it. 334.On the other hand, we note both Comparables N1 & N2 lie closest to the Reference Shop Unit P4 in terms of location and time. We therefore prefer to adopt $4,000 as the monthly rental for the Reference Shop Unit P4. 335.Mr Chan and Mr Lai agreed in their 2nd Joint Statement dated 27 September 2024 that the capitalisation rate applicable was 3.15%. However, by reference to market yield for retail property published by the RVD, the yield has been trending upwards from 3.2% to the prevailing 3.4%. In such regard, we consider a capitalisation rate at 3.4% more appropriate. 336.Thus, the capitalised market value would be $4,000 x 12 ÷ 3.4% = $1,411,765. 337.As a result of the above, we prefer to adopt $1,400,000 per sq m as value of the Reference Shop Unit P4 which will be assessed at $1,400,000 per sq m x 76.1 sq m = $106,540,000 (which is 28.5% higher than $82,900,000 as determined at §308 above). 338.If we devalue the $106,540,000 into zonal values, assuming a zonal depth of 6 metres for each zone:
339.We are content to adopt $2,230,000 per m2 as the Zone A value for the Reference Shop Unit P4. 340.Thus we carry out the assessment of the GDV for the G/F shops of the hypothetical development as follows:
Assessment of GDV for Upper Floors 341.In respect of the upper floor premises, Mr Chan adopted Shop 2 on 5/F as the reference unit for the lower floors, which according to him would be more suitable for restaurant use, and Shop 2 on 16/F as the reference unit for the upper floors of the hypothetical development:
342.Mr Chan arrived at $252,000 per sq m and $218,000 per sq m[132] respectively. 343.We find Mr Chan’s dichotomy between the two uses arbitrary. Taking Tower 535, for instance, it 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. Its 21/F & 22/F (which have become 25/F & 26/F respectively) are also designed for restaurant uses [133]. As stated in Billion Glory, supra, at §80, most of the floors up to 12/F (which has become 15/F) are occupied by skincare, beauty salons, health centres, finance company and others not related to food and beverage[134]. 344.In any event, the comparables referred to by Mr Chan and Mr Lai do not show material difference between the value of shops on upper floors and offices:
345.Then Mr Chan and Mr Lai had the following agreements/ disagreement on the adjustment factors:
346.Perhaps save for NSS-1, the transactions above were all dated. Indeed, Mr Chan stated in his Second Supplemental Report dated 10 September 2024 as follows[135]:
347.Nevertheless, the 3 transactions in Emperor Watch and Jewellery Centre may be adopted to test the relevance of the RVD Private Retail Price Indices:
348.From the above, it is manifest that the time indices fail to show the changes in price level during the period. Alternatively, if we double the change in price indices, the results appear to be more consistent:
349.Therefore, we prefer again to adopt twice the changes in the Private Retail Price Index to reflect the time adjustments for the upper floor commercial units. In this regard, however, those transactions that took place earlier than 2023 would not be appropriate because the longer the time away from the relevant date of valuation, the less reliable is an index. 350.As regards Comparable NSS-1, only Mr Chan adopted it as a comparable. Mr Lai refused to adopt it as a comparable because the building concerned is a Grade B/C commercial building not comparable to the hypothetical development which “should be a very high standard commercial building”[137]. While we appreciate Mr Lai’s concern, this is in fact the only comparable that took place in 2024. We are going to adopt it as comparable on a de bene esse basis. 351.Again, only Mr Chan adopted NSS-2 as a comparable. Mr Lai did not adopt it as comparable because the size of the unit in 333 Hennessy Road is perhaps too small for comparison when there are other comparables. He also commented that the nature of this office building is very different from that of the hypothetical development. We agree. 352.On the other hand, both Mr Chan and Mr Lai were content to adopt NSS-3 as a comparable. They even agreed to adopt a location adjustment of +20%. In our view however, the scale and class of this office building is also very different from that of the hypothetical development proposed. We are going to adopt it as comparable on a de bene esse basis. 353.In respect of the table of agreement/ disagreement above, taking the disagreement on the adjustment for size, we prefer that of Mr Chan because of the significance in size of the reference unit. For the adjustment for headroom, however, we prefer Mr Lai’s higher rate at 4% per 1 m difference as Mr Lai suggested that “(t)he proposed commercial development would be finished to a Grade A office standard”[138] or “the hypothetical development should be a very high standard commercial building”[139]. 354.In respect of the “whole floor unit adjustment” proposed by Mr Chan, he explained that whole floor units would enjoy better privacy, prestige and design flexibility than shop units that need to share common areas and communal sanitary facilities with other units on the same floor…, making reference to Winland Property Limited & Others v Chang Sai Ho & Others, LDCS 7000/2022 (unreported, dated 28 March 2024)[140]. In that case, the Tribunal stated at §74 as follows:
355.Mr Chan explained, for the reason above, it is appropriate to adopt a downward whole floor unit adjustment of -3% to the comparables that are whole floor units when the reference unit is just one of the three units on that floor. 356.Mr Lai disagreed, considering there be no difference between whole floor unit and sub-divided units in terms of enjoyment of common facilities “since adequate sanitary facilities should be provided in Grade A commercial/office developments.”[141] Mr Lai further explained that in terms of privacy, when the upper floor commercial units are occupied for retailing/ dining purposes, the presence of a few retailing businesses and/or restaurants on the same floor would certainly benefit each other because of the increasing number of shopping/dining attractions to customers and visitors. 357.Notwithstanding the explanations of Mr Lai above, we are not persuaded. Just three retailing/shop units on the same floor would have minimum attraction, if any, to customers and visitors. On the other hand, if one of the units becomes vacant, it might adversely affect attraction to customers and visitors. Therefore, we still consider the “whole floor unit adjustment” proposed by Mr Chan applicable in the present case. 358.Apart from the various adjustment factors discussed above, Mr Chan and Mr Lai differed on the application of adjustment for the location difference between the comparables and the hypothetical development. For instance, Mr Chan considered those units situated in Emperor Watch and Jewellery Centre superior in location and applied an adjustment of -15%. Mr Lai considered otherwise and applied an adjustment of +5%. However, we do not perceive any difference in location between units on the upper floors of Emperor Watch and Jewellery Centre and the hypothetical development. 359.There was also a disagreement on view adjustments proposed by the valuation experts. We do not agree that any adjustment is required. 360.Similarly, we do not perceive any adjustment for layout, as proposed by Mr Chan is required. Nor do we consider any adjustment for lighting & ventilation proposed by Mr Lai is required; as Mr Chan explained, unlike domestic units, commercial units are always provided with air-conditioning and artificial lighting. 361.As regards scale of facilities and development, Mr Lai considered the comparables being without carparking provision. Moreover, he observed that there are only two lifts serving the upper floor units for Golden Resources Tower[142]. He therefore proposed +4% to 6% adjustment to the corresponding comparables. We agree. 362.Then comes the difference in opinion on the adjustment for vertical accessibility. Mr Chan suggested that commercial units with main lobby on G/F enjoy better accessibility and prestige than commercial units with main lobby on 1/F. He then proposed -1% adjustments to the comparables. Mr Lai disagreed stating that “(i)n modern commercial/ office developments nowadays, it is very common that the upper floor lift lobby is provided on 1/F. These 1/F lift lobbies were noted to be spacious and be readily accessible by escalators leading from the ground floor”[143]. We agree with Mr Lai[144]. In any event, the adjustment proposed by Mr Chan was only -1%. This is negligible. 363.Last comes the adjustment for building quality. Mr Lai referred to Lead Harvest Group Limited & Others v Cheong Wing Industrial Limited & Another, LDCS 6000/2018 (unreported, dated 7 February 2022) and China Orchid International Limited & Others v Fujitec (HK) Company Limited & Others, LDCS 7000/2018 (unreported, dated 5 May 2023) where the Tribunal analysed two sets of comparables in respect of buildings completed in the 90s. Then the Tribunal was prepared to apply a 10% quality adjustment to account for the building quality differences with the hypothetical development. Mr Lai further stated in his 2nd Joint Statement with Mr Chan dated 27 September 2024 as follows[145]:
364.On the other hand, Mr Chan suggested that the age adjustment agreed by them could have accounted for this factor. Mr Chan further suggested that it is not necessary to adopt additional building quality adjustments or there will be double counting with age adjustments and scale and facilities adjustments. We do not agree with Mr Chan’s proposition. We are prepared to adopt the adjustments proposed by Mr Lai at +5%. 365.In view of the analysis above, we set out hereunder our determination on the basis of the limited number of comparables, adopting Shop 2 on 16/F as the reference unit:
366.As stated in the foregoing paragraphs, NSS-1 and NSS-3 were only analysed de bene esse. In any event, the average of the analysis comes very close to the adjusted result of Comparable NSS-4. However, this is the only comparable and therefore we agree with Mr Chan’s approach to adopt the income capitalization method to verify the determination. The following show the rental transactions that took place in 2024[147] that Mr Chan adopted as comparables:
367.Whereas many of the above tenancies were in respect of Causeway Bay Plaza 1, Mr Lai was hesitant to adopt them as comparables because Causeway Bay Plaza 1 is some 36 years of age. We appreciate Mr Lai’s concern that the building is not similar to the modern hypothetical development to be built on the Lots. However, as there is a dearth of comparables, we are content to include them for analysis for checking purposes. In any event, Mr Lai has carried out an analysis of NS/RR-2 though Jardine Centre is about 26 years old. 368.We are prepared to adopt similar adjustment factors to that we adopted above for direct comparison save that we consider view adjustment for the tenancy in Sino Plaza at -15% appropriate because of the panoramic view that can be enjoyed by the premises:
369.On the basis of the above analysis[154], we arrive at an average monthly rental in the region of $770 per sq m. 370.At the request of the Tribunal, Mr Chan also obtained the information on approximate unit rent(s) of “recently concluded lettings” of Grade A Offices from the Office Leasing Team of Savills (Hong Kong) Limited:
371.According to Mr Chan, however, the exact terms of these “leases” were strictly confidential and undisclosable. Also, the rental information was originally based on “lettable area” and Mr Chan made an efficiency assumption from 75% to 90%. 372.Just for the sake of cross-checking, Mr Chan had compiled a table on their “adjusted unit rent” with reference to the reference office/commercial unit at the “high zone” (ie Shop 2 on 16/F) [155]:
373.Firstly, by reference to the Private Offices Rental Index published by RVD below, the Grade A office rentals in Wan Chai/ Causeway Bay have stabilised:
374.Secondly, Mr Lai tried to verify the information provided by Mr Chan from alternative sources but found that the rental transactions quoted by Mr Chan were on the low side[156]. Like Mr Lai, we are concerned that Mr Chan had made assumptions on the terms of the leases and rent free periods. 375.Thirdly, although Hysan Place and Times Square are situated directly above MTR Causeway Bay station and both are accessible directly from the station, we do not consider that the effect on location is so significant for offices. We prefer an adjustment of -10% instead. 376.Lastly, we note that Mr Chan had applied the downward adjustments of 10%, 13% and 7% for the office premises in Lee Garden One, Hysan Place and Times Square respectively for the reason that these developments are of larger scale. But all along, the hypothetical development is assumed to be constructed to Grade A office standard. In such regard, we agree with Mr Lai that the adjustments proposed by Mr Chan were excessive. 377.Bearing in mind the above, we re-work the analysis as follows:
378.Notwithstanding the above, we note the analysed rentals for Times Square are relatively low. This may have resulted from Mr Chan applying an efficiency ratio as low as 75%. Also, we note Lee Garden One - 1 was the most recent letting, not requiring any assumption of lease term or rent-free period and apparently has reasonable efficiency ratio. Thus for the purpose of checking, we prefer to adopt $719 per sq m as reference. 379.Thus, by adopting a yield of 3.4%, we get $770 per sq m x 12 ÷ 3.6% = $256,700 per sq m or we get $719 per sq m x 12 ÷ 3.6% = $240,000 per sq m. 380.Thus, bearing in mind the three figures of $188,209, $256,700 and $240,000, we are content to apply $228,000 per sq m to all the upper floors (save for the 1/F & 2/F which are accessible directly by escalators) without further adjustments. 381.Indeed, Mr Chan’s approach in evaluating the value of the 1/F and 2/F of the hypothetical development which enjoy the benefit of direct access via escalators is by making an allowance of +15% for accessibility and +30% for exposure in respect of the 1/F, and +10% for accessibility and +25% for exposure in respect of the 2/F. The total are around +49.5% and +37.5% respectively which are not unreasonable and preferable to Mr Lai’s approach in applying a conversion factor of 50% and 30% respectively to the average unit rate of all shops on G/F. In our opinion, this latter method appears to be more appropriate in evaluating the upper floors which comprise a shopping centre (with a number of entrances) or a small commercial podium with entrance(s) adjoining the shops on G/F. 382.In the present case, in particular, the units on G/F and 1/F shall have vastly different sizes, layout and orientation. For example, the shops on 1/F range from 100.8 sq m to 342.8 sq m while the sizes of G/F shops range from 30.0 sq m to 113.1 sq m. Applying a “flat conversion rate” derived from the G/F all 1/F units without paying heed to such size and layout differences would be an overly crude and illogical exercise. The argument that value of shop premises on 1/F must bear a good relationship on the unit value of G/F premises is readily rebutted by these two examples which lie at popular shopping areas in Hong Kong:
383.Moreover, the access by escalators on G/F abuts only one street, namely Lee Garden Road but Mr Lai derived his value for 1/F or 2/F from shops that front onto all three streets, Lee Garden Road, Russel Street and Percival Street. The 1/F and 2/F shops will have no direct affinity and be less likely to attract pedestrian flow on Russell Street or Percival Street. For this reason, the commercial nature and “values” of the 1/F and 2/F shops will have less correlation with those of the G/F shops fronting Russell Street or Percival Street. 384.Thus, on the basis of Mr Chan’s approach, the value of shops on 1/F and 2/F can be assessed at $340,860 per sq m and $313, 500 per sq m respectively. 385.At this juncture, we note that Mr Lai sought to rely on a recent letting of an arcade shop with a saleable area around 650 sq m in Hysan Place at $2,303 per sq m. However, upon further investigation by the applicants, it was discovered that such arcade shop was let to “Abercrombie & Finch” at Shop 109-112. However, “Abercrombie & Finch” already has a presence in Hysan Place right above but operating its other brand “Hollister”. As pointed out by the applicants, the shop premises would highly likely be vertically connected to form a larger shop as expanded, this letting was prone to be inflated by special considerations and cannot be relied upon as a comparable. A fortiori, the layout of the shopping arcade of Hysan Place is quite different from the hypothetical development in question. The former is accessible at various points from Hennessy Road, from Kai Chiu Road and even from the MTR Causeway Bay station underneath. In comparison, the 1/F and 2/F will only be accessible via the entrance on Lee Garden Road. 386.Thus, we are prepared to adopt $340,000 per sq m and $314,000 per sq m as the value of shops on 1/F and 2/F respectively of the hypothetical development. Assessment of GDV for Carparking Spaces 387.Mr Chan adopted a private car parking space on Basement 2 (“B2”) as reference. He referred to the following transactions all in The Sun’s Group Centre[157] as comparables:
388.Firstly, we agree with Mr Lai that CPS 4 and CPS 5 are dated and should be disregarded as we have more updated comparables. More particularly, two carparking spaces on 4/F of The Sun’s Group Centre were sold more recently at $2,100,000 each. 389.It is regrettable that both valuation experts failed to provide more information about the car park ratio of The Sun’s Centre, but they were content not to apply any adjustment for that[158]. 390.According to Mr Lai, once adequate number of private carparking spaces have been provided in a development that follows the relevant guidelines on the provision of carparking spaces published by the Planning Department, the car park ratio of the development is no longer a factor for adjustment. We disagree. The parking standards or requirements as set out in Table 11 of the Hong Kong Planning Standards and Guidelines are territory-wide and evolve from time to time. Unfortunately, they have no direct bearing on the level of market value of a carparking space inside a particular building. Owing to historical reasons or site constraints, the number of carparking spaces in each building varies. If, for instance, a carparking space of a similar building for similar uses and comparable floor space can fetch a market value of $3,000,000, it does not follow that a carparking space in the subject building designed at a different car park ratio can fetch a similar price. Obviously, the demand for carparking spaces between the two buildings may be similar but the supply is different. 391.Apart from the above, we agree with Mr Chan’s other adjustment factors including that for age where Mr Chan applied 1% per 7.5 years difference though Mr Lai applied 1% per 2 years difference. In our opinion, the value of a carpark in a development is not so sensitive to its age when compared with especially the car park ratio within the development. 392.Thus, following Mr Chan’s assessment, the value of a private car parking space on B2 is determined as follows:
393.Furthermore, Mr Chan and Mr Lai had agreed the following conversion rates and our determination of the GDV for the various carparking spaces proposed for the hypothetical development is shown in the table:
Assessment of GDV for Video Walls 394.In Mr Lai’s valuation report dated 26 October 2023, he remarked that[159]:
395.Pursuant to Enclosure 28 of Mr Lai’s valuation report, there were four video walls, namely Video Wall “A”[160], “B”[161]. “C”[162] and “D”[163], in his hypothetical development. Video Walls A, B and C ran parallel to Percival Street, Russell Street and Lee Garden Road respectively on the external walls or flat roof of 3/F (ie the E & M Floor). Video Wall D is located on G/F at Percival Street close to the footbridge across Hennessy Road but this idea had been dropped later after joint discussion with Mr Chan. 396.Mr Lai did not provide the dimensions of the video walls. On the basis of the schematic drawings in Enclosure 28 of Mr Lai’s valuation report, Mr Chan worked out the following in his Rebuttal Report dated 23 November 2023[164]:
397.According to Mr Chan, a video wall is only valuable when it can catch and attract the attention of pedestrian and even drivers on the road. The Video Walls A, B and C proposed by Mr Lai, being on 3/F, are high above the eye level of pedestrians when the pavements of Percival Street, Russell Street and Lee Garden Road are narrow[165]. 398.Mr Chan was further of the opinion that the video wall advertisements normally play for a period of time, say 10 second to a few minutes. Given that Lee Garden Road (12.2 m), Percival Street (18.3 m) and Russell Street (12.2 m) are all narrow and bustling, it is unrealistic to assume that pedestrians can stand there and look up to the video walls at odd angles for 10 seconds to a few minutes. 399.Mr Chan considered the comparables proposed by Mr Lai all demonstrate that it is unreasonable to install high-hanging video walls parallel to a narrow and bustling street. Those being installed at No 3, Matheson Street are actually a set of video walls playing the same advertisement. The Video Walls 4 and 5 are even difficult to notice since they are mounted on the external walls 10.3 to 16.8 m and 10.9 to 16.8 m above street level. Mr Chan was of the view that they are merely ancillary to the Video Walls 1 & 3 on the lower level. 400.Accordingly, Mr Chan suggested that an appropriate starting point of a video wall is about 4m to 5m (ie on 1/F) above street level. In addition, Mr Chan remarked that even if pedestrians somehow look up at an odd angle and notice the video walls of the hypothetical development, the shapes of the video walls proposed by Mr Lai were extremely long, reaching an aspect ratio of 45:9 which will adversely affect their values. Mr Chan suggested that a standard aspect ratio for images or videos are 4:3 or 16:9. 401.Instead, Mr Chan, in his Second Supplemental Report in respect of the RDV dated 10 September 2024, proposed three alternative video walls[166]. The first one will be affixed to the external wall of the 3/F facing Percival Street[167]. The second video wall will be erected on the flat roof of the 3/F facing Russell Street[168]. The third video wall will be affixed to part of the external wall of the 3/F facing Lee Garden Road[169] because “the nearby Hysan Place largely blocks pedestrian view to the hypothetical development from Kai Chiu Road, while six ventilation shafts block the view from Lee Garden Road opposite the hypothetical development.” 402.We disagree with Mr Chan. Firstly, his proposal of affixing the video walls to the external walls on 3/F contradicts his own comment on Mr Lai’s design at para 8.7.5 of his Rebuttal Report dated 23 November 2023. See §397 above. In any event, Mr Remus Wong has re-positioned the video walls on the 2/F in his joint statement with Mr Ng dated 27 September 2024[170]. 403.Secondly, by suggesting that Lee Garden Road (12.2 m) and Russell Street (12.2 m) are narrow, Mr Chan had forgotten that the hypothetical development has to be setbacked because of the town planning requirement. Lastly, with proper design and positioning of the commercial tower, for instance, towards the direction of Russell Street, we are not persuaded that “the nearby Hysan Place largely blocks pedestrian view to the hypothetical development from Kai Chiu Road, while six ventilation shafts block the view from Lee Garden Road opposite the hypothetical development.” 404.Thus, we are going to proceed with the assessment of the GDV for Video Walls A, B and C as proposed by Mr Lai. However, as market evidence is lacking, Mr Lai had relied on the latest rateable values as follows:
405.Soundwill Plaza to which Comparable NV-1 is affixed directly opposite and faces Times Square. More particularly, pedestrians coming in or out the Causeway Bay MTR station Exit A would view and be attracted to the video wall anyway. It is much superior in location. In any event, Mr Lai only relied on this comparable to support Comparable NV-2 rather than as a comparable by itself. 406.As well, Mr Lai only relied on Comparables NV-4 to NV-7 to support Comparable NV-2 rather than as comparables by themselves. 407.Thus, both Mr Chan and Mr Lai relied on Comparable NV-2 as comparable. It also faces and is directly opposite Times Square but is located further away from the Causeway Bay MTR station Exit A; it is however facing directly onto traffic moving from Matheson Street. We agree with Mr Chan that it is superior in location. We also prefer his location adjustment of -15% to Mr Lai’s nil adjustment. 408.Having said that, we consider the further factors of adjustment, like visibility or shape proposed by Mr Chan, not so important or appropriate as the video walls are now assessed on the basis of concept instead of an exact position of the hypothetical development. The visibility or shape of the proposed video walls can be subject to a variety of design concepts and changes. We agree with Mr Lai’s comment that the images on the video walls can be perfected by a number of technical means. By referring to the video wall being installed on the facade of Sogo, Mr Lai had demonstrated that the screen of the video wall could always be segregated as to avoid any distortion of image or lowering of resolution. Such approach maintains the aspect ratio and quality of the video image, while at the same time enables simultaneous display of different footage. With the aid of this widely adopted modern approach, we agree with Mr Yuen and Mr Wong that there is no reason to question that the function of video walls would be in any way restricted by their aspect ratio. 409.On the other hand, Mr Chan tried to introduce an additional comparable, Comparable NV-3, which is in fact a video wall on 5/F of Emperor Watch and Jewellery Centre:
410.Mr Lai in his joint statement with Mr Chan dated 27 September 2024, opined that this comparable is very small and sandwiched between two signages rendering it not noticeable[171]. In our opinion, this comparable tends to support Comparable NV-2 rather than introducing anything new. In any event, all rateable values were assessed by RVD as at 1 October 2023. 411.Notwithstanding the latter, we do not consider the time adjustment proposed by Mr Chan on the basis of the RVD Private Retail Rental Indices appropriate. 412.Thus, as an approximate, we are content to apply $3,780,000 x 85% x 3 = say $9,600,000 as the market rental for the three video walls proposed by Mr Lai. 413.As regards the capitalisation rate, both Mr Chan and Mr Lai referred to Chancemore Limited v Yee On Enterprises Limited, LDCS 17000/2015 (unreported, dated 31 July 2017) where the Tribunal accepted the unchallenged 7% for the valuation of a rooftop signage in Causeway Bay as proposed by the only valuation expert in that case. 414.In his Second Supplemental Report on RDV dated 10 September 2024, Mr Chan stated as follows:
415.Mr Lai disagreed and considered the level of risk of investment for the rooftop signage in Chancemore relatively high taking into account its small size, inferior location and exposure. Mr Lai on the other hand preferred to add 1.5% to the yield of retail premises and considered the additional percentage would have adequately compensated for the additional level of risk in investment in the video walls in the hypothetical development. 416.We do not consider Mr Chan’s argument above persuasive for video walls located in the shopping hub in this part of Causeway Bay district. We have seldom witnessed vacant video walls in such a prime location. When the property market or the economy is in the doldrums, it is the time to maintain marketing of the top brands in prime locations. We do however accept that the prevailing interest rate is much higher than that in 2017. Therefore, we are content to adopt a capitalisation rate of 5%. 417.Thus, our determination of the GDV for video walls is:
Other Parameters in Residual Valuation 418.Mr Chan and Mr Lai had also agreed the other parameters save for the profit to compensate the hypothetical developer as well as the interest rate for discounting[172]:
Interest Rate 419.The level of finance cost is essential in a residual valuation since it will determine the cost of borrowing during the period of development. In Modern Methods of Valuation by Eric Shapiro, David Mackmin and Gary Sams, 12th Ed, 2019, Routledge at pp 220-221, the interest cost is explained as follows:
420.Mr Chan and Mr Lai differed in their opinion on interest rate. Mr 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[173]:
421.On the other hand, Mr Lai suggested a decreasing trend in interest rate in Hong Kong. By reference to the movement of the interest trend, we agree with Mr Lai but the major banks in Hong Kong, for example, HSBC still maintain the best lending at 5.25%. 422.Bearing in mind the real estate market is still in doldrums, we consider 5.5% more appropriate to reflect the risks of commercial property development. 423.As in many compulsory sale proceedings, the determination of developer’s profit to be adopted in a residual valuation is subject to dispute or disagreement by experts. 424.Again, by reference to the Modern Methods of Valuation at p 222, the development profit as required in a residual valuation is described as follows:
425.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. 426.In a residual valuation, developer’s profit is included in a broad brush manner 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, for example. Government or corporate bonds which are supposed to have no risk. 427.Reverting to the present case, Mr Chan adopted a developer’s profit of 25% while Mr Lai suggested 20%. In Billion Glory, supra, the Tribunal adopted 22.5%, stating at §182 that equity risk premium has the phenomenon of mean reversion over time horizons from 3 years up to 15 years. With the benefit of hindsight, this is particularly true when we observe the shops along Percival Street have been taken up and the rentals for Grade A offices in Wan Chai/Causeway Bay district appear to have stabilised. 428.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 in that the developer 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. Taking into account the larger scale of development when compared with that in Billion Glory, supra, we are content to adopt the same 22.5% as the developer’s profit in the present case. FINDING ON RDV AND THE RESERVE PRICE 429.Thus, on the basis of what we have stated above, we determine the land value of the Lots at $2,838,000,000 (ie accommodation value of $102,697/m2) as shown in the Appendix 16 herein. 430.We adopt the estimated RDV of $2,838,000,000 as the Reserve Price for the auction of the Lots as a whole. TWO INCIDENTAL MATTERS 431.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 letter dated 30 October 2024, 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. 432.The applicants have prepared a set of draft Particulars and Conditions of Sale of the Lots[174]. Subject to any amendment that may become necessary as a result of our ruling on the arrangement of auction above, the particulars and conditions of sale of the Lots by public auction submitted by the applicants are also reasonable. ORDER 433.Thus, we make the following orders and findings:
COSTS 434.We make a costs order nisi that:
435.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. 436.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.
Mr Mok Yeuk Chi and Mr Adrian But, instructed by Howse Williams, for the applicants Ms Anna Chow, instructed by Grandall Zimmern Law Firm, for the 2nd and 42nd respondents Mr Ross Yuen and Mr Chris Wong, instructed by King & Co., for the 4th to 6th respondents, by Lo & Lo, for the 8th to 10th respondents, by Tai, Tang & Chong, for the 36th respondent, and by So, Lung & Associates, for the 40th respondent Ms Cherish Ng, instructed by C. C. Lee & Co., for the 7th respondent The 12th, 13th, 14th, 28th, 29th, 30th, 31st, 32nd, 43rd, 44th, 48th, 49th and 50th respondents were not represented and did not appear Mr Jenkin Suen, SC and Mr Charlie Liu, instructed by Deacons, for the 15th and 46th respondents Ms Nancy Ngai and Ms Catherine Hau, instructed by Tong & Tsoi, for the 16th, 19th and 39th respondents Mr Vincent Lam and Mr Kurt Ng, instructed by Patrick Mak & Tse, for the 18th respondent The 20th, 21st and 34th respondents appeared in person The 22nd and 23rd respondents represented by Mr Lim Sze Sing, acting in person Mr Billy Poon, instructed by John Ho & Tsui, for the 24th respondent Ms Grace Tam, instructed by Edmund W.H. Chow & Co., for the 27th respondent Mr Desmond Leung, instructed by Stevenson, Wong & Co., for the 33rd respondent Mr Kenny Kwok, instructed by Deacons, for the 38th respondent Appendix 1 Ownership of 1st Building
* “FR” denotes Front Portion and “RP” denotes Rear Portion ** Interests owned by the Applicants on the date of application are shaded. Appendix 2 Ownership of 2nd Building
** Interests owned by the Applicants on the date of application are shaded. Appendix 3 Ownership of 3rd Building
* “FR” denotes Front Portion and “RP” denotes Rear Portion ** Interests owned by the Applicants on the date of application are shaded. Appendix 4
Appendix 5
Appendix 6 EUV determination of 3/F of the Buildings
Appendix 7 EUV determination of 4/F of the Buildings
Appendix 8 EUV determination of 5/F of the Buildings
Appendix 9 EUV determination of 6/F of the Buildings
Appendix 10 EUV determination of 7/F of the Buildings
Appendix 11 EUV determination of 8/F & Roof (if any) of the Buildings
Appendix12
Appendix 13
Appendix 14
Appendix 15
Appendix 16
[1] See Bundle C1/107-113. [2] This Sub-Deed of Mutual Covenant was re-registered at the Land Registry by Memorial No UB4866599. [3] This Sub-Deed of Mutual Covenant was re-registered by Memorial No UB4866601. [4] See Annex A of the applicants’ Opening Submission. [5] R21 has been appointed the representative of R20, R22 & R23. [6] See Bundle C12. [7] See Exhibit R6. [8] Bundle C1/234-338. [9] Mr Chan and Mr Lai could not agree the saleable area for G/F, 76 Percival Street. [10] See Bundle E1/88. [11] This is the width of stairwell as shown on the plan. [12] This is the width of stairwell as shown on the plan. [13] See Exhibit R22. [14] See Bundle C6/1618. [15] See Exhibit R22. [16] See Bundle F23/158//5633-5638. [17] See the Land Registry record at Bundle B5/107/1635. [18] See Bundle C13/146L/3394. [19] See §31 of the judgment. [20] See also Cheuk Kit Kei v Mohammad, Ijaz, DCCJ 5919/2018 (unreported, 3 October 2023) [21] 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. [22] See Bundle F26/245/6682. [23] See Bundle E1/88. [24] See Bundle E1/92. [25] See also the Inspection Bundle at p 33. [26] See also the Inspection Bundle at p 37 & 30 respectively. [27] See Mr Mok and Mr But’s Closing Submission at §55. [28] See Bundle C6/1624. [29] This being the case, then devaluing the price or rent of a comparable on an overall basis per m2 may not give a good common unit of comparison for comparing shops of different depths. [30] 51.8 m2 x (1+20%) = 62.16 m2. [31] Photos of areas under common staircases and landing areas with a headroom of 2 metres and above can be found at Bundle C6/1630. [32] Photos of areas under common staircases and landing areas with a headroom between 1.2 metre and 2 metres can be found at Bundle C6/1631. [33] See Bundle B1/95/188-189. [34] See Bundle C1/143/248. [35] See Bundle C4/145/926. [36] See Bundle C2/144/415. [37] See Bundle B3/95/716. [38] See Bundle C6/1635. [39] See Bundle C1/264 and C12/2984. [40] https://www.info.gov.hk/gia/general/202112/06/P2021120600679.htm?fontSize=1 [41] https://www.info.gov.hk/gia/general/202201/05/P2022010500859.htm [42] https://www.info.gov.hk/gia/general/202202/09/P2022020900022.htm [43] https://www.info.gov.hk/gia/general/202202/23/P2022022300760.htm [44] See Bundle C7/1838. [45] Mr Chan made this response when he was cross-examinated by Mr Yuen and Mr Suen on 28 October 2024. [46] See Bundle C1/261. [47] See https://www.youtube.com/watch?v=SdM5AEzxBeQ at 10:14. [48] See https://hk.ulifestyle.com.hk/activity/detail/20039323/銅鑼灣翠苑甜品新址裝修重開-6月突發結業震驚街坊-出名平價糖水。 [49] See Bundle C1/265-267. [50] Mr Chan adopted a more sensitive size adjustment at 2% per 1 sq m difference when he tried to value the so-called primer shops. With respect, such an aggressive adjustment is totaly unreasonable especially when the Reference Shop has a mere saleable area of 35.7 sq m. For instance, if there happens to be a comparable next door with a saleable area of 60 sq m or thereabouts (which is not extremely large), 2% per 1 sq m difference would mean that this shop would be just worth half the unit rate of the Reference Shop Unit. [51] The headroom and layout adjustments have been taken into account in our determination of the effective area of the shop units. [52] See https://www.youtube.com/watch?v=SdM5AEzxBeQ at 10:04. [53] See https://www.youtube.com/watch?v=XiPs2E5IC6A at 12:47 and https://www.youtube.com/watch?v=VaWxJX9vuuc at 29:13. [54] See Exhibit R19. [55] If Mr Chan’s conversion factor for the cockloft is adopted, the unit rate becomes $4,638,889 which is some 10% higher. [56] If Mr Chan’s conversion factor for the cockloft is adopted, the unit rate becomes $3,592,277 which is some 3.6% higher. [57] In Rating Valuation: Principles and Practice, 5th Edition (2024), Routledge by Patrick H Bon and Peter K Brown at p 249, the authors were concerned that if a shop has a long frontage but a shallow depth, virtually the whole shop falls within Zone A, resulting in an overvaluation. However, this should not be problem in Hong Kong, particularly in the present case where such a shop can be sub-divided into, for instance, two shops with a sensible frontage each. Indeed, further over the page at p 252, the authors acknowledged that “zoning does take (the value of frontage) very much into account”. [58] See Bundle C12/2986. [59] This accounts for the “Additional Shop Signage” as discussed in §83 above. [60] See Bundle C12/2986. [61] See Bundle C3/683. [62] See Bundle C12/2985.1. [63] See Bundel C6/1652. [64] Mr Chan considered this unit fair in internal condition as a domestic unit while Mr Lai considered it good as a commercial unit. [65] See Bundle C1/54 (for Mr Chan) or Bundle C3/674 (for Mr Lai) which is substantially the same. [66] See Bundle D6/2202-2203, 2211-2212, 2289-2290, 2296-2297 & D8/2997-2998. [67] See Bundle C12/2289. [68] See §§5.6.10-5.6.11 in Mr Chan’s Rebuttal Report dated 23 November 2023 at Bundle C6/1662-1663. [69] In respect of this latter factor, both Mr Chan and Mr Lai had agreed that there should be a -20% for those units that do not front onto Percival Street, ie those rear units. [70] While the corresponding amounts had been agreed by both Mr Chan and Mr Lai, we have rounded the amounts to the nearest thousand. [71] See Bundle C3/728 at §25.41. [72] See Bundle C6/1668-1669. [73] While the corresponding amounts had been agreed by both Mr Chan and Mr Lai, we have rounded the amounts to the nearest thousand. [74] Mr Chan even applied +40% adjustment for location for such rear upper floor units at Nos 70, 72 and 74 Percival Street. In contrast, Mr Chan considered other rear upper floor units at Nos 54, 56, 58, 60, 62A, 64A, 66A and 68A had no commercial potential and did not enjoy similar substantial adjustments for location. This is inconsistent and inexplicable. [75] There was disagreement on the internal condition of this unit. Mr Chan considered it “fair” while Mr Lai suggested it was “poor”. Having viewed the unit, we agree with Mr Chan. [76] There was disagreement on the internal condition of this unit. Mr Chan considered it “poor” while Mr Lai suggested it was “fair”. Having viewed the unit, we agree with Mr Chan. [77] There was disagreement on the internal condition of this unit. Mr Chan considered it “very poor” while Mr Lai suggested it was “poor”. Having viewed the unit, we agree with Mr Chan. [78] R2 took issue that his Authorised Land Surveyor took on-site measurement and found the saleable area to be 34.1 sq m instead. While Mr Lai tried to state that it is not uncommon for the actual dimensions on-site being different from those as shown on Approved Building Plans, if we accede to his argument, that means all typical units at 54 Percival Street, Rear Portion on the other floors have to be re-measured for the sake of consistency. Mr Lai overlooked that if he was prepared to adopt this higher measurement instead, he should have recalculated the saleable area for all typical units at 54 Percival Street, Rear Portion on the other floors. To the extent that R2’s Authorised Land Surveyor had not performed such an exercise, we maintain that his unit at 54 Percival Street, Rear Portion on 8/F has a saleable area of 33.1 sq m. [79] There was disagreement on the internal condition of this unit. Mr Chan considered it “poor” while Mr Lai suggested it was “good”. In Mr Ho Lok Chiu’s Supplemental Witness Statement dated 23 January 2024, he confirmed that his unit was, as at 6 May 2022, let out to a tenant. He further stated at §4 that from about December 2022, the tenant had become delinquent and failed to pay rent. He “verily believe that such delinquent Tenant would not keep the internal condition of (the unit) in a very good condition.” When R2 only obtained possession of the unit on 10 July 2023, “it was in a very poor condition.” R2 had reinstated the unit back to its original condition when Mr Lai took the inspection. See Bundle B1/106. Having viewed the unit, we agree with Mr Chan. [80] R2 took issue that his surveyor took on-site measurement and found the saleable area to be 32.5 sq m instead. If we accede to his argument, however, that means all typical units at 66A Percival Street, Rear Portion on the other floors have to be re-measured for the sake of consistency. Mr Lai overlooked that if he was prepared to adopt this higher measurement instead, he should recalculate the saleable area for all typical units at 66A Percival Street, Rear Portion on the other floors. To the extent that R2’s surveyor had not performed such an exercise, we maintain that his unit at 66A Percival Street, Rear Portion on 8/F has a saleable area of 31.5 sq m. [81] In the evening of 3 January 2025, chunks of concrete fell from the exterior wall on 7/F of the 3rd Building at No 76 Percival Street and hit an elderly man on the street. https://www.scmp.com/news/hong-kong/society/article/3293423/elderly-man-hit-chunks-falling-concrete-hong-kong-building. [82] $31,232,460 for the 1st Building, $32,205,066 for the 2nd Building and $29,662,092 for the 3rd Building. [83] See Annex D of the Applicants’ Opening Submission dated 7 October 2024. [84] See Bundle C12/2985.1. [85] See para 7.12 of the Explanatory Statement of the Approved Causeway Bay Outline Zoning Plan No S/H6/17. [86] See Secretary for Justice v Times Square Limited [2011] 2 HKLRD 409. [87] A 1.5 m non-building area is required under the current Tsim Sha Tsui Outline Zoning Plan No S/K1/28, which was approved on 13 December 2013. By reference to the Minutes of 370th Meeting of the Metro Planning Committee and the then OZP No S/K1/22 gazetted on 27 October 2006, the 1.5 m non-building area was only proposed as an amendment to the then OZP No S/K1/22 in 2008. Hence, the General Building Plans for 6B-6E Hart Avenue was in fact not subject to any mandatory set-back requirement under the OZP. [88] In a later compulsory sale application, Success Active Limited v Harvourview International Holdings Limited, LDCS 31000/2018 (unreported, dated 19 April 2021), Mr Chan changed his view. See §218 of the judgment:
[89] The building plans were approved by BA in 2019. [90] See Bundle C9/2467. [91] See Exhibit R3. [92] See Bundle C8/2128. [93] See Bundle C11/2761. [94] See Bundle C11/2762. [95] Mr Remus Wong had allowed an additional lift after the comment by Mr Ng on his under provision of lifts. [96] See Bundle C8/2217. [97] For example, 1,583.434 ÷ 6 = 263.906. [98] See Bundle C8/2218. [99] See Bundle C9/2443-2444. [100] See Bundle C11/2976. [101] See Bundle C7/1983. [102] See Bundle C9/2493. [103] See Bundle C9/2499. [104] See Bundle C9/2521.5. [105] The parameters suggested in this article includes: number of floors in building, maximum number of elevators available, maximum capacity per elevator, elevator flight time per floor, elevator lobby dwell time, elevator time per stop, passenger arrival rate. [106] See https://www.info.gov.hk/gia/general/200306/18/0618183.htm [107] See Bundle C9/2521.41. [108] See Bundle C9/2521.41 [109] Lee Garden Three has a total gross floor area of 43,408.71 or thereabout. [110] Exhibit R17. [111] The trial commenced on 16 October 2024. [112] See Bundle C7/2002. [113] See Bundle C7/2003. [114] Its position is about that of No 17 Lee Garden Road. [115] See §19 of the judgment. [116] See §86 of the judgment. [117] See §78 of the judgment. [118] This time, we have not doubled the change of the price index because, as will be seen at §322 below, there are signs of recovery of the retail property market along Percival Street. [119] See §153 above. [120] Rent free period for this tenancy: 1 August 2024 to 30 September 2024 and 1 July 2027 to 31 July 2027. [121] Rent free period for this tenancy: 24 February 2024 to 23 April 2024. [122] Rent free period for this tenancy: 14 November 2023 to 13 February 2024. [123] Rent free period for this tenancy: 18 September 2023 to 17 November 2023. [124] Rent free period for this tenancy: 1 March 2024 to 30 April 2024. [125] See the Tenancy Agreement at Bundle C13/3073-3089. [126] See Annex A of the applicants’ Closing Submission. [127] See the Tenancy Agreement at Bundle 13/3073-3089. [128] See Bundle C13/3198. [129] See Exhibit 9B. [130] See Bundle C13/146G/3068. [131] See Bundle C13/3228. [132] On the basis of Mr Remus Wong’s hypothetical scheme, Mr Lai determined a unit rate of $442,000 per sq m for his reference shop on 16/F, having an effective area of 228.923 sq m. [133] It has, for instance, The Summit which serves Cantonese cuisine on 25/F. [134] In Billion Glory, supra, the Tribunal had invited Mr Chan to provide particulars of comparable developments in the vicinity that accommodate a large proportion of “food and beverage” uses. See §73 of the judgment. One of them, being Soundwill Plaza Phase 2 – Midtown, has restaurants on both lower and higher floors. [135] See Bundle C7/1848. [136] Mr Chan refused to adopt NSS-7 which was proposed by Mr Lai as comparable because it was dated. [137] See Bundle C10/2608. [138] See §252 above. [139] See Bundle C10/2608. [140] See Bundle C10/2613. [141] See Bundle C10/2613. [142] We wonder why Mr Lai had not similarly realised that the lift provision for the hypothetical scheme proposed by Mr Remus Wong was inadequate. Mr Chan had in para 9.7.19 of his Rebuttal Report dated 23 November 2023 pointed this out. [143] See Bundle C10/2612. [144] In fact, in Billion Glory, supra, Mr Chan relied on a hypothetical scheme which had main lobby on 1/F. [145] See Bundle C10/2613. [146] This result happens to be relatively closer to Mr Chan’s assessment at $218,000 per sq m. [147] Those transactions that took place longer ago were less reliable when they require use of indexation. [148] Rent free period for this tenancy: 1 March 2024 to 31 March 2024 & 1 February 2027 to 28 February 2027. [149] According to the evidence provided by Mr Chan in Billion Glory, supra, Jardine Centre was designed for restaurant uses up to 3/F only. The floors above were originally designed for office uses. However, it has now accommodated restaurant uses from 1/F to 10/F, 12/F, 25/F and 26/F while the other floors are occupied beauty salons, spa and fitness centres. [150] Rent free period for this tenancy: 1 March 2024 to 31 March 2024 & 1 March 2025 to 31 March 2025. [151] Rent free period for this tenancy: 16 April 2027 to 30 April 2027. [152] Rent free period for this tenancy: 1 December 2025 to 31 December 2025. [153] We follow the adjustments proposed by Mr Chan in this analysis. [154] The adjustments for “Scale of Facilities & Development” and “Building Quality” are a little arbitrary. [155] See Bundle C13/146M/3414. [156] See Exhibit R18. [157] Built in 1996, The Sun's Group Centre is a Grade-A 29-storey Commercial Building situated in 200 Gloucester Road just 10-mins walk from Wanchai MTR station (Exit A1). It is one of the commercial buildings in Wanchai suitable for semi-retail operation. Its total GFA is approximately 16,000 sq m. It has 3 passenger lifts and 1 service lift. See SPM Limited v Appeal Tribunal (Buildings Ordinance), HCAL NO. 1574 OF 2021 (unreported, dated 19 April 2022) [158] By reference to SPM Limited v Appeal Tribunal (Buildings Ordinance), CACV 201/2022 which has been reported as [2023] 2 HKLRD 531, there are 58 carparking spaces plus the flat roof which can accommodate certain carparking spaces. They serve 24 floors of office spaces each with a gross floor area of 551.762 sq m (ie about 1 space per 220 sq m or thereabouts). The total gross floor area of The Sun’s Group Centre is 13,833.611 sq m. [159] See Bundel C3/735. [160] See Bundle C5/1403. [161] See Bundle C5/1404. [162] See Bundle C5/1405. [163] See Bundle C5/1403. [164] See Bundle C6/1682 at para 8.7.3. [165] See Bundle C6/1682 at para 8.7.5. [166] See Bundle C7/1854. [167] See Bundle C7/2113. [168] See Bundle C7/2115. [169] See Bundle C7/2114. [170] See Bundle C9/2516-2518. [171] See Bundle C10/2673. [172] See Bundle C10/2535-2536. [173] See Bundle C10/2535. [174] See Bundle F29/347/7606-7669 [175] Dragon Field Properties Limited was dissolved as from 18 July 2008. [176] While the corresponding amounts had been agreed by both Mr Chan and Mr Lai, we have rounded the amounts to the nearest thousand. [177] While the corresponding amounts had been agreed by both Mr Chan and Mr Lai, we have rounded the amounts to the nearest thousand. [178] While the corresponding amounts had been agreed by both Mr Chan and Mr Lai, we have rounded the amounts to the nearest thousand. [179] While the corresponding amounts had been agreed by both Mr Chan and Mr Lai, we have rounded the amounts to the nearest thousand. [180] There was disagreement on the internal condition of this unit. Mr Chan considered it “fair” while Mr Lai suggested it was “poor”. Having viewed the unit, we agree with Mr Chan. [181] There was disagreement on the internal condition of this unit. Mr Chan considered it “poor” while Mr Lai suggested it was “fair”. Having viewed the unit, we agree with Mr Chan. [182] While the corresponding amounts had been agreed by both Mr Chan and Mr Lai, we have rounded the amounts to the nearest thousand. [183] There was disagreement on the internal condition of this unit. Mr Chan considered it “very poor” while Mr Lai suggested it was “poor”. Having viewed the unit, we agree with Mr Chan. [184] While the corresponding amounts had been agreed by both Mr Chan and Mr Lai, we have rounded the amounts to the nearest thousand. [185] Mr Lai suggested that the saleable area of this upper floor unit is higher at 34.1 sq m instead of 33.1 sq m as for the same units on the lower floors. This does not make sense and we are not persuaded. [186] There was disagreement on the internal condition of this unit. Mr Chan considered it “poor” while Mr Lai suggested it was “good”. Having viewed the unit, we agree with Mr Chan. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
on the calculation sheet, ie 0.68 x 0.585 = 0.3978 should be replaced by 0.495 x (3.096 + 5.029 – 8.1) = 0.0124 or more particularly, 0.3978 sq m – 0.0124 sq m = 0.3854 sq m should be deducted from the saleable area of 36.0 sq m, resulting in 35.61 sq m.
=51.8 sq m. On the other hand, as Mr Chan explained during cross-examination that he applied a layout adjustment of as much as +20% to account for the presence of the rear area under sunken ceiling so as to resemble the application of the zoning method. In light of this, Mr Chan in effect had inflated the effective area to 62.16 sq m
= 45% for location between G/F, 72 Percival Street and G/F, 74 Percival Street. This is in stark contrast to Mr Chan’s answer to Mr Yuen’s cross-examination that the difference between the two shops would be only about 20-25%.
Cases cited in this judgment
Further hearings and rulings under LDCS 8000/2022