Victory Super Ltd v. Loi Wai Yung and Others

LDCS 2000/2023

[2025] HKLdT 55

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LAND COMPULSORY SALE MAIN APPLICATION NO 2000 OF 2023

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JUDGMENT

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Background

1.This is an application for a compulsory sale order under the Land (Compulsory Sale for Redevelopment) Ordinance, Cap 545 (“the Ordinance”) (hereinafter referred to as “the Application”) to sell all the undivided shares of The Remaining Section of Aplichau Inland Lot No 44 (“the Lot”) on which a 8-storey tenement building (“the Building”) known as Sun Ming Building is erected. The Building, which occupies a corner site, has a street address of Nos 16, 18, 20, 22 & 24 Shan Ming Street and Nos 41 and 43 San Shi Street, Ap Lei Chau, Hong Kong.

2.By virtue of a set of building plans approved on 30 March 1966, the Ground Floor (“G/F”) of the Building comprises 4 shop units fronting onto Shan Ming Street and 2 shop units fronting onto San Shi Street. The main entrance of the Building, which gives main access to the upper floor domestic units, is situated between 2 shops on its right and another 2 shops on its left that front onto Shan Ming Street. Each of the 1/F to 7/F of the Building accommodates 6 domestic units. These upper floor domestic units are served by two common staircases, one via the main entrance and another which abuts the service lane that runs behind the Building in perpendicular to San Shi Street. Regrettably, the Building is not served by any lift.

3.The occupation permit of the Building, Permit No H95/66, was issued on 30 March 1966.

4.By a Deed of Mutual Covenant dated 19 July 1966 that governs the rights and obligations of all owners of the Building, the Building was notionally divided into 60 undivided shares with 2 undivided shares allotted to each of the 6 shop units on G/F and 1 undivided share allotted to each of the domestic units above. The roof of the Building was originally allotted 6 undivided share of the Lot but by virtue of a Sub-Deed of Mutual Covenant dated 29 August 2003, it has been subdivided into 6 roof units, each entitling to 1 equal and undivided share.

5.At the time of filing the Application on 14 February 2023, according to the applicant, it has acquired 48 out of the total 60 equal and undivided shares of the Lot. The remaining 12 undivided shares or interest in the Lot that are owned by the respective respondents (as denoted by the prefix “R”) are shown in the following table:

Respondent	Unit Owned	Equal & Undivided Share	Legally represented (if any)
R1	Shop C, G/F	2/60th	Mr Adrian But, instructed by Messrs Anthony Chiang & Partners (for the 2nd named R1 only)
R2	Shop D, G/F	2/60th
R3	Shop F, G/F	2/60th
R4	Flat D, 2/F	1/60th	Mr Anson Wong Yu Yat, instructed by Messrs Chan & Chan
R5	Flat D, 3/F	1/60th
R6	Flat D, 7/F & Roof D	2/60th	Mr Solomon Lam, instructed by Messrs So, Lung & Associates
	Flat E, 7/F & Roof E	2/60th

The Issues

6.By reference to the applicant’s opening submission dated 17 April 2025 prepared by Mr Jeremy Kwong as instructed by Messrs Iu, Lai & Li on behalf of the applicant, the issues before the Tribunal are as follows:

(1)  Whether the applicant has acquired the minimum undivided shares of and in the Lot to entitle it to make the Application;

(2)  Whether redevelopment of the Lot is justified, under section 4(2)(a) of the Ordinance, due to the age or state of repair of the existing development, ie the Building;

(3)  Whether the applicant has, in accordance with section 4(2)(b) of the Ordinance, taken reasonable steps to acquire all the undivided shares in the Lot;

(4)  What should be the market value (which is usually coined by the valuation profession as “existing use value” or simply “EUV”) of all the units of the Building under section 4(1)(a)(i) of the Ordinance; and

(5)  If any order for sale of the Lot is made, what should be the reserve price for auction.

Evidences

7.The applicant has filed the following evidence:

(1)  Witness Statement of Mr Hui Wang Leuk (“Mr W L Hui”), being the Manager of the applicant dated 30 June 2023;

(2)  The following reports by Mr Benson Wong Sai Ning (“Mr Wong”) of Benson Wong & Associates Limited on the conditions of the Building:

(i)  Condition Survey Report dated 30 June 2023; and

(ii)  Rebuttal Report dated 5 March 2024 on the Condition Survey Report prepared by Mr Lau Pak Wo John (“Mr John Lau”) dated 2 February 2024 for the respondents.

(3)  The following reports by the late Mr So Kin Shing of K S So & Associates Limited:

(i)  Structural Assessment Report dated 30 June 2023; and

(ii)  Rebuttal Report dated 5 March 2024 in response to the Rebuttal Report prepared by Dr Liu Yuk Shing (“Dr Liu”) dated 2 February 2024 for the respondents on Structural Assessment.

(4)  Valuation Reports by Ms Dorothy Chow (“Ms Chow”) of Colliers International (Hong Kong) Limited:

(i)  Application Report dated 13 February 2023 assessing  the EUV of each property of the Building;

(ii)  Supplemental Report on EUV and redevelopment value (“RDV”) dated 29 June 2023;

(iii)  Rebuttal Report dated 4 March 2024 o the EUV and RDV Report prepared by Mr Patrick W C Lai (“Mr Patrick Lai”) of AA Property Services Ltd for the respondents on EUV and RDV Report dated 11 January 2024.

8.The corresponding experts afore-mentioned had also prepared their joint statements with the counterparts. Regrettably, the late Mr So Kin Shing passed away in or around August 2024 and therefore, with leave of the Tribunal, the applicant has appointed Mr Philip C W So (“Mr Philip So”) of Philip So & Associates Consulting Civil and Geotechnical Engineers Ltd in the stead of the late Mr So Kin Shing. In the event, Mr Philip So has adopted all reports prepared by the late Mr So Kin Shing.

9.Similarly, it is regretted that Ms Chow was unable to attend trial owing to health reasons. With leave of the Tribunal, the applicant has appointed Mr Lau Chun-Kong (“Mr C K Lau”) also of Colliers International (Hong Kong) Limited in the stead of Ms Chow. In addition to adopting all the reports prepared by Ms Chow, Mr C K Lau prepared a Supplemental Valuation Report on Updated RDV on 25 March 2025 for the applicant. He then prepared a joint statement with Mr Patrick Lai on 11 April 2025.

The Applicant is entitled to make the Application

10.Section 3(1) of the Ordinance requires an applicant to have not less than 90% of the undivided shares in a lot before he can make an application to the Tribunal for an order to sell all the undivided shares in the lot for the purposes of the redevelopment of the lot.

11.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.

12.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”.

13.By virtue of the occupation permit of the Building which was issued on 30 March 1966, the Building is more than 50 years old prior to filing of the Application. The Notice is therefore applicable and the threshold percentage should be 80%.

14.Initially, Mr But challenged in his opening submission dated 25 April 2025 whether the applicant has surmounted the majority ownership threshold by owning 48 out of the total 60 undivided shares in the Lot. More particularly, Mr But stated that the applicant, apart from holding altogether 44 undivided shares of other units in the Building, acquired only “4 sub-shares” of the roof while the remaining 2 sub-shares are owned by R6. According to Mr But, therefore, the applicant’s ownership of the Building is:

a.  44 undivided shares under the Deed of Mutual Covenant dated 19 July 1966, excluding those in respect of the roof; and

b.  “4 out of 6 sub-shares in the roof” instead of 4 undivided shares under the Deed of Mutual Covenant dated 19 July 1966.

15.In Mr But’s opinion, all the undivided shares of the roof remain to be co-owned by the applicant and R6 as tenants-in-common. Thus, it was factually and legally incorrect for the applicant to contend that it owned 80% of the undivided shares on the basis of the 44 undivided shares + 4 undivided shares; all 6 undivided shares allotted to the roof were and remained to be co-owned. Mr But argued that none of the 6 undivided shares (or any 4 of them) could be said to be “owned” by the applicant.

16.With respect, all owners of the Building are in fact co-owners as tenants-in-common under the Deed of Mutual Covenant. At the beginning of the trial, therefore, I pose the formula  for the parties consideration. Mr But confirmed he would not pursue the issue further.

17.By virtue of the formula above, it appears that on the date of Application, ie 14 February 2023, the applicant had owned 48 out of 60 undivided shares of the Lot, ie 80%, and was therefore entitled to file the Application.

EUV as at 30 November 2022

Assessment of EUV

18.In compliance with Part 1A of Schedule 1 to the Ordinance, Ms Chow had provided the Application Report dated 13 February 2023, setting out the EUV of each property on the Lot as at 30 November 2022 —

(1)  on a vacant possession basis;

(2)  assessed as if the Lot could not be made the subject of an application for an order for sale; and

(3)  not taking into account the redevelopment potential of the property or the Lot.

19.As afore-mentioned, Ms Chow and Mr Patrick Lai had set out the disputes they had on the EUV assessment of the various units of the Building in their joint statement dated 15 April 2024.

Assessment of Market Value (“EUV”) of Shop Premises on G/F

20.Ms Chow and Mr Patrick Lai agreed the following particulars of the G/F shop units of the Building as follows[1]:

Shop No	Saleable Area (m2)	Unauthorized Cockloft (m2)	Covered Light Well/ Yard (m2)	Frontage (m)	Return Frontage (m)	Depth (m)	Headroom
A	40.75	29.88		4.55 on San Shi Street	7.21 on Service Lane	10.69	4.27 (2.19 under cockloft)
B	50.83		3.55	4.38 on San Shi Street		10.69	4.27
C	42.18	41.07		5.44 on San Shi Street	7.85 on Shan Shi Street	7.85	4.27 (2.25 under cockloft)
D	46.19	40.61	2.79	5.42 on Shan Ming Street		8.33	4.27
E	54.18	46.44		3.95 on Shan Ming Street		14.02	4.27 (2.43 under cockloft)
F	67.04	28.18	17.37 + Covered Common Yard: 6.50	5.41 on Shan Ming Street		15.62	4.27

Unauthorized Structures

21.As can be seen from the above, there are various unauthorized building works within the respective shop premises.

22.Ms Chow valued the respective shop units according to the design and layout as shown on the approved building plans without assigning any value to the various unauthorized building works.

23.Ms Chow stated in her Rebuttal Report dated 4 March 2024 as follows:

“ 2.5 Self-Erected Cocklofts within Shops

…

2.5.2 The self-erected cocklofts were noted to be in dilapidated condition. Their material and workmanship are dubious. Besides, the loadings like (sic) to be imposed are uncertain. I consider they may constitute potential danger to life or property. Although no building orders against unauthorized cocklofts had been issue for those units, there is still risk of enforcement action by the Building Authority.

…

2.5.4 Based on my understanding, the cost of erecting self-erected cocklofts would not be substantial. I consider potential purchasers in the market would not pay extra price for self-erected cocklofts.

2.6 Covered Yards for Shop F on Ground Floor

2.6.1 Yards at the rear and side of Shop F on Ground Floor had been covered. Those structures are considered unauthorized and subject to an outstanding building order, Notice No WCBZ/S100634//03/HK-Q07 …” (underline added)

24.Under section 1(a) of Part 1A of Schedule 1 to the Ordinance, market value of each property on the Lot will be assessed so that the proceeds of sale of the Lot (if any) are to be apportioned on a pro rata basis pursuant to section 1(a) of Part 3. The word“property”is defined under section 2 of the Ordinance to mean“immovable property”. The latter would certainly include an unauthorized building work if it enjoys any value.

25.In Transport for London (London Underground Limited) v Spirerose Limited [2009] 1 WLR 1797, [2009] UKHL 44, Lord Neuberger pointed out at paragraph 50 as follows:

“First, if a statute directs that property is to be valued on an open market basis as at a certain date, one would not expect any counter-factual assumptions to be made other than those which are inherent in the valuation exercise (such as the assumption that the property has been on the market and is the subject of a sale agreement on the valuation date) or those which are directed by the statute.”

26.More recently, in Newbigin (VO) v SJ & J Monk (A Firm) [2015] 1 WLR 4817, Lewison LJ discussed “the reality principle” in these terms:

“It is a well-known principle of valuation, not confined to rating, that in principle you must value the property as it stands on the valuation date. This is the principle of reality; or as classicists prefer to call it, the principle that property must be valued rebus sic stantibus. This principle can be displaced by contrary instructions in the statute or contract under which the valuation takes place[2].”

27.In Kannix Limited & Another v Coreluxe Developments Limited & Others, LDCS 8000/2018 (unreported, 25 March 2020), the Tribunal rightly remarked at §22 as follows:

“In assessing the value of UBW, the parties have no objection to adopt the market reality approach. Whether the structures and/or enclosures are authorized or not, value should be assigned to them if reasonable buyer would pay for them in the market. Under the definition of market value, I consider this is the estimated amount for which the UBW should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.”

28.This indeed accords with what the Court of Final Appeal in Director of Lands v Yin Shuen Enterprises Ltd & Another [2003] 2 HKLRD 399 , (2003) 6 HKCFAR 1 expressed at §14:

“Purchasers are often willing to pay more for land than its intrinsic value would justify. Thus the land may be used for an illegal or non-conforming purpose. In a free market purchasers may be willing to buy such land in the hope or expectation that the current use will continue to be tolerated. Such purchasers may be prepared to pay a higher price than would otherwise be justified. On resuming the land, however, the Government obviously ought not to be required to pay compensation on this basis. Sections 11(3)(a) and 12(b) accordingly preclude the assessment of compensation on the basis of the current use where it is illegal or not in conformity with the terms of the lease under which it is held.…”

29.In the present case, however, Part 1A in Schedule 1 to the Ordinance only requires assessment of market value of each property on the Lot on a vacant possession basis; there is no similar provision like sections 11(3)(a) and 12(b) of the Lands Resumption Ordinance that qualifies the definition of market value.

30.During our joint inspection on 6 May 2025, I observed and agreed that those unauthorized building works appeared to have existed for a long period of time. According to the witness statement of the 2^nd named R1, R2 and R3 dated 5 February 2024[3], 1 May 2024[4] and 2 February 2024[5] respectively, the respective cocklofts had existed for more than 40 years.

31.With respect to Ms Chow, she was wrong to state in her Rebuttal Report dated 4 March 2024 at §2.5.2 that there has been a Building Order registered against Shop F on G/F. It was in fact a Notice issued by the Building Authority under section 24C(1) on 30 April 2008, notifying the owner that the yard structures at the rear and side of the shop were unauthorized. According to Mr Hui Tak Keung (“Mr T K Hui”) who appeared for R3 during the hearing, he and his brothers were very nervous when they received this notice from the Building Authority. They contacted the Buildings Department and in fact invited the officials to attend their premises for inspection. Mr T K Hui was adamant that they had done nothing to amend or remedy the yard structures but after the inspection by the officials of the Buildings Department, there had been no further action, enforcement or otherwise, from the Building Authority in the past 17 years.

32.Mr T K Hui’s evidence was not challenged and taking judicial notices of the practice of the Buildings Department, I believe he was telling the truth. I also accept the submissions by Mr T K Hui and counsel for the respondents that when the officials from the Buildings Department inspected the shop, they should have observed and realized there was an unauthorized cockloft at Shop F as well as those inside the adjoining shops which, because of the mode of operations of the owners/occupiers thereat, were open to be looked upon by outsiders.

33.The above refutes the opinion of Ms Chow that “(t)he self-erected cocklofts were noted to be in dilapidated condition” and “potential purchasers in the market would not pay extra price for self-erected cocklofts” when the existing occupier can be regarded as one of the hypothetical purchasers.

34.In Joint Hope Limited v Vecent Hong Kong Trading Limited & Others, LDCS 21000/2019 (unreported, dated 9 July 2021), the Building Authority issued to the owner of G/F, including the space underneath the staircase, 38 Ming Fung Street, Kowloon, a building order dated 11 May 2018 under section 24(1) which required the owner to demolish the unauthorised building works that include the structure erected on and over the yard but not the cockloft at high level of the G/F Shop. Then on 31 May 2019, the Building Authority issued a letter to the owner stating that: “As the building works have been modified, I am prepared to withhold further enforcement action for the time being, and withdraw my Order.”  As at the land search of 5 February 2021, no order was issued against the cockloft.

35.Surely, in Joint Hope when the Building Authority issued the order of 11 May 2018, it should have known about the unauthorized cockloft (against which notice was issued in 2016). Yet the Building Authority did not enforce against such cockloft in the order of 11 May 2018. Neither did the withdrawal letter of 31 May 2019 mention anything about the cockloft save to state that the premises were not free of any other unauthorized building works.

36.Similarly, in the same case, on 11 May 2018, the Building Authority issued to the owner of G/F, including the space underneath the staircase, 44 Ming Fung Street, a building order under section 24(1) which required the owner to demolish the unauthorized building works that include the structure erected on and over the yard but not the cockloft at high level of the G/F Shop. Then on 17 August 2018, the Building Authority issued a letter of compliance of the order.

37.In Sound Advice Property Limited & Others v Mok Wai Ching & Mok Yui Cheung Anthony, LDCS 18000/2020 (unreported, dated 21 December 2021), the Tribunal found that although Building Orders against an unauthorized building structure had been issued in March 2007, the Building Authority had not taken any further action for at least 14½ years until the date of the trial.

38.In Link Harvest Ltd v Wayhang Development [2001] 2 HKC 652, Recorder Edward Chan SC said:

“Even though s24 gives the Building Authority a discretion on whether to exercise its power against a particular contravention and what order it would make if it has decided to exercise its power, in my judgment, prima facie, one would normally expect that the Building Authority would take enforcement action against the unauthorized building or structures. Thus, unless there is a good reason for believing that the Building Authority would not take any action, where a building or structure was erected in contravention of the Buildings Ordinance, there is the risk of an enforcement action by the Building Authority so as to render the title of that building or that structure to be defective. It is difficult to state exhaustively what would be the good reasons. The typical one would be where the breach is very trivial, or where because of the nature and the age of the structure, the enforcement priority within the Building Authority was so low that it could be expected that the time for enforcement would not come even by the end of the practical life of the building or structure in question.” (underline added)

39.A similar incidence was found by the Tribunal in Welland Resources Limited & Another v Mega Joyful Limited, LDCS 6000/2022 (unreported, 12 September 2023) where a yard of about 26.5 sq m was covered and enclosed as part of the unit. The purchaser of the G/F, after signing the Agreement for Sale and Purchase, did request a deduction of $40,000 from the purchase price agreed at $7,380,000 (ie a deduction of 0.5%) upon finding out a Notice issued by the Building Authority under section 24C dated 3 January 2011 which required the demolition of the structure. The Tribunal remarked at §27 that the requested reduction in purchase price was nominal and appeared to be a negotiation tactic rather than a genuine concern about the enforcement of the Building Notice. In any event, no enforcement action happened thereafter in the 12 years after January 2011.

40.Notwithstanding the above, Mr C K Lau gave evidence that prospective purchasers would be in doubt to buy such properties encumbered with such unauthorized building works. With respect, he was in defiance of the practice of the property market where the prospective buyer or tenant, if he/she is interested in the property as it exists, has simply had to take and eat it on “as-is” basis instead of insisting for its removal or demolition. Most likely, in that event, the prospective buyer or tenant would have to pay something for the extra or the vendor simply ask prospective buyer or tenant to pass on.

41.Indeed, in terms of non-domestic premises, the loan-to-value ratio for mortgage purposes has never been high even without the presence of any unauthorized building works. Thus, the presence of any unauthorized building works would not materially affect the finance of the purchasers.

42.A good example was the sale and purchase of ground floor and yard of No. 2 Cannon Street, Causeway Bay in Polyset Limited v Panhandat Limited, HCMP 1840/1998 (unreported, dated 23 November 1999). The sale and purchase was dated 23 May 1997 but prior to the completion date on 2 April 1998, the Buildings Department issued an advisory letter dated 27 March 1998 referring to three items of illegal structure or building works on the property[6]. There was however a provision to rescind the contract, providing the purchaser an opportunity to avoid the transaction in the falling market.

43.In Ni Tiee Bor Robert & Another v Golden Crane Industries Limited, HCMP4407/1998 (unreported, dated 21 March 2000), the property sold was full of unauthorized structures and alterations.

44.In Circle Angle Limited v Orchard Enterprise (Hong Kong) Limited, DCCJ 1252/2011 (unreported, dated 6 February 2012), the purchaser was aware that the property which it intended to purchase was subject to a notice issued under section 24C(1) of the Buildings Ordinance. In spite of this, it signed a Provisional Agreement which contained a clause that read:

“買方日後不能藉此拒絕交易”.

45.Something similar took place in Gold Glory International (HK) Limited v K W Wong Investment Company Limited, HCMP 1618/2012 (unreported, dated 17 December 2013) where the parties agreed that:

“The purchaser and vendor declare that they are both aware of the (two notices by the Building Authority under section 24C(1) of the Buildings Ordinance) where the property is situated. Both parties hereby agree to complete the transaction notwithstanding the (two Notices) ...”

46.In fact, in Perfect Name Limited v Fung Chi Mui, DCCJ 1789/2008 (unreported, dated 22 October 2012), a concrete floor slab was built extending the cockloft to cover the whole ground level. Although it was common ground that the alteration or extension was without the approval from the Building Authority and constituted UBW, Chief District Judge S T Poon (as he then was) remarked at §62 of the judgment as follows:

“… Bearing in mind that the function of the extended concrete floor slab was to segregate the Single Unit into two, the construction of which was originally for the benefit of both the units.”

47.In Join Union Investment Limited v China Tree Investment Limited, [2016] 2 HKLRD 901, there was a subdivision of the ground floor premises into four shops. The structural engineering expert in that case could not cite any example or authority where, in similar circumstances, the Government or the Building Authority took enforcement action requiring demolition of the partitioning and reinstatement of the property to its original state. Chow J (as he then was) was of the view that there was no real risk of enforcement by the Government or Building Authority in respect of the alleged unauthorized partitions. See §§97-103 of the judgment.

48.At §107 of the judgment, the learned judge observed that:

“... it is apparent, form the evidence of Mr Lai, Madam Chan and Madam Shiu, that none of them considered the 2010 Building Order, or indeed any unauthorized building works in the Property, to be of any great moment. Prior to the respective purchases of the Property by the defendant (through Madam Chan) and the plaintiff (through Madam Shiu), none of them took the trouble to go inside the Property to inspect its physical conditions, or ascertain whether there might be any unauthorized building works in the Property. Even after her attention had been drawn to the 2010 Building Order, Madam Shiu did not carry out any further investigation prior to entering into a binding contract to purchase the Property, and was prepared to accept a modest sum of HK$20,000 from the defendant as sufficient compensation for the costs of complying with the 2010 Building Order. The existence of unauthorized building works in retail premises, especially in the older districts in Hong Kong, is common place and does not appear to have any significant impact on their market or capital values. These properties change hands frequently like ordinary commercial commodities, as demonstrated in the present case by the fact that the defendant (through Madam Chan) purchased the Property in September 2010 and sold it to the plaintiff (through Madam Shiu) in March 2011 for a handsome profit. It is contrary to market reality to treat the existence of an unauthorised cockloft, even of a substantial size like the present one, as constituting a title defect going to the root of title....” (emphasis added)

49.Certainly, Mr C K Lau has overlooked that a hypothetical sale of the respective shop premises encumbered with the unauthorized building works can include the actual owners themselves as prospective buyers. See R v London School Board (1886) 17 QBD 738. In Re Jackson’s (VO) appeal [2020] UKUT 0078 (LC), RA/27/2019, the Upper Tribunal (Lands Chamber) of the United Kingdom stated at §28 that:

“The hypothetical tenant would not expect to pay less for the whole premises with the facility and security benefits that an internal staircase would bring.”

50.I trust the above cases all rebut Mr C K Lau’s opinion that reasonable buyers will not pay extra for the subject unauthorized cocklofts. To the extent that Mr C K Lau’s suggested that the demand for retail shops having cocklofts is low nowadays, this suggestion was misplaced. The subject ground floor premises are mainly occupied as vehicle service garages, hardware stores and engineering workshops etc with little retail potential.

51.Mr C K Lau tried to refer to the landslide at the residential development of Redhill Peninsular in September 2023 which, according to him, prompted the Government to amend the Buildings Ordinance to tackle unauthorized structures. But at a cross-departmental press conference, government officials of the Hong Kong SAR said the rainstorm that began on 7 September 2023 was a "once in 500 years" event that could not have been foreseen. How can somebody reasonably expect that the Government might enforce against the UBW in the Building as at the relevant date, ie 30 November 2022?

52.Even though the landslide at Redhill Peninsula had revealed that issues such as UBWs on hillsides and unlawful occupation of government land are involved, the Secretary for Development replied to in the Legislative Council on 17 July 2025 as follows:

“… the Buildings Department (BD) and the Lands Department (LandsD) commenced a joint operation from September to November last year to inspect 89 houses situated on the slope along the seafront of Redhill Peninsula (including the four houses at the landslide location), with a view to combating unauthorised building works (UBWs) and unlawful occupation of government land. The two departments then commenced a joint inspection of all 40 houses on Beaulieu Peninsula in Tuen Mun in December (2023); and completed inspections of all 16 houses in Block B of Flamingo Garden in Sai Kung, and all 18 houses in Seaview Villas in Tai Po in the first half of (2024).”[7]

53.The Government departments appear only to tackle the safety risks of houses with irregularities situated on hillside slopes but not others[8].

54.In any event, when the Development Bureau launched the public consultation exercise for the proposals to amend the Buildings Ordinance, the relevant paragraphs of the consultation document, “Proposed Amendments to Buildings Ordinance”, stated as follows[9]:

“3,7 In order to strike a balance between the daily needs of the people and the low risk of “minor UBWs”, as well as to optimize the use of limited enforcement resources to combat serious UBWs, we will adopt a pragmatic and facilitating approach in handling “minor UBWs” on one hand, and focus enforcement resources on enhancing enforcement effectiveness against “serious UBWs” on the other hand. Specifically, we will classify UBWs under the prevailing framework into two categories for handling.

3.8 We suggest that –

(a) with regard to pre-existing UBWs which are minor in nature, taking into account the relatively small scale and lower risk of the structures as well as their relevance to people’s daily lives, we will handle them sympathetically, reasonably and lawfully as follows –

(i) adding more minor works items relating to people’s daily lives and of low risk as DEW[10] items, and relaxing the requirements for existing items. Such pre-existing works will no longer be regarded as UBWs for issuing removal orders …; and

(ii) consolidating the three existing Validation Schemes (Table 3) into an integrated scheme, and extending the scope of validation to allow owners to validate “minor UBWs” erected before the commencement of the amendment ordinance and specified in the law. In other words, we will extend the specified dates of the three Validation Schemes and include more existing, common types of minor UBWs that originally did not meet the validation criteria (eg canopies, supporting frames for air-conditioners, enclosed balconies, … etc, which meet the specified dimensions). Such minor UBWs can be retained after one-off or regular validation by prescribed building professionals or prescribed registered contractors. Such type of pre-existing works will not be regarded as UBWs for issuing removal orders.

…” (underline added)

55.While it may be doubtful if the UBWs in the Building are “serious” so as to affect people’s daily lives, insofar when Ms Chow or Mr C K Lau had not assigned any value to the unauthorized structures, I follow the opinion of Mr Patrick Lai and adopt the effective areas as proposed by him:

Shop No	Saleable Area (m2)	Unauthorized Cockloft (m2)	Covered Light Well/ Yard (m2)	Effective Area (m2)
A	40.75	29.88		45.73
B	50.83[11]		3.55	52.61
C	42.18	41.07		49.03
D	46.19	40.61	2.79	54.36
E	54.18	46.44		61.92
F	67.04	28.18	17.37 + Covered Common Yard: 6.50	77.16

Shop Comparables

56.In the assessment of the market value of the respective shop units of the Building, Ms Chow and Mr Patrick Lai agreed to adopt Shop D, G/F as the reference unit. They referred to the following transactions as comparables for direct comparison, arriving at $192,100 per sq m and $216,900 per sq m respectively, ie a difference about 12%:

Comp	Address	Age of Building	Date of Sale	Consideration	Saleable Area (m2)	Effective Area (m2)[12]	Frontage (m)	Depth (m)	Headroom (m)	Unit Rate (/m2)
EG1	Shop 4, G/F, Ning Fung Mansion, Nos 25-31 Main Street, Ap Lei Chau	1981	29 Mar 2022	$13,500,000	55.57	55.57	3.18	12.19	4.75	$242,937
EG2	Shop 12, G/F, Yee Hing Building, 150 Main Street, Ap Lei Chau	1985	23 Dec 2020	$7,000,000	22.88[13]	22.88	3.03	6.45	5.13[14]	$305,944
EG3	Shop B1B, G/F, Manly House, 105-113 Main Street, Ap Lei Chau	1980	22 Dec 2020	$11,380,000	37.02	37.02	3.00	12.34	4.50	$307,401
EG4	Shop H, G/F, Shun King Court, 33 Main Street, Ap Lei Chau	1995	19 Oct 2020	$8,000,000	21.62	21.62	2.88	7.55	5.10	$370,028
EG5	G/F & C/L, 18 Wai Fung Street	1967	12 Oct 2020	$12,500,000	29.22 + C/L: 42.07 + Yard: 5.28	80.62	3.28	17.68	5.49	$155,048
EG6	G/F & C/L, 14 Wai Fung Street	1967	6 Oct 2020	$14,500,000	72.73 + C/L: 49.42 + Yard: 5.28	85.97	4.04	17.68	5.49	$168,663
EG7	G/F & C/L, 16 Wai Fung Street	1967	25 Sep 2020	$13,380,000	73.58 + C/L: 46.84 + Yard: 5.54	86.21	4.04	17.68	5.49	$155,202

57.The Ap Lei Chau district at which the Building is located is traversed by Main Street, Ap Lei Chau all the way from its access from Lee Chi Road that branches off from Ap Lei Chau Bridge Road, a highway that connects the Ap Lei Chau district from the community of Aberdeen district on Hong Kong Island by a bridge.

58.In fact, the Building is situated off the end of Main Street, Ap Lei Chau on Shan Ming Street which is a one-way service road that turns into San Shi Street that provides a detour through Wai Fung Street onto Main Street, Ap Lei Chau. Thus the immediate vicinity of the Building is relatively quiet save that it overlooks Ap Lei Chau Park which accommodates a seven-a-side mini-soccer field, a basketball and volleyball court, a multi-purpose grass field and an inclusive children’s playground.

59.This corner of Shan Ming Street and San Shi Street is accessible from Ap Lei Chau Bridge Road up on the hillside via a footbridge. However, in my opinion, pedestrians making use of this footbridge to and fro Ap Lei Chau Bridge Road would be meagre. Otherwise, the shop units of the Building would not have been occupied mainly by vehicle service garages, hardware stores and engineering workshops instead of any retail trades.

60.Incidentally, all the transactions stated in §56 above were also comparables that were relied on in an earlier compulsory sale application, New Merit Limited v Lau So, LDCS 3000/2022 (unreported, dated 19 September 2023).

61.Comparable EG1, although it has an address at Main Street, Ap Lei Chau, it is in fact located on Ping Lan Street around the corner, which is another one-way service road running in parallel with Shan Ming Street just one block away. This comparable has an awkward L-shape with narrow frontage on Ping Lan Street and appears to have been vacant for a relatively long period[15], despite it is situated immediately opposite to two terminus stations for light buses routing to Causeway Bay and Aberdeen. Indeed, situated immediately beside this comparable on the right is a hardwares retailer, and further along the street is a so-called “gears development” company which has always had it closed. But further away at the junction of Ping Lan Street and San Shi Street is a building which houses The Aplichau Kaifong Welfare Association. Opposite the latter across San Shi Street are The Hong Kong Harbour Mission Church and The HKHMC Yan Oi Kindergarten (Nursery). I prefer Ms Chow’s -10% adjustment for location to Mr Patrick Lai’s -5%.

62.Comparable EG2 lies to the further west of Main Street, Ap Lei Chau where traffic turns off from Ap Lei Chau Bridge. It is occupied as a ward office of two Southern District Council Members. Both Ms Chow and Mr Patrick Lai agreed the location adjustment at -25%.

63.In respect of this comparable, it is obvious that there exists an unauthorized cockloft accessible via an internal staircase leading from G/F of this comparable. However, in view of the decent and relatively good condition of the unit, it cannot be ascertained whether this unauthorized cockloft was built before or after the sale. I agree therefore on de bene esse basis the experts’ treatment that the value of this unauthorized cockloft was not taken into account.

64.Comparable EG3 is occupied by a dispensary. It is situated on Main Street, Ap Lei Chau close to the busiest section where a variety of shops serving the daily necessity of the residents are provided. It lies indeed close to the entrance of the Lee Tung MTR Station at Wah Ting Street around the corner. This time, I prefer a location adjustment at -37.5%, ie mid-way between Ms Chow’s -40% and Mr Patrick Lai’s -35%.

65.Comparable EG4, on the other hand, is situated towards the end of Main Street, Ap Lei Chau where the Building is located. It was previously occupied as a restaurant but is now replaced by a Cainiao collection and pickup depot. Here, I prefer Mr Patrick Lai’s location adjustment at -25%.

66.In contrast to the above transactions which were adopted by both Ms Chow and Mr Patrick Lai as comparables, Comparables EG5, EG6 and EG7 were adopted by Ms Chow only. Indeed, the three properties were sold by the same vendor on similar dates. They are situated in fact side by side on Wai Fung Street fronting a light bus station. Comparables EG5 and EG7 are now occupied together as a musical and tutorial centre whereas EG6 is occupied as a beauty parlour. Ms Chow applied a location adjustment of -10% for each of the comparables.

67.In respect of other adjustment factors, Ms Chow and Mr Patrick Lai had the following agreements/ disagreements[16]:

Adjustment Factors	Ms Chow	Mr Patrick Lai
Time	On the basis of the Private Retail Price Index published by the Rating and Valuation Department (“RVD”)
Frontage	1% per 0.5 m
Return Frontage	-5% for Comparable EG6	Nil
Quantum	1% per 5 m2
Headroom	1% per 0.5 m
Layout	EG1: +10% EG2: 0% EG3: +5% EG4: 0% EG5: +5% EG6: +5% EG7: +5%	EG1: +10% EG2: 0% EG3: +5% EG4: 0%
Age/ Condition	1% per 5 years
Totaling Adjustment	By Multiplication

68.Thus, the only difference in opinion between the two valuation experts was on the adjustment for return frontage for Comparable EG6. I note the beauty parlour does make use of it. I agree therefore with Ms Chow that -5% is applicable.

69.Having reviewed the above, I set out my analysis as follows:

Comp	Unit Rate (/m2)	Adjustments									Adj Unit Rate (/m2)
		Time	Location	Frontage	Return Frontage	Quantum	Headroom	Layout	Age	Total
EG1	$242,937	-4.6%	-10.0%	4.5%	0.0%	0.2%	-5.0%	10.0%	-3.0%	-8.9%	$221,316
EG2	$305,944	-2.9%	-25.0%	4.8%	0.0%	-6.3%	-5.8%	0.0%	-3.8%	-35.2%	$198,252
EG3	$307,401	-2.9%	-37.5%	4.8%	0.0%	-3.5%	-4.5%	5.0%	-2.8%	-40.2%	$183,826
EG4	$370,028	1.0%	-25.0%	5.1%	0.0%	-6.5%	-5.7%	0.0%	-5.8%	-33.9%	$244,589
EG5	$155,048	1.0%	-10.0%	4.3%	0.0%	5.3%	-2.4%	5.0%	-0.2%	2.1%	$158,304
EG6	$168,663	1.0%	-10.0%	2.8%	-5.0%	6.3%	-2.4%	5.0%	-0.2%	-3.5%	$162,760
EG7	$155,202	1.7%	-10.0%	2.8%	0.0%	6.4%	-2.4%	5.0%	-0.2%	2.4%	$158,927
							Average (excluding EG5, EG6 & EG7):				$211,996

70.As what the Tribunal found in New Merit Limited, supra, the resultant adjusted figures for Comparables EG5, EG6 and EG7 appear to be too low when compared with the others. I would disregard these 3 comparables altogether.

71.Apart from the above, all the comparables except Comparable EG1 were dated some two years earlier than the relevant date of 30 November 2022 and the total adjustment required for each of them is high. On the other hand, Comparable EG1 is very proximate to the subject and within less than a minute’s walk. Being in the same “loop” at the rear end of Main Street, Ap Lei Chau, the character and pedestrian flows are highly similar to that in Sun Ming Street and San Shi Street. In contrast, Comparables EG2 to EG4 are located on Main Street, Ap Lei Chau with different trade mixes and customers footfall.

72.The direct comparison method of valuation is based on comparing the property to be valued with similar properties and the prices achieved for them and allowing for differences between them to determine the market value. Thus, as a matter of valuation practice comparables needing large adjustment should be avoided.

73.I appreciate that it has been seldom that only one comparable is relied upon. However, when good comparables are lacking, the Tribunal may accept a single transaction for direct comparison purpose. For example, in Mobil Oil Hong Kong Limited v Commissioner of Rating and Valuation [1993] HKDLR 77, in the determination of the rateable value as at 1 July 1990, the Tribunal could not find any useful comparable evidence save an earlier agreement (“the BP Agreement”) in respect of 36.7% of the subject tenement some 3 years earlier. While the Tribunal recorded the danger of relying on only one comparable, it held that it was desirable, at least as a check.

74.In Forsyth v Banbury Investments Ltd [2000] 3 HKLRD 834 where the Tribunal was tasked to determine the prevailing market rent under Part IV of the Landlord and Tenant (Consolidation) Ordinance, it decided at 838 as follows:

“In the present application, although the parties had before them only one actual rental transaction, it nevertheless should be analysed and relied upon in the assessment of the prevailing market rent for the Premises. I accept that for valuation by direct comparison method, this is not the ideal situation.”

75.And in the decision on review in Supreme Honour Development Limited v Director of Lands, LDMT 1/2001 (unreported, 19 December 2008), the Tribunal had the following remark at §17:

“… I agree with this submission particularly when the valuation was also carried out using the Comparison Method in the first instant, albeit using only one comparable but that was due to the shortage of market evidence of good comparables, nothing this Tribunal or any other Court could overcome.”

76.In Able Luck Development Limited & Others v Public Global Investments Limited & Others, LDCS 7000/2014 (unreported, dated 6 October 2017), the Tribunal accepted the only comparable transaction at Fun Tower which was “built to the current day standard of finishes which duly reflects the marketable quality industrial building in the current market” rather than transactions in industrial buildings all built more than 20 years ago[17].

77.Indeed, in Tai Ping Restaurant Limited v Director of Lands, LDLR 1/2013 (unreported, dated 8 December 2014), the Tribunal had made the following remark at §22:

“… I agree it is generally not a good approach to carry out any valuation by direct comparison method using a single comparable. I also agree quality of the comparables is more important than quantity of the comparables. It is a matter of valuation that the backgrounds and availability of objective evidence would determine the number of comparables to be adopted in a particular valuation. Different cases would have different backgrounds and evidence, and therefore may have different number of comparables in the respective assessments. There is no fixed valuation rule in this regard.”

78.More recently, in Kerzner International Mauritius Holdings Ltd v Assessment Review Committee & Another (Mauritius) [2021] UKPC 18, [2023] RVR 79, the Assessment Review Committee of Mauritius (“ARC”) adopted only one comparable in reviewing the assessment of open market value of a property by Registrar General of Mauritius. The appellant appealed, inter alia, on the ground that the ARC was wrong to treat the only comparable as a starting-point for its valuation. For instance, the appellant submitted that the fact that the valuation of the comparable ended up being discounted by around 65% showed that it was not a proper comparable. The appeal was dismissed by the Board whose last remark was that:

“Which comparable to use and what adjustments should be made were matters for the ARC to determine. It has not been shown that their decision on these matters was perverse, irrational or “erroneous in law”.”

79.Therefore, I would place more weight on Comparable EG1 and adopt $220,000 per sq m as the market value for Shop D on G/F of the Building[18].

80.As a result, I proceed with my determination of the respective EUVs for the other shops in the Building. I basically follow the adjustments proposed by Mr Patrick Lai save for the various adjustments for location, return frontage and layout for Shop C. I consider Mr Patrick Lai having tripled counted the benefit of the corner position of this shop. My determination is set out below:

Shop No	Effective Floor Area (m2)	Adjustments							Unit Rate (/m2)	EUV
		Location	Frontage	Return Frontage	Quantum	Headroom	Layout	Total
A	45.73	-2.0%	-1.7%	0.0%	1.7%	-0.1%	-3.0%	-5.1%	$208,780	$9,548,000
B	52.61	-2.0%	-2.1%	0.0%	0.4%	4.0%	0.0%	0.2%	$220,440	$11,597,000
C	49.03	0.0%	0.0%	5.0%	1.1%	0.0%	0.0%	6.2%	$233,640	$11,455,000
D	54.36	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	$220,000	$11,959,000
E	61.92	0.0%	-2.9%	0.0%	-1.5%	0.4%	-2.0%	-5.9%	$207,020	$12,819,000
F	77.16	0.0%	0.0%	0.0%	-4.6%	4.0%	-2.0%	-2.8%	$213,840	$16,500,000
									Total:	$73,878,000

Assessment of Market Value (“EUV”) of Domestic Premises on Upper Floors

81.Ms Chow and Mr Patrick Lai were able to agree the saleable floor areas (m²) of the domestic units on the upper floors of the Building[19]:

Unit	A	B	C	D	E	F
1/F	49.77 + F/R:19.77	45.37	39.39	39.39	33.65 + F/R: 4.63	36.45
2/F	49.77	45.37	39.39	39.39	33.65	36.45
3/F	49.77	45.37	39.39	39.39	33.65	36.45
4/F	49.77	45.37	39.39	39.39	33.65	36.45
5/F	49.77	45.37	39.39	39.39	33.65	36.45
6/F	49.77	44.13	38.19	38.19	32.76	36.45
7/F	49.77	39.59	33.78	33.78	29.50	36.45
Roof	40.14	31.39	28.35	28.35	24.25	28.61

Domestic Comparables

82.Ms Chow and Mr Patrick Lai agreed to adopt Flat C on 4/F of the Building as the reference domestic units.

83.They then referred to the following transactions in the vicinity as comparables and arrived at $121,100 per sq m and $136,900 per sq m respectively, ie a difference about 12%:

Comp	Address	Age of Building	Date of Sale	Consideration	Saleable Area (m2)	Effective Area (m2)	View	Unit Rate (/m2)
EU1	5/F & Roof, 9 Hung Shing Street	1970	26 Sep 2022	$5,080,000	33.12 + Roof: 22.94	35.99	Building	$141,150
EU2	Flat D, 7/F & Roof, 17 Hung Shing Street	1968	1 Jul  2022	$4,038,000	26.95 + Roof: 18.92	29.32	Open Building	$137,722
EU3	Flat D, 2/F & Flat Roof, 17 Hung Shing Street	1968	24 Jun 2022	$4,480,000	30.57 + F/R: 12.32	32.62	Building	$137,339
EU4	Rear Portion, 3/F, 115-117 Main Street, Ap Lei Chau	1974	29 Apr 2022	$5,280,000	36.50	36.50	Close Greenery & Slope	$144,658
EU5	5/F & Roof, 58 Main Street, Ap Lei Chau	1976	26 Apr 2022	$4,300,000	35.04 + Roof: 26.16	38.31	Open Building[20]	$112,242
EU6	1/F, 4 Ping Lan Street	1961	20 Mar 2021	$6,850,000	48.74 + F/R: 4.12	49.43	Open	$138,580
EU7	2/F, 43 Main Street, Ap Lei Chau	1976	23 Oct 2020	$5,150,000	37.90	37.90	Building	$135,884
EU8	5/F & Roof, 16 Wai Fung Street	1967	25 Sep 2020	$5,000,000	54.69 + Roof: 45.13	60.33	Building	$82,878
EU9	Flat D, 6/F, 17 Hung Shing Street	1968	5 Feb 2020	$3,980,000	30.57	30.57	Building	$130,193
EU10	3/F, 58 Main Street, Ap Lei Chau	1976	26 Nov 2019	$4,628,000	35.04	35.04	Open Building	$132,078

84.Ms Chow and Mr Patrick Lai had also the following agreements/ disagreements on the various adjustment factors[21]:

Adjustment Factors	Ms Chow	Mr Patrick Lai
Time	On the basis of the Private Domestic Price Index (Class A, B & C) published by RVD
Location	0% for all selected comparables	5% for all selected comparables
Age	0.5% per 1 year
Floor	2% per floor
Top Floor	-5%	-3%
Quantum	1% per 5 m2
View	5% for Building View 3% for Open Building View 10% for Close Greenery & Slope View
Internal Condition	0% for all comparables
Totaling Adjustments	By Multiplication

85.As regards the disagreement on the adjustment for location, I am not persuaded that the Reference Domestic Unit chosen by the two valuation experts, being Flat C on 4/F of the Building, enjoys a better living environment save for its view. Mr Patrick Lai suggested that the comparables are suffering from a noisy environs because they are either situated on Main Street, Ap Lei Chau or in close proximity to the commercial areas in the neighbourhood. On the other hand, I had pointed out at trial that the domestic premises of the Building are situated above the vehicle service garages, hardware stores and engineering workshops etc on G/F which may not be welcomed by residents above. I agree that no adjustment for location is applicable.

86.In respect of the adjustment for the top floor, I prefer Mr Patrick Lai’s -3% to Ms Chow’s -5% which appears to be excessive.

87.As a result, my analysis of the comparables is set out as follows:

Comp	Unit Rate (/m2)	Adjustments							Adj Unit Rate (/m2)
		Time	Age	Floor	Top Floor	Quantum	View	Total
EU1	$141,150	-6.3%	-2.0%	4.0%	3.0%	-0.7%	5.0%	2.6%	$144,820
EU2	$137,722	-10.4%	-1.0%	6.0%	3.0%	-2.0%	3.0%	-2.2%	$134,692
EU3	$137,339	-11.7%	-1.0%	-4.0%	0.0%	-1.4%	5.0%	-13.1%	$119,348
EU4	$144,658	-12.5%	-4.0%	0.0%	0.0%	-0.6%	10.0%	-8.2%	$132,796
EU5	$112,242	-12.5%	-5.0%	4.0%	3.0%	-0.2%	3.0%	-8.5%	$102,701
EU6	$138,580	-13.4%	2.5%	-4.0%	0.0%	2.0%	0.0%	-13.1%	$120,426
EU7	$135,884	-11.5%	-5.0%	-2.0%	0.0%	-0.3%	5.0%	-13.7%	$117,268
EU8	$82,878	-11.9%	-0.5%	4.0%	3.0%	4.2%	5.0%	2.7%	$85,116
EU9	$130,193	-9.7%	-1.0%	4.0%	0.0%	-1.8%	5.0%	-4.1%	$124,855
EU10	$132,078	-12.5%	-5.0%	0.0%	0.0%	-0.9%	3.0%	-15.2%	$112,002
							Average:		$119,402
							Average (excluding EU7 – EU 10):		$125,797

88.In fact, only Ms Chow adopted Comparables EU7, EU8, EU9 and EU10. Mr Patrick Lai did not adopt these transactions as comparables because they were much dated.

89.Nevertheless, I include these transactions for analysis because Comparables EU2, EU3 and EU9 are within the same buildings whereas Comparables EU5 and EU10 are within the same buildings so that I can have a better picture of their real values. Having reviewed the analysis, I agree that these dated transactions have to be discarded and I adopt $126,000 per sq m as the unit rate for Flat C on 4/F.

90.Then I am going to assess the EUV of the other domestic units in the Building. Here again, Ms Chow and Mr Patrick Lai had also the following agreements/ disagreements on the various adjustment factors:

Adjustment Factors	Ms Chow	Mr Patrick Lai
Floor	2% per floor
Top Floor	-5%	-3%
Quantum	1% per 5 m2
View	Open View: 0% Greenery View & Slope: -3% Open View & Limited Seaview: 5% Open View & Seaview: 8% Close Building View: -10%	Open View: 0% Greenery View & Slope: -8% Limited Seaview: 5% Seaview: 10% Close Building View: -10% Greenery View: -3%
Internal Condition	Reasonable: 3% Fair: 0% Poor: -3%	Good: 6% Reasonable: 3% Fair: 0% Poor: -3%
Noise		-5% for Flats A & B on 4/F to 7/F
Totaling Adjustments	By Multiplication

91.As regards the adjustment for top floor, I would, as before, have accepted the -3% proposed by Mr Patrick Lai if I did not notice that there exist certain trees growing on the top roof[22], particularly ficus microcarpa (also known as Chinese banyan) as recognized by Mr Philip So of some 3 metres high on Roof A[23] and Roof C[24]. The roots of such ficus trees are invasive and can expand up to three times the tree’s canopy, damaging the concrete, particularly the waterproofing membrane underneath. Therefore, I adopt the -5% proposed by Ms Chow in the present circumstances.

92.In terms of the adjustments for view, the two valuation experts did not differ much in opinion. Having conducted the inspection on 6 May 2025, I tend to agree with Ms Chow.

93.Again, Ms Chow and Mr Patrick Lai did not differ much in the classification of the internal conditions of the domestic units as well as the adjustments applicable. However, Mr Patrick Lai added a category of “Good” internal condition for which he applied an adjustment of 6%. In my opinion, such an adjustment for aged building like the subject appears excessive. I do not consider such an additional category worthwhile.

94.In addition to the above, Mr Patrick Lai made a further allowance for noise because certain domestic units of the Building are situated relatively close to Ap Lei Chau Bridge where the level of traffic flow was high. I agree with him.

95.The EUV of the respective domestic units in the Building is shown as follows:

Floor	Flat	Effective Floor Area (m2)[25]	View	Internal Condition	Adjustments						Adj Unit Rate (/m2)	EUV
					Floor	Size	View	Internal Condition	Noise	Total
1/F	A	53.07	Greenery & Slope	Fair	6.0%	-2.7%	-3.0%	0.0%	0.0%	0.0%	$126,000	$6,687,000
	B	45.37	Open	Fair	6.0%	-1.2%	0.0%	0.0%	0.0%	4.7%	$131,922	$5,985,000
	C	39.39	Open	Fair	6.0%	0.0%	0.0%	0.0%	0.0%	6.0%	$133,560	$5,261,000
	D	39.39	Open	Fair	6.0%	0.0%	0.0%	0.0%	0.0%	6.0%	$133,560	$5,261,000
	E	34.42	Open	Fair	6.0%	1.0%	0.0%	0.0%	0.0%	7.1%	$134,946	$4,645,000
	F	36.45	Close Building	Fair	6.0%	0.6%	-10.0%	0.0%	0.0%	-4.0%	$120,960	$4,409,000
2/F	A	49.77	Greenery & Slope	Fair	4.0%	-2.1%	-3.0%	0.0%	0.0%	-1.2%	$124,488	$6,196,000
	B	45.37	Open	Reasonable	4.0%	-1.2%	0.0%	3.0%	0.0%	5.8%	$133,308	$6,048,000
	C	39.39	Open	Fair	4.0%	0.0%	0.0%	0.0%	0.0%	4.0%	$131,040	$5,162,000
	D	39.39	Open	Reasonable	4.0%	0.0%	0.0%	3.0%	0.0%	7.1%	$134,946	$5,316,000
	E	33.65	Open	Fair	4.0%	1.1%	0.0%	0.0%	0.0%	5.1%	$132,426	$4,456,000
	F	36.45	Close Building	Fair	4.0%	0.6%	-10.0%	0.0%	0.0%	-5.8%	$118,692	$4,326,000
3/F	A	49.77	Greenery & Slope	Fair	2.0%	-2.1%	-3.0%	0.0%	0.0%	-3.1%	$122,094	$6,077,000
	B	45.37	Open	Fair	2.0%	-1.2%	0.0%	0.0%	0.0%	0.8%	$127,008	$5,762,000
	C	39.39	Open	Fair	2.0%	0.0%	0.0%	0.0%	0.0%	2.0%	$128,520	$5,062,000
	D	39.39	Open	Reasonable	2.0%	0.0%	0.0%	3.0%	0.0%	5.1%	$132,426	$5,216,000
	E	33.65	Open	Fair	2.0%	1.1%	0.0%	0.0%	0.0%	3.1%	$129,906	$4,371,000
	F	36.45	Close Building	Fair	2.0%	0.6%	-10.0%	0.0%	0.0%	-7.6%	$116,424	$4,244,000
4/F	A	49.77	Greenery & Slope	Fair	0.0%	-2.1%	-3.0%	0.0%	-5.0%	-9.8%	$113,652	$5,656,000
	B	45.37	Open	Fair	0.0%	-1.2%	0.0%	0.0%	-5.0%	-6.1%	$118,314	$5,368,000
	C	39.39	Open	Fair	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	$126,000	$4,963,000
	D	39.39	Open	Fair	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	$126,000	$4,963,000
	E	33.65	Open	Fair	0.0%	1.1%	0.0%	0.0%	0.0%	1.1%	$127,386	$4,287,000
	F	36.45	Close Building	Reasonable	0.0%	0.6%	-10.0%	3.0%	0.0%	-6.7%	$117,558	$4,285,000
5/F	A	49.77	Greenery & Slope	Reasonable	-2.0%	-2.1%	-3.0%	3.0%	-5.0%	-8.9%	$114,786	$5,713,000
	B	45.37	Limited Seaview	Fair	-2.0%	-1.2%	5.0%	0.0%	-5.0%	-3.4%	$121,716	$5,522,000
	C	39.39	Limited Seaview	Fair	-2.0%	0.0%	5.0%	0.0%	0.0%	2.9%	$129,654	$5,107,000
	D	39.39	Limited Seaview	Reasonable	-2.0%	0.0%	5.0%	3.0%	0.0%	6.0%	$133,560	$5,261,000
	E	33.65	Limited Seaview	Reasonable	-2.0%	1.1%	5.0%	3.0%	0.0%	7.2%	$135,072	$4,545,000
	F	36.45	Close Building	Reasonable	-2.0%	0.6%	-10.0%	3.0%	0.0%	-8.6%	$115,164	$4,198,000
6/F	A	49.77	Greenery & Slope	Poor	-4.0%	-2.1%	-3.0%	-3.0%	-5.0%	-16.0%	$105,840	$5,268,000
	B	44.13	Limited Seaview	Fair	-4.0%	-0.9%	5.0%	0.0%	-5.0%	-5.1%	$119,574	$5,277,000
	C	38.19	Limited Seaview	Poor	-4.0%	0.2%	5.0%	-3.0%	0.0%	-2.0%	$123,480	$4,716,000
	D	38.19	Limited Seaview	Poor	-4.0%	0.2%	5.0%	-3.0%	0.0%	-2.0%	$123,480	$4,716,000
	E	32.76	Limited Seaview	Poor	-4.0%	1.3%	5.0%	-3.0%	0.0%	-1.0%	$124,740	$4,086,000
	F	36.45	Close Building	Fair	-4.0%	0.6%	-10.0%	0.0%	0.0%	-13.1%	$109,494	$3,991,000
7/F	A	49.77	Open	Poor	-11.0%	-2.1%	8.0%	-3.0%	-5.0%	-13.3%	$109,242	$5,437,000
	B	39.59	Seaview	Poor	-11.0%	0.0%	8.0%	-3.0%	-5.0%	-11.4%	$111,636	$4,420,000
	C	33.78	Seaview	Poor	-11.0%	1.1%	8.0%	-3.0%	0.0%	-5.7%	$118,818	$4,014,000
	D	33.78	Seaview	Reasonable	-11.0%	1.1%	8.0%	3.0%	0.0%	0.1%	$126,126	$4,261,000
	E	29.50	Seaview	Reasonable	-11.0%	2.0%	8.0%	3.0%	0.0%	1.0%	$127,260	$3,754,000
	F	36.45	Close Building	Fair	-11.0%	0.6%	-10.0%	0.0%	0.0%	-19.4%	$101,556	$3,702,000
Roof	A	40.14									$13,655	$548,000
	B	31.39									$13,955	$438,000
	C	28.35									$14,852	$421,000
	D	28.35									$15,766	$446,000
	E	24.25									$15,908	$386,000
	F	28.61									$12,695	$363,000
										Total:	$210,596,000

Conclusion on EUV

96.The total EUV of the Building is therefore $284,474,000 and the pro rata shares of respondents’ interest are shown as follows:

Respondent	Unit Owned	EUV	Pro Rata Shares
R1	Shop C, G/F	$11,455,000	4.0267%
R2	Shop D, G/F	$11,959,000	4.2039%
R3	Shop F, G/F	$16,500,000	5.8002%
R4	Flat D, 2/F	$5,316,000	1.8838%
R5	Flat D, 3/F	$5,216,000	1.8483%
R6	Flat D, 7/F & Roof D	$4,707,000	1.6546%
	Flat E, 7/F & Roof E	$4,140,000	1.4553%

RDV of the Lot

97.Pursuant to section 5(1) of the Ordinance, if an order for sale is granted and the trustees under the order have complied with section 7(1) in respect of the Lot, the Lot shall be sold by public auction subject to a reserve price which takes into account the redevelopment potential of the lot on its own.

98.Mr C K Lau for the applicant and Mr Patrick Lai for the respondents agreed to resort to the residual valuation method in determining the RDV. This can be done by deducting development cost (including construction costs, professional fees, finance costs etc) and developer’s profit from the estimated gross development value (“GDV”) of the completed optimum development.

Hypothetical Development

99.The Lot has a site area of 377.19 sq m, with 21.34 m abutting Shan Ming Street and 17.68 m abutting San Shi Street.

100.By their joint statement dated 11 April 2025, Mr C K Lau and Mr Patrick Lai had agreed the following particulars of the hypothetical development on site[26]:

Plot Ratio	Non-domestic: 0.7932 Domestic: 8.5241 Total: 9.3173
Total Gross Floor Area	3.514.43 sq m
G/F	5 Retail Units, Plant Room and Domestic Entrance Lobby
1/F	Podium Garden, Landscaped Area and Domestic Lift Lobby
2/F	Landscaped Area, Clubhouse, Plant Room, Domestic Lift Lobby
3/F	3 residential units each with flat roof
4/F-23/F	3 residential units per floor
24/F	3 residential units each with top roof
Floor-to-floor height	G/F: 5.0 m 1/F: 4.62 m 2/F: 4.0 m 3/F & 24/F: 3.5 m 4/F-23/F: 3.02 m

101.In spite of the above, Mr C K Lau arrived at a RDV of the Lot in the sum of $220,000,000[27] while Mr Patrick Lai arrived at $296,900,000[28], a difference of more than 26%. The following paragraphs explained the reasons for their difference in opinion.

GDV for Shops on G/F

102.Although Mr C K Lau and Mr Patrick Lai had agreed the size of the entrance lobby (55 sq m) and plant room, they could not agree on the configuration of each shop because they had difference in opinion on the location of the G/F domestic entrance.

103.While the Building currently has its main entrance fronting onto Shan Ming Street, Mr Lai suggested that shops on Shan Ming Street had relatively better shopping potential and therefore he proposed to place the domestic entrance of the hypothetical development on San Shi Street so as to save more valuable shop spaces fronting onto Shan Ming Street.

104.But having reviewed the following, I agree with Mr C K Lau that the domestic entrance should be positioned on Shan Ming Street:

(1)  The so-called relatively better shopping potential as suggested by Mr Lai in his EUV assessment was only 5%;

(2)  I have followed Ms Chow’s opinion in the EUV assessment that there should be minimal locational adjustments between Shan Ming Street and San Shi Street;

(3)  While the shops fronting on Shan Ming Street overlook the greenery across the street, I am persuaded by Mr C K Lau that commuters making use of the footbridge leading to and fro Ap Lei Chau Bridge Road would have better sights of the shops on San Shi Street, if any. Also, such shops would be visible from the Hong Kong Harbour Mission Church across the street;

(4)  The configuration of the Lot is in rectangular shape with a longer frontage onto to Shan Ming Street. Placing the entrance there would facilitate a better design of the upper floors whereby the loss of shop space which is suggested by Mr Patrick Lai to have a value of 5% would be easily compensated.

105.As a result, I follow Mr C K Lau’s proposed shop layout and adopt Shop B as proposed by Mr C K Lau as the reference shop unit which consists of the following particulars:

Shop	Saleable Area (m2)	Frontage (m)	Return Frontage (m)	Headroom (m)	Depth (m)
A	41.57	9.00 onto Shan Ming Street	4.99 onto San Shi Street	5.0	4.99
B	51.71	6.44 onto San Shi Street		5.0	11.00
C	68.73	6.25 onto San Shi Street	11.00 onto service land	5.0	11.00
D	97.68	3.50 onto Shan Ming Street		5.0	17.68
E	39.50	5.84 onto Shan Ming Street		5.0	8.59

106.While both Mr C K Lau and Mr Patrick Lai were content to adopt the direct comparison method of valuation to assess the GDV of the shops in the hypothetical development, they could not find any comparable save for the same set of transactions they (or Ms Chow as well) relied on in the EUV assessment:

Comp	Address	Age of Building	Date of Sale	Consideration	Saleable Area (m2)	Effective Area (m2)[29]	Frontage (m)	Depth (m)	Headroom (m)	Unit Rate (/m2)
RSG1/EG1	Shop 4, G/F, Ning Fung Mansion, Nos 25-31 Main Street, Ap Lei Chau	1981	29 Mar 2022	$13,500,000	55.57	55.57	3.18	12.19	4.75	$242,937
RSG2/EG2	Shop 12, G/F, Yee Hing Building, 150 Main Street, Ap Lei Chau	1985	23 Dec 2020	$7,000,000	22.88	22.88	3.03	6.45	5.13	$305,944
RSG3/EG3	Shop B1B, G/F, Manly House, 105-113 Main Street, Ap Lei Chau	1980	22 Dec 2020	$11,380,000	37.02	37.02	3.00	12.34	4.50	$307,401
RSG4/EG4	Shop H, G/F, Shun King Court, 33 Main Street, Ap Lei Chau	1995	19 Oct 2020	$8,000,000	21.62	21.62	2.88	7.55	5.10	$370,028

107.This being the case, they relied heavily on the Private Retail Price Index published by RVD for time adjustments.

108.Thus, I shall follow Mr C K Lau’s adjustments and agree with his assessment at $204,000 per sq m.

109.On the other hand, both Mr C K Lau and Mr Patrick Lai were content to adopt the income capitalization approach for checking their respective assessments. They relied on the following rental transactions:

Comp	Address	Age of Building	Date of Tenancy	Monthly Rental	Saleable Area (m2)	Effective Area (m2)[30]	Frontage (m)	Depth (m)	Headroom (m)	Unit Rate (/m2)
RRG1	G/F, 115 Main Street, Ap Lei Chau	1974	6 Jun 2024	$65,000 from May 24 to May 27	73.27	82.43	4.55	14.94	5.13	$789
RRG2	G/F & C/L, 45 & 47 Main Street, Ap Lei Chau	1976	22 Aug 2023	$88,000 from Aug 23 to Aug 23 & $98,000 from Aug 25 to Aug 27	108.53	119.21	9.34	6.45	5.13	$705

110.With respect to the two valuation experts, these two rental transactions do not provide good guidance on the value of the reference shop unit for the following reasons:

(1)  Comparable RRG1 is situated at a much busier location where Mr C K Lau and Mr Patrick Lai proposed location adjustments as much as -40% and -30% respectively;

(2)  This comparable has an effective floor area as much as 60% higher;

(3)  This comparable enjoys a return frontage onto a relatively wide alley for which I agree with Mr C K Lau that a return frontage adjustment of 10% is applicable;

(4)  The absolute total adjustment proposed by Mr C K Lau was 88.5% while that by Mr Patrick Lai was 54.1% without the return frontage adjustment;

(5)  As regards Comparable RRG2, the tenancy was much dated in 2023 (ie nearly two years ago) and the effective floor area is even much higher;

(6)  The absolute total adjustment proposed by Mr C K Lau was 81.2% while that by Mr Patrick Lai was 72.6%.

111.Notwithstanding the above, I try to assess the unit rental applicable to the reference shop unit as follows:

Comp	Unit Rate (/m2)	Adjustments									Adj Unit Rate (/m2)
		Time	Location	Frontage	Return Frontage	Quantum	Headroom	Layout	Age	Total*
RRG1	$789	-3.1%	-35.0%	3.8%	-10.0%	6.1%	-0.3%	-5.0%	10.2%	-28.3%	$566
RRG2	$705	-6.8%	-25.0%	-5.8%	0.0%	13.5%	-0.3%	0.0%	9.8%	-10.0%	$635
									Average:		$601

* inclusive of 10% enhancement in retail potential agreed by both Mr C K Lau and Mr Patrick Lai

112.Then the two valuation experts could not agree the market yield: Mr C K Lau proposed 4.0% while Mr Patrick Lai proposed 3.1% (which I consider is too low).

113.Taking an average at 3.55%, I arrive at the following:

$601 x 12 ÷ 3.55% = $203,155

which is very close to $204,000 per sq m determined earlier.

114.Hence, I follow Mr C K Lau’s determination of the GDV of the shops for the hypothetical development as follows:

Shop	Saleable Area (m2)	Adjustments					Adj Unit Rate (/m2)	GDV
		Frontage	Return Frontage	Quantum	Layout	Total
A	41.57	5.1%	10.0%	2.0%	5.0%	23.8%	$252,552	$10,500,000
B	51.71	0.0%	0.0%	0.0%	0.0%	0.0%	$204,000	$10,550,000
C	68.73	-0.4%	5.0%	-3.4%	0.0%	1.0%	$206,040	$14,160,000
D	97.68	-5.9%	0.0%	-9.2%	-5.0%	-18.8%	$165,648	$16,180,000
E	39.50	-1.2%	0.0%	2.4%	0.0%	1.2%	$206,448	$8,150,000
							Total:	$59,540,000

GDV for Domestic Upper Floors

115.In respect of the assessment of the GDV for the upper residential floors, both Mr C K Lau and Mr Patrick Lai agreed to adopt Flat A, 14/F of the hypothetical development which consists of 34.39 sq m as the reference domestic unit.

116.Save for only one transaction of a unit in Aruna which lies at No 8 Ping Lan Street, Mr C K Lau relied only on the sales of units in Coasto at No 1 Wai Fung Street as comparables. On the other hand, Mr Patrick Lai relied on sales of units in Coasto, Aruna as well as Upper South which lies at No 71 Main Street, Ap Lei Chau as comparables.

117.Mr C K Lau explained that sale of units in Aruna was first launched in June 2023 but was called-off just hours before the start of sale on 24 June 2023. From April 2024 to December 2024, the developer then offered only 33 units for sale with unit prices ranging from $193,500 per sq m to $229,500 per sq m after discounts. However, according to the latest register of transactions[31], only 16 units were sold including sale of 2 units which had been cancelled. Mr C K Lau considered the sell-through rate and the sales velocity of Aruna inferior.

118.Mr C K Lau however conceded that in 2025, only 4 units in Aruna (ie Comparables Nos 10-13 adopted by Mr Patrick Lai) were transacted. Three of them (ie Comparables Nos 10, 12 & 13 adopted by Mr Patrick Lai) do not command seaview and Mr Patrick Lai had applied substantial view adjustment of +15% to them. Therefore, Mr C K Lau was of the view that those units not commanding seaview should not be included in the analysis.

119.With respect, I am afraid that Mr C K Lau had set too restrictive criteria on the concept of market value which however does not require a fire sale. Market value is defined at paragraph 5.3.1 of the HKIS Valuation Standards 2024 as:

“the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.”

120.That is, market value can be achieved after proper marketing and without compulsion. It should be distinguished, for instance, from the “Value for Sale Under Repossession” under section 5.10.0 of the HKIS Valuation Standards 2024. “Value for Sale Under Repossession” refers to the price that might reasonably be expected to realise within a defined period of time.

121.Reverting to the sales of units in Aruna, bearing in mind the time lag for registration, sale of 4 units within 4 months is not exceptionally bad in the prevailing market which is under fierce competition. With the benefit of hindsight, there have been sale of more than 30 units in 2025. Whether those units command seaview or otherwise is irrelevant so long as a proper or reasonable adjustment is applied. The purchasers should have their own preferences when they purchased a unit in Aruna instead of another unit say in Coasto. This has to be distinguished from the sale of units, for instance, in Beaulieu Peninsula in Tuen Mun in 1981 when only one out of 114 units was sold for a period of one year.

122.I also agree with Mr Lai’s view that relying on sale prices of only one residential development, ie Coasto, may not provide an objective assessment of the market values of the domestic units in the hypothetical development.

123.On the other hand, I agree with Mr C K Lau that the transactions of units in The Upper South proposed by Mr Patrick Lai were outdated as they took place in 2023. Simply applying the price index published by the RVD which is territory-wide may not provide a good guidance on the market value of domestic units in Ap Lei Chau. In New Merit, supra, at §§80-81, I had accepted the opinion of Ms Chow (who happened also to be one of the valuation experts in that case) that there are numerous new developments being implemented in the vicinity and developers are facing heavy competition in sales. I do not consider sales of units in 2023 in The Upper South or elsewhere in Ap Lei Chau comparable in the present case.

124.Thus, I would adopt the sales of units in Coasto in 2025 as comparables. Having said that, I am surprised that Mr Lai tried to add back the following discounts to the purchase price for the purpose of analysis:

Name of Discount	Discount Rate
“Wo Club” Member	2%
“Early Interest Rate Cut”	2%
“Lei Tung Station”	1%
“Enjoy Now”	2%
Early Settlement Cash Rebate Benefit	0.5%

125.With respect to Mr Patrick Lai, the above names of discount were just invented by the developer who is ready to offer to any prospective purchaser. The discounts are no specialty per se except the developer would be ready to cut any such discounts any time depending on the market conditions. The name of the discount can be anything but red herring.

126.On the other hand, Mr C K Lau and Mr Patrick Lai could not agree on the headroom of the respective comparables because the sales brochure of Coasto failed to specify the headroom of the respective units despite the requirements under section 19 of the Residential Properties (First-hand Sales) Ordinance, Cap 621. The brochure only states that the floor-to-floor height of Unit B is “2825, 2875, 3275, 3325”.

127.In such regard, Mr C K Lau referred to the maximum building height of 85 m above the Hong Kong Principal Datum as stipulated in the Aberdeen and Ap Lei Chau Outline Zoning Plan No S/H15/33 dated 21 August 2018, from which he deducted the spot level of the lowest residential floor. As a result, Mr C K Lau found the total floor height of the residential portion being 70.175 m. Then he divided it by 21 storeys, arriving at an average floor-to-floor height of about 3.342 m.

128.But with respect, this 3.342 m is higher than any of the floor heights stated by the developer. By a letter from Messrs So, Lung and Associates dated 2 June 2025, the Tribunal was informed that the two experts had reached an agreement that the headroom of the domestic comparables in Coasto be taken as 3.325 m.

129.In spite of the above, Mr C K Lau and Mr Patrick Lai still had the following agreements/ disagreements on the adjustment factors applicable:

Adjustment Factors	Mr C K Lau	Mr Patrick Lai
Time	On the basis of the Private Domestic Price (Class A, B & C) Index published by RVD
Age	2% per year
Floor Level	0.5% per floor
Ceiling Height	1% per 0.2 m
Quantum/ Size	1% per 5 sq m
View	Open View & Seaview: 0%	Building View: 15% Open View: 10% Partial Seaview: 5% Seaview: 0%
Aspect	Single Side Facing: 2% Double Side Facing: 0%
Scale/ Facilities	Coasto: 5% Aruna: 2%
Totaling	By Multiplication

130.In view of the above, I set out the transactions of units in Coasto and in Aruna respectively in 2025 as provided by the two valuation experts:

Coasto

Unit	Date of Sale	Consideration	Saleable Area (m2)	Unit Price (/m2)	Adjustments						Total	Adj Unit Price (/m2)
					Age	Floor	Ceiling Height	Size	Aspect	Scale/ Facilities
Unit B, 7/F	15 Mar 25	$6,736,000	33.451	$201,369	2.0%	4.0%	-1.5%	-0.2%	0.0%	5.0%	9.5%	$220,499
Unit B, 8/F	13 Mar 25	$7,049,000	33.451	$210,726	2.0%	0.5%	-1.5%	-0.2%	0.0%	5.0%	5.8%	$222,948
Unit B, 17/F	9 Mar 25	$7,103,000	33.451	$212,340	2.0%	0.0%	-1.5%	-0.2%	0.0%	5.0%	5.3%	$223,594
Unit B, 15/F	8 Mar 25	$7,013,000	33.451	$209,650	2.0%	1.0%	-1.5%	-0.2%	0.0%	5.0%	6.3%	$222,858
Unit B, 20/F	8 Mar 25	$7,355,000	33.451	$219,874	2.0%	-1.5%	-1.5%	-0.2%	0.0%	5.0%	3.7%	$228,009
Unit B, 18/F	7 Mar 25	$7,157,000	33.451	$213,955	2.0%	-0.5%	-1.5%	-0.2%	0.0%	5.0%	4.8%	$224,225
Unit B, 19/F	6 Mar 25	$7,211,000	33.451	$215,569	2.0%	-1.0%	-1.5%	-0.2%	0.0%	5.0%	4.2%	$224,623
Unit B, 21/F	5 Mar 25	$7,229,000	33.451	$216,107	2.0%	-2.0%	-1.5%	-0.2%	0.0%	5.0%	3.2%	$223,022
Unit B, 22/F	5 Mar 25	$7,283,000	33.451	$217,721	2.0%	-2.5%	-1.5%	-0.2%	0.0%	5.0%	2.7%	$223,599
Unit A, 6/F	2 Mar 25	$6,930,000	34.458	$201,114	2.0%	4.5%	-1.5%	0.0%	2.0%	5.0%	12.4%	$226,052
Unit A, 11/F	1 Mar 25	$7,235,000	34.458	$209,966	2.0%	2.0%	-1.5%	0.0%	2.0%	5.0%	9.8%	$230,543
Unit A, 10/F	1 Mar 25	$7,197,000	34.458	$208,863	2.0%	2.5%	-1.5%	0.0%	2.0%	5.0%	10.3%	$230,376
Unit A, 9/F	1 Mar 25	$7,160,000	34.458	$207,789	2.0%	3.0%	-1.5%	0.0%	2.0%	5.0%	10.8%	$230,230
Unit A, 8/F	1 Mar 25	$7,097,000	34.458	$205,961	2.0%	3.5%	-1.5%	0.0%	2.0%	5.0%	11.4%	$229,441
Unit A, 7/F	1 Mar 25	$7,023,000	34.458	$203,813	2.0%	4.0%	-1.5%	0.0%	2.0%	5.0%	11.9%	$228,067
Unit B, 12/F	1 Mar 25	$6,966,000	33.451	$208,245	2.0%	1.5%	-1.5%	-0.2%	0.0%	5.0%	6.9%	$222,614
Unit B, 11/F	1 Mar 25	$6,919,000	33.451	$206,840	2.0%	2.0%	-1.5%	-0.2%	0.0%	5.0%	7.4%	$222,146
Unit B, 10/F	1 Mar 25	$6,872,000	33.451	$205,435	2.0%	2.5%	-1.5%	-0.2%	0.0%	5.0%	7.9%	$221,664
Unit B, 9/F	1 Mar 25	$6,826,000	33.451	$204,060	2.0%	3.0%	-1.5%	-0.2%	0.0%	5.0%	8.4%	$221,201
Unit B, 8/F	1 Mar 25	$6,808,000	33.451	$203,522	2.0%	3.5%	-1.5%	-0.2%	0.0%	5.0%	9.0%	$221,839
										Average:		$224,878

* I have disregarded the sales of Flat B, 3/F and Flat C, 22/F on 1 March 2025 and 2 March 2025. The sale of Flat B, 3/F was out of tone with the others while Flat C, 22/F has a much smaller size of 22.943 sq m which might not be comparable with the reference domestic unit as well as other comparables.

Aruna

Unit	Date of Sale	Consideration	Saleable Area (m2)	Unit Price (/m2)	Adjustments						Total	Adj Unit Price (/m2)
					Age	Floor	Ceiling Height	Size	View[32]	Scale/ Facilities
Unit D, 9/F	17 Mar 25	$5,260,000	25.277	$208,094	2.0%	2.5%	-0.7%	-1.8%	15.0%	2.0%	19.6%	$248,880
Unit A, 15/F	8 Mar 25	$6,435,000	29.461	$218,424	2.0%	0.5%	-0.7%	-1.0%	0.0%	2.0%	2.8%	$224,540
Unit D, 7/F	2 Mar 25	$5,174,000	25.277	$204,692	2.0%	3.5%	-0.7%	-1.8%	15.0%	2.0%	17.6%	$247,268
										Average:		$240,229

* I have disregarded the sale of Flat C, 8/F on 1 March 2025 for the reason that it has a relatively small area of 19.059 sq m.

131.As stated at §118 above, Mr C K Lau refused to accept Unit D, 9/F and Unit D, 7/F because these two units do not enjoy seaview for which Mr Patrick Lai applied an adjustment of 15%. Certainly this latter adjustment was made on the basis of professional opinion of Mr Patrick Lai which cannot be easily verified by paired comparison analysis, for instance.

132.For example, if the proper adjustment for view should be +12% instead of +15%, the average of the adjusted unit rates for the three transactions in Aruna will give $235,896 per sq m instead.

133.Having reviewed the above, I am prepared to adopt $235,000 per sq m as the market value of the reference domestic unit in the hypothetical development.

134.Hence following the evaluation agreed by both Mr C K Lau and Mr Patrick Lai, the average unit rates that may pertain to the domestic portion of the hypothetical development is determined as follows:

Floor	Unit	Saleable Area (m2)	Effective Area (m2)	Adjustments							Adjusted Unit Rate (m2)	GDV
				Floor	Size	Headroom	View	Specialty	Aspect	Total
3/F	A	33.64 + F/R: 28.15	38.33	-5.5%	-0.8%	2.4%	-5.0%	30.0%	0.0%	18.6%	$278,710	$10,680,000
	B	33.64 + F/R: 28.15	38.33	-5.5%	-0.8%	2.4%	-5.0%	30.0%	-2.0%	16.2%	$273,070	$10,470,000
	C	33.64 + F/R: 28.15	38.33	-5.5%	-0.8%	2.4%	-5.0%	30.0%	0.0%	18.6%	$278,710	$10,680,000
4/F	A	34.39	34.39	-5.0%	0.0%	0.0%	-5.0%	0.0%	0.0%	-9.7%	$212,205	$7,300,000
	B	34.39	34.39	-5.0%	0.0%	0.0%	-5.0%	0.0%	-2.0%	-11.6%	$207,740	$7,140,000
	C	34.39	34.39	-5.0%	0.0%	0.0%	-5.0%	0.0%	0.0%	-9.7%	$212,205	$7,300,000
5/F – 23/F	A	34.39	34.39	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	$235,000	$153,520,000[33]
	B	34.39	34.39	0.0%	0.0%	0.0%	0.0%	0.0%	-2.0%	-2.0%	$230,300	$150,480,000[34]
	C	34.39	34.39	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	$235,000	$153,520,000[35]
24/F	A	34.39 + Roof: 27.8	37.87	5.0%	-0.7%	2.4%	0.0%	30.0%	0.0%	38.8%	$326,180	$12,350,000
	B	34.39 + Roof: 27.8	37.87	5.0%	-0.7%	2.4%	0.0%	30.0%	-2.0%	36.0%	$319,600	$12,100,000
	C	34.39 + Roof: 27.8	37.87	5.0%	-0.7%	2.4%	0.0%	30.0%	0.0%	38.8%	$326,180	$12,350,000
											Total:	$547,890,000

Other Development Parameters

135.Mr C K Lau and Mr Patrick Lai had the following agreements/ disagreements on other development parameters applicable in a residual valuation[36]:

Development Parameter	Mr C K Lau	Mr Patrick Lai
Marketing Cost	3.5% of GDV
Finance Cost	5.25%	4.75%
Development Profit	18%	15%
Legal Cost	0.1%
Stamp Duty	4.25%
Demolition Cost	$5,038,880
RLB Building Cost Data Edition	March 2025 (ie Q4 2024)
Construction Cost Estimation	$180,543,135 (ie $51,372/m2)	$170,564,000 (ie $48,506/m2)
Professional Fee	6%
Development Period	Demolition Period: 0.75 year Construction Period: 2.25 years

Construction Cost

136.Both Mr C K Lau and Mr Patrick Lai referred to the actual cost of development of Aruna at $64,901 per sq m and that of Upper South at $58,050 per sq m.

137.However, Mr Patrick Lai considered such actual costs not relevant because the construction costs in the two Authorized Person’s Certificates were agreed in around 2022 and 2018 respectively. On the other hand, Mr C K Lau made time adjustments by reference of the Tender price Index published by Rider Levett Bucknall Limited (ie RLB).

138.Having reviewed the above, I find Mr C K Lau’s approach more persuasive especially in light of gradual increasing trend of the construction cost which was agreed by Mr Patrick Lai.

Development Profit

139.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.

140.By reference to the Modern Methods of Valuation by Eric Shapiro, David Mackmin and Gary Sams, 12^th Ed, 2019, Routledge at p222, the development profit as required in a residual valuation is described as follows:

“As for any risky enterprise a profit is required to compensate for risk. Target levels of profit will depend on the nature of development and allied risk, the competition for development schemes in the market, the period of the development and the general optimism in relation to that form of development …”

141.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.

142.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, e.g. Government or corporate bonds which are supposed to have no risk.

143.As said, there are always risks associated with any investment particularly when the capital to be incurred is rather substantial, as with a real estate development. A developer undertaking such development will seek to make a reasonable profit out of his investment. The profit is the gross profit to the developer before meeting the developer’s general overheads and tax. While this profit is sometimes related to the value of the project, it is more appropriate to relate the same to the costs to be injected in the project and is equivalent to profit margin or return of capital.

144.Reverting to the present case, Mr Patrick Lai proposed a profit margin of 15%. With respect, this might be too low in the prevailing development climate when the domestic property market is in the doldrums and the Government affirms that there is an oversupply of domestic flats in the short period. In such regard, I prefer to adopt Mr C K Lau’s 18%.

Interest Rate

145.While interest and finance on borrowings do not normally appear in a formal discounted cash flow individual project appraisal, but when it does occur in practice, the implicit assumption is made of 100 per cent financing of both costs and land value. This is the case in residual valuation which is often regarded as a short form of discounted cash flow exercise[37].

146.The finance is rolled up through the development and deducted from the development proceeds at the end of the development (or before if the development is deemed to go into profit before the development appraisal period is completed). The application of this valuation approach also allows profit to be identified at the end of the development as a single lump sum that is then often tied to the GDV or the overall costs of the development as a simple percentage of GDV or costs.

147.The rate of interest depends on the prevailing rates being charged and will also vary with the status of the borrower and the risks attached to the development scheme. The table below shows the HKD Interest Settlement Rate on the first working day of the previous months:

Month	1 Month	3 Months	12 Months
January 2025	4.18292	4.20393	4.15000
February 2025	3.73589	3.76839	3.92583
March 2025	3.87226	3.97441	4.10357
April 2025	3.62560	3.83131	4.03387
May 2025	3.98363	4.01399	4.07083
June 2025	0.88893	1.70786	3.02679
July 2025	0.72958	1.70589	2.90869
August 2025	0.99310	1.61821	2.78976
September 2025	3.15345	3.19226	3.17976

148.Bearing in mind the movements of interest rate, I prefer the interest rate of 5.25% proposed by Mr C K Lau.

149.Thus on the basis of the above discussion, my residual valuation is set out in Appendix 1 of this judgment.

150.I have arrived at a residual land value of $238,000,000 or an accommodation value of $67,721 per sq m. This will be the reserve price if an order for sale of the Lot be granted.

Whether Redevelopment of the Lot is Justified on “Age” or “State of Repair”

151.Section 4(2)(a) of the Ordinance stipulates that the Tribunal shall not make an order for sale unless it is satisfied that redevelopment of the Lot due to the “age or state of repair” of the Building is justified. In such regard, the applicant had adduced the expert evidence of Mr Wong, the building surveyor and the late Mr So Kin Shing, the structural engineer.

152.The late Mr So Kin Shing had conducted a structural assessment of the Building and prepared a report dated 30 June 2023. He found the following defects in the Building[38]:

(1)  Visual inspections showed there being a total of 140 numbers of structural elements in the Building exhibiting defects in the form of spallings and cracks, 11 of which was found in Flat A, 7/F and 7 of which was found in Flat B, 7/F;

(2)  Cover-meter survey revealed that 3 out of 5 (or 60%) column samples and 2 out of 5 (or 40%) slab samples did not comply with the required concrete cover so as to (1) protect the embedded steel reinforcement bars against corrosion, (2) protect the bars against fire, and (3) provide sufficient depth of concrete for the safe transmission of bond forces. The inadequacy was particular serious for the columns[39] and slabs[40] on 7/F;

(3)  Carbonation depth test results revealed that carbonation has penetrated past the concrete cover of 3 out of 5 (or 60%) column samples, all beam samples and slab samples. This means the alkaline environment in many of the concrete covers which gives protection to the reinforcement bars in the structural members against corrosion has been destroyed and steel bars in these structural members must have been caused to corrode;

(4)  Compression tests revealed that the concrete strength of 3 out of 5 (or 60%) column samples and 3 out of 5 (or 80%) beam samples did not comply with the requirement, as a result of which, the structural capability of the columns and beams of the Building may not be sufficient to resist their intended loads or forces;

(5)  Cement content tests revealed that 1 out of 5 (or 20%) column samples failed to fulfill the requirement, meaning that the durability of the concrete of some columns in the Building have been impaired, increasing the risk of corrosion of the embedded steel bars.

(6)  Chloride content tests showed that 1 out of 5 (or 20%) beam samples and 3 out of 5 (or 60%) slab samples had the chloride content exceeded the 0.35% limit, which demonstrated an increased risk of corrosion of the embedded steel reinforcement bars in the reinforced concrete structural members;

(7)  Corrosion (open up) surveys revealed all columns, beams and slabs exhibited rust of various magnitudes and suffered from reduction in their cross-sectional areas due to corrosion:

Column Sample	Description	Details
16-24-7F-C (C14, 7/F)	Bar Ref	1	2	A	B
	Corrosion Grade	3	3	3	3
	Reduction in Area (%)	8.57	8.40	7.75	8.32
	Nominal Dia (mm)	6.35	6.35	19.05	19.05
16-24-6F-C (C2, 6/F)	Bar Ref	1	2	3	A	B	C	D
	Corrosion Grade	3	3	3	3	3	3	3
	Reduction in Area (%)	7.25	7.71	8.65	8.89	7.96	7.44	9.28
	Nominal Dia (mm)	9.53	9.53	9.53	28.58	28.58	28.58	28.58
16-24-5F-C (C17, 5/F)	Bar Ref	1	2	3	4	A	B	C
	Corrosion Grade	3	3	3	3	3	2	3
	Reduction in Area (%)	7.15	8.86	8.75	7.62	7.41	4.69	7.32
	Nominal Dia (mm)	6.35	6.35	6.35	6.35	19.05	25.40	19.05
16-24-3F-C (C5, 3/F)	Bar Ref	1	2	3	A	B	C
	Corrosion Grade	2	2	2	2	2	2
	Reduction in Area (%)	4.12	4.67	3.96	4.21	4.13	3.72
	Nominal Dia (mm)	9.53	9.53	9.53	31.75	31.75	31.75
16-24-2F-C (C14, 2/F)	Bar Ref	1	A	B
	Corrosion Grade	2	3	2
	Reduction in Area (%)	4.19	8.96	4.39
	Nominal Dia (mm)	6.35	25.40	25.40

Beam Sample	Description	Details
16-24-7F-B (RB22, R/F)	Bar Ref	1	2	A
	Corrosion Grade	3	3	3
	Reduction in Area (%)	7.38	8.59	9.33
	Nominal Dia (mm)	15.88	15.88	9.53
16-24-6F-B (F7B3, 7/F)	Bar Ref	1	2	A	B	C	D
	Corrosion Grade	3	3	3	3	3	3
	Reduction in Area (%)	8.51	8.74	7.07	7.86	8.19	7.05
	Nominal Dia (mm)	28.58	28.58	9.53	9.53	9.53	9.53
16-24-5F-B (F6B28, 6/F)	Bar Ref	1	2	A
	Corrosion Grade	3	3	3
	Reduction in Area (%)	6.45	8.20	7.34
	Nominal Dia (mm)	19.05	15.88	9.53
16-24-3F-B (F4B15, 4/F)	Bar Ref	1	2	A
	Corrosion Grade	4	3	4
	Reduction in Area (%)	14.32	7.93	13.62
	Nominal Dia (mm)	12.70	12.70	9.53
16-24-2F-B (42B25, 3/F)	Bar Ref	1	2	3	A	B	C	D
	Corrosion Grade	3	3	3	3	3	3	3
	Reduction in Area (%)	7.84	8.15	8.35	7.21	9.26	8.45	8.58
	Nominal Dia (mm)	22.23	19.05	22.23	9.53	9.53	9.53	9.53

Slab Sample	Description	Details
16-24-7F-S (RS1, R/F)	Bar Ref	1	A	B	C	D
	Corrosion Grade	4	4	4	4	4
	Reduction in Area (%)	16.14	18.15	17.48	13.52	14.53
	Nominal Dia (mm)	6.35	9.53	9.53	9.53	9.53
16-24-6F-S (S8, 7/F)	Bar Ref	1	2	3	A	B
	Corrosion Grade	4	4	4	4	3
	Reduction in Area (%)	23.36	18.29	17.15	15.75	8.58
	Nominal Dia (mm)	6.35	6.35	6.35	9.53	9.53
16-24-5F-S (S2, 6/F)	Bar Ref	1	2	A	B	C
	Corrosion Grade	3	3	3	3	3
	Reduction in Area (%)	9.28	7.66	9.52	9.35	6.70
	Nominal Dia (mm)	6.35	6.35	9.53	9.53	9.53
16-24-3F-S (S20, 4/F)	Bar Ref	1	2	A	B
	Corrosion Grade	3	2	3	3
	Reduction in Area (%)	9.09	3.49	7.83	8.33
	Nominal Dia (mm)	9.53	9.53	9.53	9.53
16-24-2F-S (S9, 3/F)	Bar Ref	1	2	A	B	C
	Corrosion Grade	3	3	3	3	3
	Reduction in Area (%)	7.53	7.38	6.81	7.83	8.94
	Nominal Dia (mm)	9.53	9.53	9.53	9.53	6.35
Average reduction in area:		11.4%

153.In addition, raised floors are installed at 12 out of 42 flats of the Building[41]:

Floor	Unit(s)
1/F	Flats B, C and E
2/F	Flats E and F
3/F	Flats B and F
4/F	Flat E
5/F	Flats A and F
6/F	Flats F
7/F	Flat A

154.These would very likely be imposing additional loads on the structural elements as well as the foundations of the Building.

155.In response, Dr Liu made the following remarks:

(1)  The structural defects identified by late Mr So Kin Shing were minor. The cost estimate for repairing the structural defects had been reduced by late Mr So Kin Shing to $399,600. As a result, the costs which might be shared by the 48 units of the Building would become HK$9,475 each.

(2)  Appendix V of Code of Practice of MBIS and MWIS has already provided a guideline for the repair of reinforced concrete. Therefore, to carry out proper repair according to MBIS/MWIS and removal of all the identified UBWs can reduce the rate of deterioration of the Building.

(3)  By reference to the Paper ISSH08/20-21 published by the Research Office of Legislative Council Secretariat on building management in Hong Kong, there are more than 6,996 numbers (which is about 20%) of private residential buildings with age more than 50 at the end of 2019[42]. According to Dr Liu, they are all being occupied and served their intended design purpose properly.

(4)  Old buildings, when they are subject to proper repair and maintenance, the safety and stability issues should not be a problem.

(5)  Only one column sample, being 16-24-7/F-C (C14, 7/F) has all 6 measurements not complying with the required concrete cover of 38.1mm[43]. Similarly, there was only one column sample (16-24-6F-C C2, 6/F) that contained cement content lower than 20%. Even one beam sample and three slab samples had chloride content exceeding the value of 0.35%. Dr Liu considered they were just isolated cases. More particularly, having a high chloride content does not necessarily mean corrosion would take place. For instance, from the open-up inspection, the reinforcement bar bearing the high-chloride sample was only in Corrosion Grade 3 with loss of section of 7.66% only which was even less than the other reinforcement bars[44].

(6)  While the process of carbonation is irreversible, there are possible ways to improve the concrete:

(i)  to remove the carbonated concrete and re-patch with waterproof cementitious concrete repair mortar; or

(ii)  to cover the concerned surface by proprietary material with good waterproofing characteristics.

156.From the test results, Mr But also submitted that since concrete cover is just half inch thick by design (especially for slabs), and that the carbonation depth has already been about 2.1 times to 4 times thickness of concrete by now[45], it is most likely that carbonation has already reached the steel bars quite a long time already sometime after completion of the Building, say in the 1980s. He found support from the corrosion tests which indicate the steel bars are mainly in “Grade 3”. This means that despite the reinforcement bars were exposed to a less alkaline medium for decades, the chemical reaction rate of corrosion taking place in the reinforcement bars has all along been very slow (ie from Grades 1-2 to Grade 3) in a period of about 40 years. Maybe Mr But is correct but most of the reinforcement bars in the slabs on 7/F are in Corrosion Grade 4. Apparently, the more severe corrosion taking place on these top floor slabs were caused by the water seepage from the defective waterproofing layer of the roof.

157.On the other hand, Dr Liu had argued that by applying a factor of 0.75% to the required concrete strength pursuant to Clause 10.3.4.3(e)(iii) of Code of Practice for Structural Use of Concrete 2013 (“Concrete Code 2013”) [46], all 5 tested column samples and all 5 tested beam samples complied with the requirement. Clause 10.3.4.3(e)(iii) of the Concrete Code 2013 reads as follows:

“For any set of cores representing a test location, the estimated in-situ cube strength of each core specimen should be at least 75% of the specified grade strength and the average estimated in-situ cube strength of the set should be at least 85% of the specified grade strength. In this respect, the estimated in-situ cube strength of each core specimen should be calculated in accordance with CS1.”

Column (Required Concrete Strength: 19.5 MPa)

Sample	Measured Value (MPa)	0.75 x Required Concrete Strength = 14.63 MPa
16-24-7F-C (C14, 7/F)	21.0	21.0 > 19.5
16-24-6F-C (C2, 6/F)	16.0	19.5 > 16.0 > 14.63
16-24-5F-C (C17, 5/F)	15.5	19.5 > 15.5 > 14.63
16-24-3F-C (C5, 3/F)	23.0	23.0 > 19.5
16-24-2F-C (C14, 2/F)	15.5	19.5 > 15.5 > 14.63
	Average value: 18.2 MPa > 16.56 MPa = 0.85 x Required Concrete Strength

Beam (Required Concrete Strength: 15.0 MPa)

Sample	Measured Value (MPa)	0.75 x Required Concrete Strength = 11.25 MPa
16-24-7F-B (RB22, R/F)	17.0	17.0 > 15.0
16-24-6F-B (F7B3, 7/F)	13.0	15.0 > 13.0 > 11.25
16-24-5F-B (F6B28, 6/F)	12.5	15.0 > 12.5 > 11.25
16-24-3F-B (F4B15, 4/F)	14.5	15.0 > 14.5 > 11.25
16-24-2F-B (42B25, 3/F)	12.5	15.0 > 12.5 > 11.25
	Average value: 13.9 MPa > 12.75 MPa = 0.85 x Required Concrete Strength

158.Dr Liu also stated that majority of the reinforcement bars samples at slabs, beams and columns of the Building had Corrosion Grade 3 (Mild Corrosion: general rusting and loss of section less than 10%) or better save a only few were classified as Grade 4 (Moderate Corrosion: general rusting and less of section between 10% to 30%).

159.Nevertheless, in the Legislative Council Brief on the Land (Compulsory Sale for Development) (Amendment) Bill 2023[47], the new bill which has become the Ordinance in December 2024 was introduced with a view to expediting redevelopment of old and dilapidated buildings by private sector so as to improve people’s livelihood in addition to tackle the safety risk of those buildings. It stated, for instance:

“2. …the number of aged buildings has been increasing at a faster pace. According to the Buildings Department (“BD”)’s record, the number of private buildings1 aged 50 or above significantly increased from 4 500 to 9 600 in the past decade (i.e. an average increase of 510 per annum). The number is projected to rise further to 15 800 in 2032 and 22 900 in 2042, which is close to 2.5 times the number in 2022. The pace of redevelopment of old and dilapidated buildings fails to catch up with the rapidly ageing building stock in Hong Kong. There is an imminent need to encourage greater private sector participation in redevelopment of old and dilapidated buildings.

3. The buildings in Hong Kong are generally guided by the assumption of a design working life of 50 years. This does not mean a building must be redeveloped once it reaches 50 years of age. Instead, it means that if a building exceeding the design working life is not properly maintained and repaired, its conditions may rapidly deteriorate, leading to safety concerns…. The Government will continue to promote building rehabilitation through multi-pronged measures. However, there is a limit as to how aged and dilapidated buildings could be repaired in extending the life span. For some aged buildings, redevelopment is a more practical option….”

160.Dr Liu went the wrong way when he suggested that the latest concrete code or its requirements are not applicable to the Building which was designed and built in 1966. With respect, Dr Liu failed to realize that the objective of the Ordinance is to facilitate urban renewal and redevelopment instead of being another ordinance on building safety or stability. The preamble of the Ordinance reads as:

“An Ordinance to enable persons who own a specified majority of the undivided shares in a lot to make an application to the Tribunal for an order for the sale of all of the undivided shares in the lot for the purposes of the redevelopment of the lot.”

161.As well, Dr Liu had not paid heed to the views of the Tribunal on the issue of age and state of repair of the existing development on a lot subject to a compulsory sale application.

162.In Pacific Base Holdings Limited & Others v Lee Hop Biu & Others, LDCS 14000/2017 (unreported, dated 4 June 2020), the Tribunal stated in §119 of the judgment that:-

“119. Indeed, the Tribunal in Intelligent House Ltd v Chan Tung Shing & Others [2008] 4 HKC 421 at paras 130-151, rejected the minority’s submission that the Tribunal would only investigate whether the state of repair was so bad that it could not be repaired or that it was dangerous to public health and safety such that it ought to be demolished. And in Fortress Jet Limited & Others v Tang Hoi Yip and Cheung Sau Chan Property Limited & Others, LDCS 3000/2015 (unreported, dated 11 August 2017), the Tribunal made this ruling at para 37 of the judgment:

“We agree that the requirement that the Buildings have to become ‘dangerous’ for giving the order for sale is not consistent with the wording and intention of s4(2)(a)(i) of the Ordinance where the statutory requirement is whether ‘redevelopment is justified owing to age or state of repair of the existing development’.”” (underline added)

163.Then in Fancy Million Limited & Others v Year Glory Limited & Others, LDCS 15000/2018 (unreported, 23 November 2021), the Tribunal had the following to say:-

“100. In Able Luck Development Limited & Others v Public Global Investments Limited & Others, LDCS 7000/2014 (unreported, dated 6 October 2017), the Tribunal had already ruled that similar reliance on the requirement for the Mandatory Building Inspection Scheme (“MBIS”) projects to support the argument that patch repair is sufficient or certain repair works are not necessary in order to satisfy safety requirement of the Buildings Department is unjustified. The repair standard of MBIS developed from the Buildings Ordinance and Regulations is only concerned with safety and hygienic aspects of buildings and its scope of work is rather limited and the owners are only required to repair to the standard applicable at the time when the building was built.

101. The Tribunal agreed with the findings in Intelligent House Ltd v Chan Tung Shing & Others [2008] 4 HKC 421 that for redevelopment under the Ordinance, the Tribunal is entitled to “look at repairs which would render the building to a tenantable condition fit for the enjoyment of its tenants and visitors, which is reasonable in the present day circumstances for the type of building in question” (at §182). Such a consideration is apparently not canvassed by MBIS which only aimed at restoring safety to the buildings.

102. In short, the standard under the Mandatory Inspection regimes concern the safety and health of the buildings. No consideration is given to the question of redevelopment. It is a lower standard when compare with the tenantable condition.

103. More recently, in Success Active Limited v Harbourview international Holdings Limited & Others, LDCS 31000/2018 (unreported, 19 April 2021), the experts on behalf of the respondents in that case also claimed that the buildings at 472-478 Chatham Road North were not suffering from physical and functional obsolescence on the basis of the prevailing state of repair and building conditions. They also added that the buildings were not dilapidated as there was no outstanding MBIS order for both Nos 476-478 Chatham Road North although the building at 474 Chatham Road North was subject to both MBIS and Mandatory Window Inspection Scheme notices issued by the Buildings Department on 18 September 2019. To conclude, the experts emphasized that the buildings were safe, not dangerous or imminently dangerous by reference to the Operation Building Bright and MBIS.

104. Then the Tribunal remarked that if the intent of the Ordinance is to permit redevelopment only when the age or state of repair renders the building a serious threat to public and residents’ safety, there is no reason why the particular section(s) was not worded to reflect the same. The Tribunal did not agree that the buildings have to become dangerous before an order for sale can be made. Such is not consistent with the wording and intention of section 4(2)(a)(i) of the Ordinance where the statutory requirement is whether “redevelopment is justified owing to age or state of repair of the existing development”.

105. Then in the Joint Expert Statement on Condition Survey, Mr B Wong repeated his view as stated in his Condition Survey Report dated 10 June 2020 that since the completion of the Building, newer versions of the Buildings Ordinance and related regulations have been enacted with the objectives to improve the safety and/or hygiene of buildings in Hong Kong. Professor Chan just fell into the same trap of the respondents in Success Active Limited in commenting that there is no provision in the Buildings Ordinance and related regulations requiring the old buildings to comply with the current standards. Professor Chan has mixed up the purpose of the Buildings Ordinance and the Ordinance. In the preamble or long title of the Building Ordinance, its purposes are stated

“To provide for the planning, design and construction of buildings and associated works; to make provision for the rendering safe of dangerous buildings and land; to make provision for regular inspections of buildings and the associated repairs to prevent the buildings from becoming unsafe; and to make provision for matters connected therewith.”

106. In contrast, the preamble of the Ordinance states as follows:

“An Ordinance to enable persons who own a specified majority of the undivided shares in a lot to make an application to the Tribunal for an order for the sale of all of the undivided shares in the lot for the purposes of the redevelopment of the lot; to enable the Tribunal to make such an order if specified criteria are met; and for matters incidental thereto or connected therewith.”

107. More particularly, as the then Chairman of the Land Development Corporation (“LDC”), the predecessor of the Urban Renewal Authority (“URA”) put it in the Bills Committee Meeting on the Bill (which later became the Ordinance) on 19 February 1998, the objects of the Bill was to expedite urban renewal. “He related to members the many obstacles experienced by LDC over the past ten years in undertaking redevelopment projects including title problems, resistance from individual owners, rehousing problem and costs of compensation. The difficulties in settling disputes over valuation which was subjective to a certain extent warranted particular attention. … LDC projects aimed at achieving comprehensive development, whereas the Bill was intended to facilitate ad hoc redevelopment of smaller lots…” This purpose of the Ordinance is recently echoed by the Court of Appeal in Pacific Base Holdings Limited & Others v Lee Hop Biu & Others, CACV 426/2020 (unreported, dated 31 May 2021) at §36:

“… and given the public interest in the facilitation of urban renewal and the interest of the majority owners in the realization of the redevelopment potential of their proprietary interests in the lot, it is plain to us that the scheme under the LCSRO serves legitimate aims.”

108. Indeed, there has not been any evidence that the many properties identified by the URA for redevelopment had the age or state of repair rendering a serious threat to public and residents’ safety. In any event, Professor Chan agreed that many of the functional obsolescence suggested by Mr B Wong are related to substandard building services provisions.” (underline added)

164.Lately, in Century Supreme International Limited v Kam Chi Kit Charles and Hui Pui Kuen & Others, LDCS 24000/2018 (unreported, 21 January 2022), the Tribunal repeated its observation above as follows:

“50. In our view, since the Ordinance does not specify any particular age of the building that merits redevelopment, nor does the Ordinance indicate what state of repair of the building would justify redevelopment, the two factors despite being put in the alternatives in section 4(2)(a) must be related as they both relate to the physical state of the building in question. To discuss whether “age” and “state of repair” are two separate grounds does not serve useful purpose.

51. As for whether a general test is needed, in our opinion, the respondent’s proposition that it was not necessary to formulate a general test for state of repair would not further the respondents’ case because such proposition does not entail the conclusion that the assessment could be done in a vacuum. Whilst each case must depend on its own facts, there is a set of factors which are always relevant to the tribunal’s exercise of its discretion in this regard. In Top Sail International Limited v Cheng Kai Ming, Executor of the Estate of Chan Hue also known as Chan Sum Hiu, Deceased, the tribunal acknowledged that factors such as physical age, physical conditions and the obsolete design of a building are all pertinent to the issue of whether redevelopment is justified on the ground of the age of the building…

52. The same set of criteria was adopted by the tribunal in Charmlink Limited v Lee Tong Hing and Others which aptly demonstrate that obsolescence and maintenance costs are relevant consideration…

…

62. As rightly observed by the tribunal in Pacific Base Holdings Limited and Others v Lee Hop Biu and Others, the Court of Appeal in Fineway actually did not make any adverse comment on the standard of “tenantable condition” or other related considerations as discussed above. Putting aside the different labels of “habitable standard” and “tenantable standard”, the tribunal in previous cases has approached the matter consistently and has essentially considered the same or similar set of factors when the age and state of repair of a building came to be assessed.

63. In our view, Fineway as properly construed and comprehended, does not assist the respondents in attacking the consideration of obsolescence and the adoption of the tenantable standard in assessing whether the statutory criterion of “age or state of repair” is satisfied.

64. Premised on the above discussions, we now specifically answer Mr Ho's challenge to the tenantable condition standard as summarised in paragraph 46 above. Mr Ho considers that standard deficient because it requires comparison of a building subject to a compulsory sale application (constructed some 50 years ago) with what are reasonably expected of in modern-day standard. In his view, such comparison is wrong because:- (1) old building must fall short of a building built in modern-day standard and will not be able to satisfy the tenantable condition standard any way; and (2) on the natural and ordinary meaning of the phrase "state of development of the existing development on the lot" in section 4(2)(a) of the Ordinance, since it makes no mention of any other building, the tribunal should focus on the state of repair of the subject building rather than making comparison with other developments.

65. With respect, we cannot agree to this view. In relation to point (1), whilst it may bear some truth to say that generally old buildings would fall short of buildings constructed in modern-day standard, it is a misconception to think that whenever the subject building is found to be inferior than modern buildings, then the tribunal must reach the conclusion that redevelopment is justified. To what extent the existing building falls short of modern-day standard certainly is one of the considerations to be taken into account. To suggest that in the evaluation exercise under section 4(2)(a), the tribunal must strictly confine its scope of vision to the subject building and must ignore the current living standard as demonstrated by more up-to-date buildings is just like sticking to the beaten track and resting complacently on one's laurels. In relation to point number (2) (i.e. natural and ordinary meaning of the phrase in section 4(2)(a)), whilst it is true that the phrase does not mention any building other than the subject building, it is clear that the words “redevelopment” and “justified” in section 4(2)(a) provide the context against which the grounds of “age” and “state of repair” could be assessed. Therefore, in considering whether it is “justified” to demolish and replace the existing building with a new development, the court certainly could compare the state of the existing building with what a new building could provide. To suggest otherwise is to limit our own progress in achieving betterment.

…

90. … As a matter of principle and policy, the Ordinance was passed for the purpose of assisting assembly of land for redevelopment which is plainly for improvement of the environment. It makes more sense to say that in considering the age and state of repairs, one should put emphasis on or at least be receptive to the up-dating of the environment rather than being gratified by a mere satisfaction of the minimum safety requirement for the public and the occupiers. Having considered all the evidence available with or without the application of any particular test, we are satisfied that redevelopment is justified by reason of the age or state of repair of the Building.” (underline added)

165.Lately, in Asia Rich Incorporation Limited and Others v Li Kam Wah, the Administrator of the Estate of Ma Kwai Fa, Deceased and Others, LDCS 15000/2019 (unreported, 1 February 2023), the Tribunal had set out the following principles with regard to “the age or state of repair of the existing development” under the Ordinance:

(i)  The starting point is that the existing building does not have to become dangerous before an order for sale can be made. (§58)

(ii)  In the assessment under the Ordinance, structural engineering expert should not rely on mainly the average value(s), but should also examine and review the weakest point(s) of the structural frame. Even if parts of the survey results are above standards these cannot assist to infer that the overall condition of the building should be acceptable. A few defects could lead to an unacceptable condition. (§60)

(iii)  The comparison with the 2013 Concrete Code, which had then newly addressed robustness and ductility, is relevant and should be one of the considerations because it can review to what extent the existing building falls short of modern-day standards. However, one should not put much reliance on such comparison in the assessment because all buildings built before the promulgation of this code would generally not be in compliance. The same principle also applies to the comparison with design working life because all buildings over 50 years would very likely have passed their design working life too. (§63)

(iv)  Although structural form and details of a building have already allowed some basic provisions of robustness and ductility, more stringent requirements of robustness and ductility are necessary, and the ETABS test, a computer model that shows the lateral deflection under codified wind load, cannot assess robustness and ductility effectively because this model can prove mainly the requirements of deformations due to wind load only. (§64)

(v)  The reliance of Mandatory Building Inspection Scheme (“MBIS”) is misplaced. Compliance with MBIS if any cannot be taken to mean that the building’s physical life would be automatically extended for 10 years after completing the relevant works as required under the scheme. Government control like MBIS may sometimes set the minimum requirements only, and these minimum requirements can never be assumed as a guarantee of the building condition before the next enforcement date. (§65)

166.As stated by the late Mr So Kin Shing, the locations for the concrete cover survey were taken at random on structural elements of the Building which did not exhibit any structural defects such as spalling or cracking and the test results should be representative to reflect the general condition of the concrete cover of the Building. Therefore, the adverse test results should not be considered as an isolated case. It is regretted that Dr Liu had not even formulated any repair to address the question of inadequate concrete cover found in the Building.

167.As regards the carbonation of the concrete, having heard so many compulsory sale applications, I agree with the opinion of the late Mr So Kin Shing that there is no generally accepted method that can stop the continuing process of carbonation and corrosion of the concrete of the structural frame. Although applying a coat of “elastomeric cementitious waterproof coating” on the concrete faces of the whole of the structural frame may theoretically slow down the carbonation process, this would require the removal of all the internal finishes and external rendering covering the whole of the structural frame to expose all of its concrete faces. This is very expensive and disturbing to occupiers and thus may not be considered by many to be practical.

168.According to the late Mr So Kin Shing, Clause 10.3.4.2 of the Concrete Code 2013 only concerns only “Concrete Cube Tests During Construction”. This clause, as relied on by Dr Liu, is not applicable to the investigation of concrete strength for existing reinforced concrete buildings. Clause 10.3.4.2(b) reads as follows:

“Acceptance Criteria

The specified grade strength for concrete shall be deemed to have been attained if the individual test results and the average results of all overlapping sets of 4 consecutive test results comply with the criteria specified in Table 10.2. If the requirements are not satisfied by any test results, investigation shall be made to establish whether the concrete represented by the test result is acceptable or not.

Specified Grade Strength	Compliance Criteria	Column A		Column B
		Average of 4 consecutive test results shall exceed the specified grade strength by at least		Any individual test result shall not be less than the specified grade strength minus
		150 mm Cubes	100 mm Cubes	150 mm Cubes	100 mm Cubes
C20 and above	C1	5 MPa	7 MPa	3 MPa	2 MPa
	C2	3 MPa	5 MPa	3 MPa	2 MPa
Below C20	C1 or C2	2 MPa	3 MPa	2 MPa	2 MPa

Table 10.2 - Compressive Strength Compliance Criteria ”

169.Clause 10.3.4.3 concerns “Further testing”. The late Mr So Kin Shing referred to Clause 10.3.4.3(a) which precedes Clause 10.3.4.3(e)(iii) stated which is stated in §157 above:

“When concrete is considered to be suspect from visual inspection, or when the specified grade strength has been deemed not to be attained under clause 10.3.4.2(b), the compressive strength of the concrete in the structure may be determined by drilling a sufficient number of cores from the concrete at suitable locations.”

170.The late Mr So Kin Shing further considered Clause 10.3.4.3(e)(iii) not applicable because in the present case, there are 3 out of 5 tested column samples and 4 out of 5 tested beam samples not complying with the concrete strength requirement. The compressive strength of the concrete in the structure has to be determined by drilling a sufficient number of cores from the concrete at suitable locations.

171.On the basis of the above, I find the late Mr So Kin Shing’s argument persuasive. I agree with him therefore that: “The structural capability of the columns and beams may not be sufficient to resist their intended loads or forces”[48].

172.Even Dr Liu agreed that insufficiency in concrete compressive strength cannot be rectified by repair.

173.Similarly, cement content is one of the major factors which affect both the compressive strength and durability of concrete. Dr Liu agreed though he insisted that there was no sign of distress, large crack and large deflection on the structural elements.

174.Dr Liu also argued that the test method for cement content is appropriate only for new concrete. The late Mr So Kin Shing responded that the test method and evaluation of cement content has been performed in accordance with Construction Standard CS1:2010 (“CS1”). Volume 2 of CS1 sets out methods of determining the physical properties of hardened concrete and the sampling and chemical analysis of hardened concrete. There is no mentioning that the CS1 is only appropriate for new concrete but not for old concrete:

“This Construction Standard has been prepared by the Working Group on Review of CS1 under the Standing Committee on Concrete Technology, Development Bureau, the Government of the Hong Kong Special Administrative Region. This Construction Standard supersedes CS1:1990. It sets out methods and procedures to be adopted for sampling and testing concrete both on site and in the laboratory.”[49]

175.In addition, Dr Liu’s allegation of test method of cement content not appropriate for aged buildings was premised on the assumption that calcium oxide in concrete may leak away for a long period of exposure, leading to underestimation of the cement content. The late Mr So Kin Shing responded that the testing for cement content requires the crushing of a concrete core sample extracted from the structural element, which is of 75 mm in diameter and about 100 mm long. Also, the outer end of the core sample is protected from exposure by plaster. There is no question of “calcium leaching” [50]. As this being the case, the further allegation by Dr Liu that the chloride content of aged concrete could be overestimated because its cement content may be underestimated is refuted.

176.In any event, Dr Liu suggested that the most reliable means to quantify the state of corrosion of the embedded steel bars are to conduct an open up inspection and direct measurement of the loss of steel area. Indeed, such had been carried out but found that:

(i)  all 27 exposed bars in columns were corroded with loss in sectional area ranging from 9.28% to 3.72%,

(ii)  all 22 exposed bars in beams were corroded with loss in sectional area ranging from 14.32% to 6.45%, and

(iii) all 24 exposed bars in slabs were corroded with loss in sectional area ranging from 23.36% to 3.49%.

177.More particularly, most of 7 bars in slabs on 7/F and Roof suffered from loss of sectional area of more than 15%.

178.The late Mr So Kin Shing stated that it might not be practical to open up the concrete of all structural elements to treat the corrosion of the steel bars. Dr Liu, in his Rebuttal Report dated 2 February 2024, suggested at §14.8 that “(i)n order to further reduce or stop the rate of steel corrosion of the Building, (he) would suggest to apply a layer of waterproofing cementitious coating and external painting/tiling on the repaired concrete surfaces to stop water or water moisture penetrating into the inner parts of the concrete.”

179.However, Dr Liu might have forgotten that he only recommended to repair identified defects only, ie those minor reinforcement bars in slab with cross-section loss of more than 15%. He might have overlooked that the test locations of the open up inspection are supposed to be representative of the condition of the embedded steel bars. The results of the open up inspection should reflect the general corroding condition of the steel bars of all the structural elements. The corrosion, left untreated in the Hong Kong high humidity environment, is bound to progressively getting worse. This is particularly the case for the Building which is located close to the seashore.

180.If Dr Liu’s suggested coating was meant to apply to the concrete surface of all the structural elements, it would mean that all the tiling/renderings of the slabs, beams and columns of the Building would have to be removed to enable the coating to be applied. To do so would be disturbing, expensive and not practical. I am afraid that Dr Liu’s arguments were too theoretical and are not applicable to the present case.

181.Mr. Wong, in his Condition Survey Report also dated 30 June 2023 stated that:

a.  The Building was built in 1966 and is 59 years old. It is structurally aged as with regard to durability provisions. The Building’s structure is considered to have passed the end of its design working life.

b.  The Building is also aged functionally as it has been suffering from the following aspects of functional obsolescence:

(i)  The design and construction of the structural frames had only complied with the less stringent structural requirements applicable more than 50 years ago resulting in no improvement of the robustness of the structural frames in resisting disproportionate collapse due to accidents[51].

(ii)  The fire services installation is sub-standard when only 1 out of the 4 shops inspected had not been provided with sprinklers. Even though sprinklers heads are installed to the other 3 shops, the sprinklers system to those shops are not complete as no sprinkler tank is provided and the sprinkler heads are not covered all parts of the shops. This is particularly the case when these shops are occupied by vehicle service garages, hardware stores and engineering workshops etc.

(iii)   There is no secondary electricity supply system to support the essential fire service systems in the Building. According to paragraph 1.8 of the Code of Practice for Minimum Fire Service Installations and Equipment 2022 (“FSI Code 2022”), a secondary electricity supply system is required to support the essential fire service systems for the Building.

(iv)   The fire escape arrangements for the Building are unsatisfactory when no directional and exit signs are provided to indicate the location of protected exits as required under Clause B5.10 in the Code of Practice for Fire Safety in Buildings 2011 (“Fire Safety Code 2011”).

(v)  The fire resisting construction is outdated when the existing concrete cover thickness of beam is 25.4mm and that of floor slab is 12.7mm, which are less than the currently required thickness of 30mm for beam and 20mm for floor slab. As well, the existing flat entrance doors on the upper floors of the Building are not fire rated doors and the existing electrical installations and wirings installed to the staircases and corridors of the Building are either defective with deformed, loosed, missing panels, or exposed thereby posing fire hazards to the fire escape.

(vi)  The Building has no barrier free access facilities such as an accessible lift and an accessible ramp.

(vii)  Equipotential bonding connections are only partially provided to the metal handrails and windows in the staircases and corridors of the Building but not to other exposed metal fixtures of metal gates and water pipes as well as to those inside the private units.

(viii)  The Building has no lightning protection system installed on the roof to protect its occupants and building parts from lightning strikes.

(ix)  The Building is not provided with any building management systems[52].

182.Mr Wong referred to a paper of the Subcommittee on Land (Compulsory Sale for Redevelopment) (Specification of Lower Percentage) Notice – Profile of Old Buildings in Hong Kong dated 19 February 2010 which stated as follows[53]:

“2. In Hong Kong, the design working life of an ordinary building is 50 years. The older the physical age of a building, the more likely it is fraught with building condition problems requiring attention over time. Rehabilitation will help extend the working life of buildings. Redevelopment remains an effective tool to tackle the problem of urban decay in the long run.

…

8. While building age is certainly not a conclusive indicator for redevelopment, nonetheless, it remains a fact that older buildings are more prone to building maintenance problems….”

183.On the other hand, Mr John Lau was provided with some relevant information, including survey record, tendering information and document and fund raising record of a comprehensive renovation works for the Building which were completed in 2014[54]. Whereas the amount spent was in the region of $3,000,000, key scope of works of the project included but were not limited to[55]:

(a)  Repair of building structure including both external and internal areas;

(b)  Repair of external rendering and internal plastering;

(c)  Painting works for both external walls and internal areas;

(d)  Replacement of drainage systems;

(e)  Replacement windows of staircases by fire rated glazing pane;

(f)  Replacement of metal works in common areas;

(g)  Installation of fire rated enclosure to cover electrical appliances in common areas;

(h)  Installation of emergency lighting systems;

(i)  Installation of new A/C condensation drain pipe;

(j)  Waterproofing works for common roof areas;

(k)  Fire services installation and equipment;

(l)  Replacement of fire rated doors of staircases, stores and meter rooms of common corridors.

184.In addition, Mr John Lau had found certain minor works submission record of the Buildings from the Buildings Department. According to him, these evidenced that some repair works or improvement works had been submitted to the Buildings Department in compliance with the statutory requirement, which included:

(a)  concrete repair of both external walls and internal areas;

(b)  replacement of fire rated glazing pane in staircase; and

(c)  installation of A/C condensation drain pipe.

185.Notwithstanding the above, it is regretted that a total of 140 numbers of structural elements in the Building exhibited defects in the form of spallings and cracks, 11 of which was found in Flat A, 7/F and 7 of which was found in Flat B, 7/F[56]. By reference to the tables in §152(7) above, many slab samples, particularly those near the top floor had reinforcement bars suffering from corrosion with loss of cross-section around 15%. Not surprisingly, as found by Mr Wong in his Condition Survey Report dated 30 June 2023, there were signs of water seepages through the roof slabs scattered throughout the ceilings of most if not all the 6 top floor flats and common corridor[57].

186.The renovation works conducted in 2014 were either ineffective or as what the late Mr So Kin Shing stated, there is no generally accepted method that can stop the continuing process of carbonation and corrosion of the concrete of the structural frame.

187.Surprisingly, although Mr John Lau claimed that the Building had undergone a major renovation, he was unable to challenge the many findings of functional deficiencies found by Mr Wong save for the provision of secondary electricity supply of 60A TPN and certain fire services installation. Particularly, the Building has 8 storeys in height but is served by no lift[58].

188.As regards the state of repair of the Building, in Intelligent House, supra, the Tribunal had accepted that “tenantable condition” should be used as a benchmark to formulate the repair works required:

“§145(6) … in considering the cost of the “state of repair”, the Tribunal is similarly entitled to look at repair works which are necessary to render the building a tenantable condition, which is reasonably fit for use in the sense that it should be safe and hygienic for occupiers and visitors, and provide a standard of comfort and convenience which is reasonable in the present day circumstances for the type of building in question. Mr Roots emphasizes in his closing submissions that he is not contending that (a) the repairs that needed to be carried out is to make the old building “as new” either by today’s standards or even by the standards when it was built, and (b) modern finishes and installations should replace the types originally provided except where that is required by law or good safety practice.

…

§165(2)(c) Moreover, for the purpose of determining whether it is economically worthy to do so, the Tribunal is entitled to look at repairs which would render the building to a tenantable condition fit for the enjoyment of its tenants and visitors, which is reasonable in the present day circumstances for the type of building in question.

…

§199 …, we accept that under the ground of “state of repair”, it is the standard of tenantable conditions that dictate what would be the necessary repairs that need to be carried out at the subject buildings.  For what constitute tenantable conditions, we adopt our conclusion made at paragraph 165(2)(c) above and Mr Benson Wong’s view that, they should be those which would render the building fit for the enjoyment of its tenants and visitors, which are reasonable in the present day circumstances for the type of building in question, and with its structural frames, components, finishes and service installations in either fair or good conditions, requiring no repair in the near future.”

189.Indeed, as regards state of repair or tenantable condition, Proudfoot v Hart (1890) 25 QBD 42 is the leading authority where Lord Esher MR stated:

“…’Good tenantable repair’ is such repair as, having regard to the age, character, and locality of the house, would make it reasonably fit for the occupation of a reasonably-minded tenant of the class who would be likely to take it ….”

190.The Tribunal in Intelligent House, supra, came to a similar view at §119 of the judgment:

“First, we accept that under the ground of “state of repair”, it is the standard of tenantable conditions that dictate what would be the necessary repairs that need to be carried out at the subject buildings.  For what constitute tenantable conditions, we adopt our conclusion made at paragraph 165(2)(c) above and Mr Benson Wong’s view that, they should be those which would render the building fit for the enjoyment of its tenants and visitors, which are reasonable in the present day circumstances for the type of building in question, and with its structural frames, components, finishes and service installations in either fair or good conditions, requiring no repair in the near future.”[59]

191.And for the purpose of preparing the Condition Survey Report, Mr Wong had adopted the following definitions for recording the existing conditions of individual members of the structural frames, the components, the finishes and the service installations of the Building. Mr John Lau had also adopted similar definition[60]:

Condition	Definition
Very Poor	The condition is substantially below the tenantable condition and repair work are required as soon as possible, although no immediate danger is posed.
Poor	The condition is below the tenantable condition and repair work should be implemented in the near future.
Fair	The condition is up to the tenantable condition and preventive repair / maintenance may be considered in order to maintain the existing condition till the next repair cycle.
Good	The condition is above the tenantable condition and is close to brand-new.

192.Having said that, I agree with Mr Wong that “preventive repair/ maintenance may be considered in order to maintain the existing condition till the next repair cycle” to prevent the concerned components, finishes or service installations from further deterioration. This accords, for instance, with the ruling that prophylactic measures taken to avoid the recurrence of the deterioration may also be repair; Ravenseft Properties Ltd v Davstone (Holdings) Ltd [1980] QB12, 22, McDougall v Easington District Council (1989) 58 P & CR 201, 206.

193.While Mr Wong estimated the repair costs for the Building were as much as $19,204,485 which represented some 45.44% of the superstructure construction cost of a new similar superstructure[61], Mr John Lau’s estimate was much lower[62]:

Item No		Proposed Works	Quantity	Cost	Mr John Lau’s Total	Mr Wong’s Estimate
1	Scaffolding		2,743 m2		$713,180	$822,900
2	Hammer Tapping Test
	2.1	External Walls	2,049 m2	$40,980		$71,715
	2.2	Internal Common Area	1	$55,200		$55,200
3	Structural Repair
	3.1	Patch repair of concrete structure	1	$399,600		$399,600
					$495,780
4	Repair Rendering/ Plastering of External Walls, Staircases and Corridors
	4.1	Patch repair of external rendering on façade, light well and roof	75 m2	$76,500		$70,000
	4.2	Patch repair of external painting on façade, light well and roof	75 m2	$25,500		$532,740 (based on 2,049 m2)
	4.3	Replacing sealant of window surrounds	60 m2	$9,000		$433,350 (based on 2,889 m2)
	4.4	Patch repair of internal plastering	50 m2	$22,500		$346,800 (based on 738 m2)
	4.5	Patch repair of internal wall & ceiling painting	50 m2	$7,250		$193,190 (based on 409 m2)
	4.6	Patch repair of internal floor / nosing tiles	1	$10,000		$292,000 (based on 270 m2)
	4.7	Inspecting & repairing amenity features on facades	1	$20,000		$60,000
					$170,750
5	Main Roof Repair
	5.1	Waterproofing of main roof and upper flats	238 m2	$446,250		$457,800
	5.2	Metal doors and cat ladders of stairhoods	1	$60,000		$24,000
	5.3	Reinstating the flushing tank on top of front stairhood	1	$25,000		$45,000
					$531,250
6	Removing asbestos contaminated materials		1		$65,000	$180,000
7	Reinstating unauthorized works /Sub-divided flats
	7.1	Removing metal frame on roof	1	$15,000		$25,000
	7.2	Removing unauthorized enclosures at yard & flat roof	3	$120,000		$180,000
	7.3	Reinstating sub-divided units	16	$640,000		$560,000 (based on 14 units)
	7.4	Reinstating open kitchens	2	$16,000		$70,000
	7.5	Removing metal gate obstructing MOE	8	$4,000		$4,000
					$795,000
8	Works in Staircases and corridors
	8.1	Replacing single-leaf FRR door of individual flat	42	$264,600		$436,800
	8.2	Replacing and installing FRR enclosures to building services in staircases and corridors	24	$45,000		$215,000
	8.3	Replacing FRR windows in corridor	30	$119,250		$86,400
	8.4	Railing painting and increasing height	1	$40,000		$292,000
					$468,850
9	Building Services
	9.1	Adding equipotential bonding in flats	42	$84,000		$126,000
		Adding equipotential bonding in shops	6	$18,000		$18,000
		Replacing wiring & socket	14	$56,000		$88,000 (based on 22 units)
	9.2	Plumbing System
		Repairing underground drainage	1	$63,000		$93,000
		Adding stainless steel cabinet for water meters	2	$10,000		$10,000
	9.3	Fire Services Installation
		Adding improvised automatic sprinkler	1	$100,000		$616,350
		Replacing new fire extinguishers	1	$14,000		$14,000
					$345,000
				Total:	$3,584,810
10	Site Preparation and preliminaries			15%	$537,722
11	Contingency			10%	$358,481
					$4,481,013
12	Consultancy Fee			12%	$537,722
					$5,018,734

194.I note however that Mr John Lau, in trying to distinguish “which are reasonable in the present day circumstances for the type of building in question”, had divided the costs into two distinct dichotomy between repair and improvement. With respect, Mr John Lau’s approach is misconceived. His definition of “improvement” works wholly disregards the modern-day standards and expectation on aspects such as safety and hygiene which are actually the reasons for the introduction of the many new legislations and codes of practice. It is irrelevant to take into the same legislation or standards of the old days when the Tribunal has to decide on the age or state of repair of the Building as it exists today.

195.In the Court of Appeal judgment in Morcom v Campbell-Johnson [1956] 1 QB 106 at page 115, Lord Denning said:

"It seems to me that the test, so far as one can give any test in these matters, is this: if the work done is the provision of something new for the benefit of the occupier, that is, properly speaking, an improvement; but if it is only the replacement of something already there, which has become dilapidated or worn out, then, albeit that it is a replacement by its modern equivalent, it comes within the category of repairs."

196.And in Conn v Robins Brothers Ltd [1966] where the taxpayer undertook a comprehensive refurbishment of a property that was, in places, up to 400 years old. Unsurprisingly, the work involved the use of more modern building techniques and materials (such as steel beams instead of timber). It was held that even so, the character of the property was essentially unchanged and the contested expenditure should be treated as repairs. What was regarded as repair would change with the passage of time to reflect improvements in technology.

197.Reverting to the items of works required to assess the state of repair of the Building, I agree with Mr John Lau that the provision of covered walkway is not necessary. Mr John Lau had indeed provided examples of renovation projects where there were no provision of covered walkway[63].

198.As regards the painting works for external walls, it is noted that in 2014, the owners spent $403,500 on the painting of the external walls which was relatively close to Mr Wong’s estimate of $532,740 for complete painting of the external wall surfaces after patch repair of the external rendering. I accept Mr Wong’s remark at §5.5.5 in his Rebuttal Report dated 5 March 2024 that the defects of spalling and cracking or rendering, staining, blistering and flaking of paintwork and vegetation growth are apparent on the external walls around the elevations by visual inspection[64].

199.Moreover, visual inspection could only provide general and preliminary findings of the conditions of external rendering. Mr Wong had engaged Building Diagnostic Consultants Limited to conduct Rapid Infrared Thermographic Survey (“RITS”) and High-Resolution Photographic Survey (“HRPS”) to supplement his observation. Even so, these surveys have inherent limitations that would result in under-estimation of the actual hollow spots.

200.By reference to the diagrams on the hollow spots, cracks and spalled areas found by BDCL[65], they are of different lengths, sizes and shapes scattered throughout the external walls of the Building. It was unreasonable for Mr John Lau to allow $76,500 just for patch painting of only 75 sq m.

201.Similarly, taking into account the poor conditions of the Building internally[66], I am not persuaded that Mr John Lau could only assume patch repairing of the internal walls and ceilings. In such regard, I prefer Mr Wong’s estimates at $346,800 + $193,190 = $539,990.

202.On the other hand, I am not convinced that the installation of movement joint as recommended by Mr Wong is strictly necessary. Movement joints are deliberate separations in building components that allow for relative movement between adjoining parts. These joints are crucial in accommodating the natural expansion, contraction, and other movements that occur in building materials. The Buildings Department has issued a Practice Note for Authorized Persons, Registered Structural Engineers and Registered Geotechnical Engineers (“PNAP”) ADV-31. In the introductory paragraph, it states:

“Building external finishes protect external building elements from weathering and, at the same time, enliven the aesthetic outlook of buildings. There are a variety of systems and forms of such external finishes. Ceramic or mosaic tiles wet-fixed on cement-sand mortar rendering are one of such systems/forms, which are commonly used in Hong Kong.”

203.That is, this practice note was only to promulgate guidelines and good practices for the design and construction of wet-fixed tiles for building external finishes to include the provision of movement joints. PNAP APP-16 also suggests cladding be provided with sufficient permanently flexible joints horizontally and vertically to allow differential movement between the cladding and the structure of the building to which it is attached. In contrast, there is no similar practice note in respect of external walls which are finished with cement rendering and paintwork as appearing on the Building. I agree that the inherent characteristic as between tiled surfaces and paint surfaces is totally different. As well, whereas the Building had been repainted in 2014, Mr Wong stated in his report that “new paint” as deployed in modern times has strong adhesion, weather resistance and being lab-tested[67].

204.Reverting to section 4(2)(a)(i) of the Ordinance, I agree that it requires the Tribunal to consider the “state of repair of the existing development on the lot”. Existing development therefore should cover all common parts and privately owned units of the Building. In such regard, Mr John Lau’s estimate had included repair works inside individuals units. While the estimation of the total repair costs is not for the purpose of having the costs to be shared by the owners, new owners are prepared to carry out certain decoration or improvement works when they are going to acquire the respective flats or shops for which they would have paid the market prices (ie the EUV as determined earlier) that reflect their value for money. This would have included supplying and installing new FRP doorsets and ironmongeries if necessary. The same would have applied to the repair of floor finishes and new paint works proposed by Mr Wong. Open kitchens, particularly, are favoured by prospective purchasers and recommended by most, if not all, interior designers. New owners would be very unlikely to regard conversion to open kitchen in breach of Clause C13.4 of the Code of Practice for Fire Safety in Buildings 2011 as a defect.

205.As regards the sprinklers system to those shops not being complete in that no sprinkler tank is provided and the sprinkler heads are not covered all parts of the shops, my attention was drawn to the FSD Circular Letter No 3/2007 dated 8 August 2007 issued by the Fire Services Department[68]. Its second paragraph stated as follows:

“… in many of these old buildings, construction of new works in meeting the current fire safety standards may be difficult due to structural or spatial constraints. The Ordinance[69] therefore requires the carrying out of only those improvement works which are considered essential. The specific improvement requirements stipulated in a fire safety direction are also drawn up in a like spirit following inspection of the building concerned.”

206.The circular then gave examples of possible relaxation that may be accepted which included an improvised sprinkler system with a direct town’s main water connection.

207.Mr Wong referred to Intelligent House, supra, at §248 which he alleged the Tribunal approved his practice of including the repair costs in the determination of the state of repair of Kam Kwok Building and National Building[70] which were both some 46 years old and situated at the junction of Marsh Road and Jaffe Road:

“With reference to the standard of tenantable condition set out above, we are of the view that total redecoration in the form as recommended by Mr Benson Wong can be properly regarded as repairs for the purpose of considering whether redevelopment should be justified under the ground of state of repair.”

208.With respect, what the Tribunal stated in Intelligent House, supra, should be distinguished from the present case for the following reasons:

(a)  In Intelligent House, supra, where the valuation expert assumed that the layout of the flats was as per the approved plans and that there were no illegal uses or structures, and no reinstatement costs are allowed.[71] In the present case, values have been assigned to the unauthorized structures according to the market reality principle.

(b)  Mr Wong had read §248 out of context. This paragraph was found under the heading: “Staircases and typical floor lobbies”. In §246 that followed this heading, the Tribunal only considered “(w)hether complete redecoration (including $270,450 for cleaning the floors) is necessary or just patchwork repair is sufficient to bring the condition back to a tenantable one.” It referred to “the cost of repair under this item to be $4,050,070” in §245 and therefore, the Tribunal stated thereafter at §249, “As such, we also accept the types of repairs as recommended by Mr Wong under this sub-item.” In the present case, I have also preferred the complete repainting proposed by Mr Wong to the patch repair proposed by Mr John Lau.

(c)  In Intelligent House, supra, there appeared to have no distinction nor information on the internal conditions of the units. In the present case, most of the domestic units save for those near or on the top floor (ie 7/F) in reasonable or fair conditions.

(d)  By reference to §263 of Intelligent House, supra, the only respondent that disputed the issue of state of repair of Kam Kwok Building and National Building, China Superior Limited, had no “detailed criticism” on works concerning certain redecoration of the flats and shops. The Tribunal then was not required to rule on its inclusion.

209.In the present case, I do not consider the costs proposed by Mr Wong or Mr John Lau for the flats and shops internally relevant. On the other hand, I agree that the unauthorized raised floors that were found in the 12 sub-divided units have to be removed and reinstated because of their extra superimposed loading on the structural elements of respective floors as well as the foundation of the Building. I doubt if any prospective purchaser would still make use these sub-divided units if they cannot satisfy the Basic Housing Units (BHUs) requirements being proposed by the Government. However, such raised floors have implication on the state of repair of the Building. In such regard, I am prepared to deduct $795,000 from Mr John Lau’s estimate and add back $640,000 for the reinstatement of the unauthorized raised floors and $15,000 for the removal of the metal frame from roof.

210.Similarly, I would exclude other repair costs that would be pertaining to the repair of the units individually. I agree with most of the submission by Mr But as follows:

(a)  The interior fittings, partitions and finishings are mostly a matter of individual preference to suit occupants’ own needs and demands. A unit that has been altered from its original configuration does not per se mean that it has fallen into “disrepair” [72].

(b)  In particular, the internal conditions of shops on G/F should carry very low weight. Unless there are serious defects or deep-rooted issues which are very costly to remedy, such shops are typically transacted and/or let at “bare-shell conditions” with concrete surface exposed without any finishings at all. It would be up to the tenant to dictate what kind of finishings and configurations would be required to tailor-make the shops to fit individual commercial needs and user preferences.

(c)  While Mr W L Hui admitted that the applicant had done nothing to preserve the unit acquired, it is surprised that many of those units were deprived of doorsets, stoves, cabinets and other sanitary fitments which Mr Wong applied a dollar sign to repair the units.

211.In light of the above, I review the costs of repair as follows:

Item No		Proposed Works	Quantity	Cost	Total
1	Scaffolding		2,743 m2		$713,180
2	Hammer Tapping Test
	2.1	External Walls	2,049 m2	$40,980
	2.2	Internal Common Area	1	$55,200
3	Structural Repair
	3.1	Patch repair of concrete structure	1	$399,600
					$495,780
4	Repair Rendering/ Plastering of External Walls, Staircases and Corridors
	4.1	Patch repair of external rendering on façade, light well and roof	75 m2	$76,500
	4.2	Whole repair of external painting on façade, light well and roof	2,049  m2	$532,740
	4.3	Replacing sealant of window surrounds	60 m2
	4.4	Patch repair of internal plastering	738  m2	$346,800
	4.5	Patch repair of internal wall & ceiling painting	409 m2	$193,190
	4.6	Patch repair of internal floor / nosing tiles	270 m2	$292,000
	4.7	Inspecting & repairing amenity features on facades	1
					$1,441,230
5	Main Roof Repair
	5.1	Waterproofing of main roof and upper flats	238 m2	$446,250
	5.2	Metal doors and cat ladders of stairhoods	1	$60,000
	5.3	Reinstating the flushing tank on top of front stairhood	1	$25,000
					$531,250
6	Removing asbestos contaminated materials		1		$65,000
7	Reinstating unauthorized works /Sub-divided flats
	7.1	Removing metal frame on roof	1	$15,000
	7.2	Removing unauthorized enclosures at yard & flat roof	3
	7.3	Reinstating sub-divided units	16	$640,000
	7.4	Reinstating open kitchens	2
	7.5	Removing metal gate obstructing MOE	8
					$655,000
8	Works in Staircases and corridors
	8.1	Replacing single-leaf FRR door of individual flat	42
	8.2	Replacing and installing FRR enclosures to building services in staircases and corridors	24	$45,000
	8.3	Replacing FRR windows in corridor	30	$119,250
	8.4	Railing painting and increasing height	1	$40,000
					$204,250
9	Building Services
	9.1	Adding equipotential bonding in flats	42
		Adding equipotential bonding in shops	6
		Replacing wiring & socket	14
	9.2	Plumbing System
		Repairing underground drainage	1	$63,000
		Adding stainless steel cabinet for water meters	2	$10,000
	9.3	Fire Services Installation
		Adding improvised automatic sprinkler	1	$100,000
		Replacing new fire extinguishers	1	$14,000
					$187,000
				Total:	$4,292,690
10	Site Preparation and preliminaries			15%	$643,904
11	Contingency			10%	$429,269
					$5,365,863
12	Consultancy Fee			12%	$643,904
					$6,009,766

212.On the other hand, the ficus microcarpa or its similar species appear to have cause significant damage to the Building. Severe corrosion had been found on slab samples near the top floor with reinforcement bars having loss of cross-section around 15% above. In addition, by reference to the Drone High Resolution Photographic Survey, the top floor facing San Shi Street had exhibited a series of cracks[73]. Incidentally, concrete spalling was found on the ceiling in bathroom of Flat B, 5/F near its window[74], on the ceiling in kitchen of Flat B, 6/F over its window[75], and on the ceiling in bathroom of Flat B, 7/F over its window[76] despite those units are now owned by the applicant. Apparently, these cracks or spallings have been caused by the ficus tree roots growing downwards all the way from the roof. See photo at Appendix 2[77].

213.At trial, I had questioned Mr John Lau on how to deal with the problem but he shrugged it off by saying that the ficus tree roots could be pulled off easily from the walls. Mr Philip So stated otherwise because the tree roots might have penetrated into the concrete.  While Mr Philip So’s answer made more sense to me, none of the experts had particularly addressed the issue in their expert reports, not to mention about the costs as a result thereto.

214.In addition, contrary to Mr John Lau’s allegation, no core samples were taken from the concrete behind the ficus roots. The tree roots might also act as screening objects which would result in under-estimation of the actual hollow spots behind.

215.In view of the above, I consider the hypothetical costs of repair required for the Building would be in the region of say $6,200,000. When this figure is compared with the EUV of $282,198,000, it is about 2.2%.

216.Unfortunately, in the present case, the Building has its age well exceeding the notional design working life of 50 years. It may be argued that the working life of a building can be extended by preventive maintenance. However, even if the amount of $6,200,000 be spent, the Building has been suffering from the following:

(a)  The Building comprises up to 8 storeys without service of a lift, falling below the expectation of prevailing living standard;

(b)  Despite the Building had undergone renovation in 2014, there existed up to 140 reinforced concrete structure elements exhibiting defects. “The older the physical age of a building, the more likely it is fraught with building condition problems requiring attention over time.”[78] The present case confirms that after the expiry of the design working life of the Building, more defects will occur in the structural frames requiring more substantial and frequent repairs.

(c)  For instance, in the renovation in 2014, the patch repair of the building structure, external rendering and internal plastering for both external and internal common areas were at the total cost of $367,000. However, in 2023, even Mr John Lau agreed $399,600 + $55,200 = $454,800 for patch repair of the building structure, $40,980 + $76,500 = $117,480 for patch repair of the external rendering, and $22,500 for patch repair of internal plastering. The latter gives a total of $594,780 which would be 162% of the cost in 2014.

(d)  Thickness of concrete cover actually constructed for the columns and slabs on 7/F failed substantially when compared with those on the basis of the original approved plans[79]:

Structural Elements	Min Concrete Cover under LCC By-law	the Min Concrete Cover at the 15 measured spots (mm)	No of Spots failing to comply
Columns	38.1 mm	27, 37, 35, 65, 62	3 out of 5
Slabs	12.7 mm[80]	24, 5, 11, 35, 19	2 out of 5

While the occupiers of the Building may not even realize that there are shortfalls in the concrete cover thickness of the structural elements, such shortfalls are clearly an item of obsolescence of the Building affecting its useful working life.

(e)  Carbonation depth test results revealed that carbonation has penetrated past the concrete cover of 3 out of 5 (or 60%) column samples, all beam samples and slab samples. There is no generally accepted method that can stop the continuing process of carbonation and corrosion of the concrete of the structural frame. Although applying a coat of “elastomeric cementitious waterproof coating” on the concrete faces of the whole of the structural frame may theoretically slow down the carbonation process, this would require the removal of all the internal finishes and external rendering covering the whole of the structural frame to expose all of its concrete faces. This is very expensive and disturbing to occupiers and thus would not be practical in real life.

(f)   Compression tests revealed that the concrete strength of 3 out of 5 (or 60%) column samples and 3 out of 5 (or 80%) beam samples did not comply with the requirement. As a result, the structural capability of the columns and beams of the Building may not be sufficient to resist their intended loads or forces. Insufficiency in concrete compressive strength cannot be rectified by repair. This problem is particularly aggravated by the presence of so many unauthorized raised floors which in practice would unlikely be reinstated.

(g)  Corrosion of the steel reinforcement bars has been in Grade 3 or above but it might not be practical to open up the concrete of all structural elements treat the corrosion of the steel bars.

217.Bearing in mind the above, even if the prospective owners are willing to spend that $6,200,000 (which I doubt for this kind of premises regard to the age, character, and locality of the Building especially when the owners had already paid $3,000,000 in 2014), the ageing and poor state of repair of the Building will not be stopped but deteriorating.

218.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.

219.In Top Sail, the Tribunal stated that:

“23. ……, we are of the view that when the requirement of “the age” of the Buildings is considered, we should not restrict our consideration to just the physical age of the Buildings.…… we are of the view that the absence of a specific physical age in the Ordinance indicates that the Tribunal has discretion to determine at what stage a building should be redeveloped after considering all the relevant factors concerning the age of the building in question.

24. The physical age of a building is clearly one of the considerations…... The physical conditions of a building and the amount that would be required to maintain the building are other factors that the Tribunal should consider, as they would affect the decision on whether the life of a building should be ended or prolonged. The obsolete design of a building should also be considered as it has an important impact on whether it is too old to serve a modern society.”

220.Such a discretion by the Tribunal was followed in Charmlink:

“30. We are of the view that the Tribunal has discretion to determine at what stage a building should be redeveloped after considering all the relevant factors concerning the age of the building in question. The relevant factors in the present case are that the Building is over 50 years old and it has passed its designed life. It is also obsolescent in design and not economical to maintain. All these factors point to the fact that the Building has come to an end of its physical as well as economical life. Thus, we find that redevelopment is justified on the ground of the age of the Building.

31. …… It is also within the Tribunal’s discretion to determine in what conditions a building should be redeveloped after considering all the relevant factors concerning the state of repair of the building in question. With the clear evidence from the two experts that the Building is in a poor state of repair and in fact untenantable without substantial repair works to be carried out over a long period of time, we have no hesitation in finding that redevelopment is justified by the state of repair of the Building.”

221.Having considered the evidence above, I am satisfied that redevelopment of the Building is justified due to the age and state of repair.

Section 4(2)(b) – Whether Applicant has taken reasonable steps

222.The applicant is under an obligation to take reasonable steps to negotiate on terms that are fair and reasonable for the purchase of the interest of the respondent under section 4(2)(b) of the Ordinance.

223.In Capital Well Limited v Bond Star Development Limited (2005) 8 HKCFAR 578, [2005] 4 HKLRD 363 (“Capital Well”) Ribeiro P J  expressed his view at §2:

“(the Ordinance) permits a person owning at least 90% of the undivided shares in the Lot, who has failed to acquire the balance of the undivided shares despite having made appropriate efforts to do so, to apply to the Lands Tribunal for a compulsory order requiring sale of the lot for the purposes of redevelopment.”

224.The Ordinance provides a statutory mechanism whereby a majority owner can only invoke after having taken reasonable steps to acquire the undivided share of a minority owner. Here, I also bear in mind the following guidance from Capital Well at §33:

“In making that assessment (whether an offer is reasonable) the Tribunal is not conducting a valuation exercise. It does not need to adjudicate upon any disputes about the correct valuation principles to be applied. It does not itself arrive at any conclusion as to what figure represents the correct valuation. It merely needs to be satisfied that, on the evidence available, the offer falls within the range of what may broadly be regarded as fair and reasonable compensation for the interest in question.”

225.Ribeiro P J on behalf of the Court of Final Appeal stated further at paragraph 36 of the judgment that:

“What the Tribunal must do is to consider whether, in the circumstances of each case, the offer falls within a band of what represents a fair and reasonable assessment of the value of the minority owner’s interest reflecting a proportionate share of the redevelopment value of the whole site.”

226.On 12 January 2023, the applicant made various offers to the respondents on the basis of the assessments of EUV as at 30 November 2022, relying on the letters of Colliers dated 10 January 2023 prepared by Ms Chow[81]:

Respondent	Property	EUV by Ms Chow	EUV by Mr Lai	EUV by Tribunal	Shortfall  in EUV by Ms Chow, if any
		as at 30 November 2022 (Retail Price Index: 506.2)
R1	Shop C. G/F	$8,730,000	$13,037,000	$11,455,000	23.79%
R2	Shop D. G/F	$8,640,000	$11,791,000	$11,959,000	27.75%
R3	Shop F. G/F	$11,870,000	$16,265,000	$16,500,000	28.06%
R4	Flat D, 2/F	$4,920,000	$5,775,000	$5,316,000	7.45%
R5	Flat D, 3/F	$4,820,000	$5,830,000	$5,316,000	9.33%
R6	Flat D, 7/F	$4,560,000	$4,827,000	$4,261,000
	Roof D	$410,000	$506,000	$446,000	8.07%
	Flat E, 7/F	$3,940,000	$4,257,000	$3,754,000
	Roof E	$355,000	$437,000	$386,000	8.03%

227.According to the applicant, the two offer letters for Roof D and Roof E were re-sent on 30 January 2023 because:

(1)  The 2 original letters were sent respectively to “Roof D of Sun Ming Building” and “Roof E of Sun Ming Building” in accordance with the address stated in the land search records.

(2)  They were subsequently returned by the Hong Kong Post Office with the reason being “Incomplete address / No such address”.

(3)  Given that the owner of Roof D and Roof E is the same as that of Flat D on 7/F and Flat E on 7/F (ie R6), the offer letter for each Roof was re-sent on 30 January 2023 to R6 at the address of the flat immediately below (ie to Flat D, 7/F and Flat E, 7/F respectively).

228.I am not convinced that the above could be elevated into an allegation by R6 that there was failure to ascertain the postal addresses of the roofs. Section 8 of the Interpretation and General Clauses Ordinance, Cap 1 provides that:

“Where any Ordinance authorizes or requires any documents to be served or any notice to be given by post or by registered post, whether the expression “serve” or “give” or “send” or any other expression is used, the service or notice shall be deemed to be effected by properly addressing, … to the last known postal address of the person to be served or given notice, and, unless the contrary is proved, such service or notice shall be deemed to have been effected at the time at which the document or notice would be delivered in the ordinary course of post.” (underline added)

229.Similarly, under section 62(3) of the Conveyancing and Property Ordinance, Cap 219, any notice required or authorized by this Ordinance to be served shall be sufficiently served if it is left at the last-known place of abode or business in Hong Kong of the … other person to be served.

230.I agree with the applicant that its attempt to send the 10 January 2023 offers was, in itself, an act to reasonably ascertain the postal address of the roofs. It must also be remembered that although the 10 January 2023 offers failed to reach R6 as owner of Roof D and Roof E, the offer letter for each Roof was re-sent on 30 January 2023 to R6 at the address of the flat immediately below (ie to Flat D, 7/F and Flat E, 7/F respectively).

231.As for the complaints that R6 did not reside at Flat D or Flat E on 7/F and had therefore received the offer letters only on 3 February 2023. I accept the explanations by the applicant that:

(a)  the applicant might not know R6 did not reside at Flat D or Flat E on 7/F;

(b)  R6’s tenant took a long time to pass the 10 January 2023 offer letters to R6;

(c)  the same offers were repeated again to R6 on 18 August 2023 so that she could have accepted the offers in face of the market prices dropping.

232.Whereas copies of Colliers’ letters dated 10 January 2023 were annexed to the offer letters, I note that the total EUV of the Building and RDV of the Lot as assessed by Ms Chow were $260,637,000 and $300,000,000 respectively. The difference between the two figures was merely  =13.1%.

233.When Ms Chow prepared her Valuation Report dated 13 February 2023 (ie the Application Report), her EUV assessments remained the same at $260,637,000[82].

234.When Ms Chow prepared her Supplemental Valuation Report dated 29 June 2023, her EUV assessments were approximately the same (if not lower) in the sum of $259,955,000[83] (ie a drop of 0.3%) while her RDV assessment had dropped to $297,000,000[84] (ie a drop of 1.0%).

235.It was only when Ms Chow and Mr Lai prepared their joint statement dated 15 April 2024, Ms Chow was prepared to revise the EUV assessments higher for four of the shops of the Building though the total EUV remained approximately the same at $260,989,000[85]:

Shop	EUV (dated 13 Feb  2023)[86]	EUV (dated 29 Jun  2023)[87]	EUV (dated 15 Apr  2023)[88]	Difference
A	$8,070,000	$8,080,000	$7,850,000	-2.8%
B	$9,490,000	$9,500,000	$9,470,000	-0.3%
C	$8,730,000	$8,740,000	$8,990,000	+2.9%
D	$8,640,000	$8,650,000	$8,870,000	+2.5%
E	$9,270,000	$9,280,000	$9,450,000	+1.8%
F	$11,870,000	$11,810,000	$12,080,000	+2.3%

236.In Singer & 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.”

237.The learned judge went on to say that it was agreed generally in the profession that a permissible margin was 10% either side of a figure which could be said to be the right figure (assessed as if arrived at when the valuation was made and not with the benefit of hindsight). In exceptional circumstances, the margin could be 15% or a little more either way. In Muldoon v Maps of Lilliput Limited (1993) 14 EG 100, Judge Zucker QC used a range of 15-20%[89].

238.Particularly in the present case when the residual valuation is adopted, the English Lands Tribunal[90] has since Clinker and Ash Ltd v Southern Gas Board (1967) 18 P & CR 372, (1967) 203 EG 735 warned that relatively small adjustments to one or more of the assumptions or variables input can lead to a large change in the resulting land value.

239.Relying on values of EUV and RDV being so close to each other to make an offer to the minority owners, the applicant risked a great chance of error by not compensating the minority owners the market value of their interests in the Lot.

240.The following table shows what would have happened if Mr Chow’s assessments of EUV dated 10 January 2023 fell short by 10% and her assessment of RDV was exaggerated by 10% which led to a corresponding shortfall in offer:

Respondent	Property	Ms Chow’s EUV + 10%	EUV by Mr Lai	Offer on 12 January 2023	Offer -10%
R1	Shop C. G/F	$9,603,000	$13,037,000	$10,560,000	$9,504,000
R2	Shop D. G/F	$9,504,000	$11,791,000	$10,450,000	$9,405,000
R3	Shop F. G/F	$13,057,000	$16,265,000	$14,530,000	$13,077,000
R4	Flat D, 2/F	$5,412,000	$5,775,000	$5,950,000	$5,355,000
R5	Flat D, 3/F	$5,302,000	$5,830,000	$5,830,000	$5,247,000
R6	Flat D, 7/F	$5,016,000	$4,827,000	$5,520,000	$4,968,000
	Roof D	$451,000	$506,000	$500,000	$450,000
	Flat E, 7/F	$4,334,000	$4,257,000	$4,770,000	$4,293,000
	Roof E	$390,500	$437,000	$430,000	$387,000

241.As it turns out, although my assessments of the EUV are not as high as those of Mr Lai, I find the EUV as revised by Ms Chow in respect of the corresponding units (which included the respondents’ units) still fell short of my assessments:

Respondent	Property	EUV by Ms Chow in her report dated 10 January 2023	EUV by Ms Chow in her report dated 15 April 2024	EUV by Tribunal	Shortfall in EUV by Ms Chow in her report dated 15 April 2024
		as at 30 November 2022 (Retail Price Index: 506.2)
R1	Shop C. G/F	$8,730,000	$8,990,000	$11,455,000	21.52%
R2	Shop D. G/F	$8,640,000	$8,870,000	$11,959,000	25.83%
R3	Shop F. G/F	$11,870,000	$12,080,000	$16,500,000	26.79%
R4	Flat D, 2/F	$4,920,000	$5,110,000	$5,316,000	3.88%
R5	Flat D, 3/F	$4,820,000	$5,010,000	$5,316,000	5.76%
R6	Flat D, 7/F	$4,560,000	$4,110,000	$4,261,000	3.54%
	Roof D	$410,000	$430,000	$446,000	3.59%
	Flat E, 7/F	$3,940,000	$3,620,000	$3,754,000	3.57%
	Roof E	$355,000	$372,000	$386,000	3.63%

242.In my opinion, the EUV assessments by Ms Chow for the respective shops fell significantly outside the reasonable range or the margin of error, rendering the offers made by the applicant unreasonably low:

Respondent	Property	EUV by Ms Chow	EUV by Mr Lai	EUV by Tribunal	Offer on 12 January 2023 (Retail Price Index: 487.9, ie a drop about 3.6%)	Shortfall  in Offer (if any)
		as at 30 November 2022 (Retail Price Index: 506.2)
R1	Shop C. G/F	$8,990,000	$13,037,000	$11,455,000	$10,560,000	-7.81%
R2	Shop D. G/F	$8,870,000	$11,791,000	$11,959,000	$10,450,000	-12.62%
R3	Shop F. G/F	$12,080,000	$16,265,000	$16,500,000	$14,530,000	-11.94%
R4	Flat D, 2/F	$5,110,000	$5,775,000	$5,316,000	$5,950,000
R5	Flat D, 3/F	$5,010,000	$5,830,000	$5,316,000	$5,830,000
R6	Flat D, 7/F	$4,110,000	$4,827,000	$4,261,000	$5,520,000
	Roof D	$430,000	$506,000	$446,000	$500,000
	Flat E, 7/F	$3,620,000	$4,257,000	$3,754,000	$4,770,000
	Roof E	$372,000	$437,000	$386,000	$430,000

243.In Intelligent House Ltd v Chan Tung Shing & Others [2008] 4 HKC 421 where the majority owner relied on its valuation expert to formulate some of the offers, the Tribunal ruled at paragraph 334(3) that:

“… it is not disputed that Savills is a reputable firm of valuers. In our view, it is also reasonable for Intelligent House to rely on Savills’ expert opinion to formulate the purchase prices offered to the minority owners. There is also no reason for us to believe, nor is there such evidence to suggest, that the advices from Savills were not properly made based on professional valuation of the EUV and RDV of the minority owners’ units.”

244.But as Lord Hoffmann remarked in South Australian Asset Management Corporation v York Montague [1997] AC 191, 221-222:

“… the court must bear in mind that valuation is seldom as exact science and that within a band of figures valuers may differ without one of them being negligent…. While it is true that there would have been a range of figures which the reasonable valuer might have put forward, the figure most likely to have been put forward would have been the mean figure of that range….”

245.Regretably, Ms Chow’s assessments for Shop C, Shop D and Shop F on G/F fell outside the band of what represented a fair and reasonable assessment of the value of the minority owner’s interest. As a result, the applicant’s offers on 12 January 2023 were liable to be unfair and unreasonable. That is, the offers by the applicant for the respective shops on 12 January 2023 even fell below the market values of the respective shops even without taking into account the redevelopment potential of their property or the Lot.

246.A fortiori, Lord Nicholls dealt at length in Director of Buildings and Lands v Shun Fung Ironworks Ltd [1995] 2 AC 111 at 125 as regards the assessment of fair compensation:

“The purpose of these provisions, [the relevant compensation Acts] in Hong Kong and England, is to provide fair compensation for a claimant whose land has been compulsorily taken from him. This is sometimes described as the principle of equivalence. No allowance is to be made because the resumption or acquisition was compulsory; and land is to be valued at the price it might be expected to realise if sold by a willing seller, not an unwilling seller. But, subject to these qualifications, a claimant is entitled to be compensated fairly and fully for his loss. Conversely, and built into the concept of fair compensation, is the corollary that a claimant is not entitled to receive more than fair compensation for losses fairly attributable to the taking of his land but not to any greater amount. It is ultimately by this touchstone, with its two facets, that all claims for compensation succeed or fail.

Land may, of course, have a special value to a claimant over and above the price it would fetch if sold in the open market. Fair compensation requires that he should be paid for the value of the land to him, not its value generally or its value to the acquiring authority. As already noted, this is well established. If he is using the land to carry on a business, the value of the land to him will include the value of his being able to conduct his business there without disturbance. Compensation should cover this disturbance loss as well as the market of the land itself.” (underline added)

247.Thus the entitlement to compensation for disturbance was part of the compensation for the acquisition of the claimants' interest. And earlier in Horn v Sunderland Corporation [1941] 2 KB 26, 32, Sir Wilfred Greene MR stated:

“… But one element which the jury was entitled to take into consideration was the damage suffered by the owner from disturbance, for example, of his business. It is important in considering the present case to remember that this was not a separate head of compensation such as compensation for injurious affection, but merely one of the elements going to the build up of the purchase price to which the owner was fairly entitled in all the circumstances of the case.”

248.In the present case, both R2 and R3 are still conducting their businesses at their shop premises.

249.On the other hand, the issue on disturbance would not have arisen if, as stated by Ribeiro P J on behalf of the Court of Final Appeal in Capital Well, supra, “the offer falls within a band of what represents a fair and reasonable assessment of the value of the minority owner’s interest reflecting a proportionate share of the redevelopment value of the whole site.” This is because as Sir Wilfred Greene elaborated in Horn, supra, at 34:

“… If those circumstances are such as to make it impossible for the owner to claim that he has suffered damage through disturbance for which he ought to be compensated, then he is not entitled to have the price or compensation for his land increased by an addition for disturbance even if he has been disturbed.”

250.Unfortunately, the applicant’s offers to R1, R2 and R3 on 12 January 2023 failed to cover the market values of the respondents’ interests even without taking into account the redevelopment potential of their property or the Lot.

251.A further round of post-Application offers was made by the applicant on 8 April 2025 based on the Updated RDV as assessed by Mr C K Lau in his Supplemental Valuation Report dated 25 March 2025[91]:

Respondent	Property	Offer on 12 January 2023 & 18 August 2023	Offer on 8 April 2025 (Retail Price Index: 377.1)
1st named R1	Shop C. G/F	$10,560,000	$3,888,100
2nd named R1			$3,888,100
R2	Shop D. G/F	$10,450,000	$7,672,400
R3	Shop F. G/F	$14,530,000	$10,449,000
R4	Flat D, 2/F	$5,950,000	$4,420,100
R5	Flat D, 3/F	$5,830,000	$4,333,600
R6	Flat D, 7/F	$5,520,000	$3,555,100
	Roof D	$500,000	$372,000
	Flat E, 7/F	$4,770,000	$3,131,300
	Roof E	$430,000	$321,800

252.Mr C K Lau assessed the RDV of the Lot at $215,000,000. That is, if Ms Chow’s RDV as at 10 January 2023 or thereabout was correctly assessed, Mr C K Lau’s valuation represented a drop of - 1 = 28.3%.

253.In Wise Grace Investment Limited & Others v Lui Man Dung & Others, LDCS 15000/2021 (unreported, 13 February 2025), the Tribunal remarked at §137 that it had not been the practice of the Tribunal to allow evidence of EUV valuation on an additional valuation date. But in the present case, the initial offers by the applicant to R1, R2 and R3 on 12 January 2023 failed to cover the market values of the respondents’ interests even without taking into account the redevelopment potential of their property or the Lot. I trust it is prudent to check if the subsequent offers could rescue the position.

254.In fact, in the formulation of the Gross Development Value of (“GDV”) the hypothetical development, Mr C K Lau relied on the same set of shop comparables adopted by Ms Chow during the EUV assessment exercise. That is, no new shop comparables were found and Mr C K Lau assessed the GDV of the hypothetical shops basically by reference to the changes in Private Retail Price Index published by the RVD. This being the case, if EUV assessments were similarly adjusted[92], the offers by the applicant to the shop owners of the Building were even less than the EUV as determined by me for the respective shops, without taking into account the redevelopment potential of the Building or the Lot.

255.Similarly, I am going to make a rough check on the EUV of the domestic units as at 8 April 2025 where the Private Domestic Price Index published by RVD was 287.2 when compared with that of 339.6 as at November 2022. The similar results are found as shown in the table below:

Respondent	Property	Offer on 12 January 2023 & 18 August 2023	Offer on 8 April 2025 (Retail Price Index: 377.1)	EUV postulated as at April 2025		Shortfall in 2025 Offer (if any)
				By Ms Chow	By Tribunal
1st named R1	Shop C. G/F	$10,560,000	$3,888,100	$6,697,213	$8,533,545	8.87%
2nd named R1			$3,888,100
R2	Shop D. G/F	$10,450,000	$7,672,400	$6,607,817	$8,909,006	13.88%
R3	Shop F. G/F	$14,530,000	$10,449,000	$8,999,147	$12,291,881	14.99%
R4	Flat D, 2/F	$5,950,000	$4,420,100	$4,321,531	$4,495,746	1.68%
R5	Flat D, 3/F	$5,830,000	$4,333,600	$4,236,961	$4,495,746	3.61%
R6	Flat D, 7/F	$5,520,000	$3,555,100	$3,475,830	$3,603,531	1.34%
	Roof D	$500,000	$372,000	$363,651	$377,183	1.37%
	Flat E, 7/F	$4,770,000	$3,131,300	$3,061,437	$3,174,761	1.37%
	Roof E	$430,000	$321,800	$314,601	$326,441	1.42%

256.In the joint statement between Mr C K Lau and Mr Patrick Lai dated 11 April 2025, Mr C K Lau did revise his assessment of the RDV slightly to $220,000,000, on the basis of which the applicant made another offers to the respondents[93]:

Respondent	Property	Offers on 12 January 2023 & 18 August 2023	Offers on 8 April 2025	Offers on 25 April 2025	Shortfall in Offer (if any)
			(Retail Price Index: 377.1)
1st named R1	Shop C. G/F	$10,560,000	$3,888,100	$3,970,000	6.96%
2nd named R1			$3,888,100	$3,970,000
R2	Shop D. G/F	$10,450,000	$7,672,400	$7,850,000	11.89%
R3	Shop F. G/F	$14,530,000	$10,449,000	$10,690,000	13.03%
R4	Flat D, 2/F	$5,950,000	$4,420,100	$4,520,000
R5	Flat D, 3/F	$5,830,000	$4,333,600	$4,430,000
R6	Flat D, 7/F	$5,520,000	$3,555,100	$3,630,000
	Roof D	$500,000	$372,000	$380,000
	Flat E, 7/F	$4,770,000	$3,131,300	$3,200,000
	Roof E	$430,000	$321,800	$329,000

257.Unfortunately, the offers did not improve much.

258.By reference to the above analysis, I find neither the offers by the applicant on 12 January 2023, 18 August 2023, 8 April 2025 nor 25 April 2025 fell within the range of what may broadly be regarded as fair and reasonable compensation for the interest in question. Neither was any of the above offers fell within a band of what represents a fair and reasonable assessment of the value of the minority owner’s interest reflecting a proportionate share of the redevelopment value of the whole site.

259.Notwithstanding the above, on the question of “reasonable steps” in his Supplemental Closing Submission dated 28 August 2025, Mr Kwong conceded that it has never been the Applicant’s contention that the Tribunal is confined to/ should:

(i)  Looking at “formal” and “legalistic offers”;

(ii)  only consider “money offers of purchase” in terms of dollar sign and to ignore the rest of the reality/ conduct;

(iii)  only consider the “solicitors” offer letter where the applicant is strictly considered as the “offeror”; or

(iv)  limit its scope to “formal” offers and their face value, and discard all other “negotiations” at the same time.

260.For the above purposes, I repeat hereunder the 2^nd named R1’s grounds of opposition dated 20 May 2024 against the Application[94]:

“1. Unreasonable offer made by the Applicant

1.1 The subject shop’s business (known as “Loi Kee”) operated normally up to present. Its business turnover and income remained to be stable. The Applicant’s offer failed to consider the business losses of Loi Kee after acquisition.

1.2 In addition, the shop consists of a large number of fixed installations, plant/ machineries and tools for its daily operations, for example lathes, lifting machines/cranes etc. The offer price by the Applicant failed to compensate the relocation/set-up costs for continuing such operations.

2. Improvement works carried out in the Building

2.1 The previous owners of the Building (including the 2^nd named R1) had contributed about HK$3,000,000 for a wholesale improvement which included its fire services installation. Such works were completed in 2016. The Building and its facilities remains to be operational and are in good order at present. It is not understood why the Building is justified to be redeveloped as alleged.

3. Extinction of Loi Kee

3.1 Loi Kee was founded in 1965. Being a renowned services supplier for marine engineering services, Loi Kee specializes in installation and repair of mechanical pumps in boats and vessels in the area.

3.2 Pumps in Loi Kee are ‘tailor made’: All parts are specially designed and manufactured from machines by manual labour and assembled in accordance with the specific needs of each customer.

3.3 It is understood that local repair services of ‘ship pumps’ may be fading out, but every business shall have its own value and functions and must not be prematurely terminated.

3.4 Loi Kee remains to be the only surviving business providing water pump repair services for vessels. While Loi Kee’s customers come from all over Hong Kong (or even boat owners from the PRC) who sail and moor nearby for installation and repair works for their pumps, the goodwill of Loi Kee is dependent on its present location. The offer made by the Applicant, if accepted, cannot support the re-establishment of its business. An order for sale would very likely result in its extinguishment.

4. ‘Acquisition blight’ of the Building and adverse effects on its ‘state of repair’[95]

4.1 The incorporated owners of the Building (the “IO”) became registered and incorporated on 7^th September 2006. The power and duty to manage, control and maintain of the common parts of the Building was vested to the IO since its incorporation under s 16 of the Building Management Ordinance (Cap 344).

4.2 The Building (both privately owned units and common areas) were regularly maintained in good order and were mostly occupied. According to the findings of John Lau, save from an order issued on 30^th April 2008 against Shop F of G/F, there is no outstanding building order9s0 and/or notices made by the Buildings Department against the Building.

4.3 In or about 2012, the owners of the Building resolved to carry out major renovation, repair and improvement works. The IO called for a total contribution of about HK$3,000,000. Eventually, contractors were appointed for various works including its external wall and improvement of its fire services installations (including fire sprinkler system for shops). Such repair works were completed in or about 2016.

4.4 Before 2019, site-assembly acquisitions of units of the Building commenced. Many former owners signed onto sale and purchase agreements (“S&P”).

4.5 Since in or about mid-2019, many of S&Ps entered into by the previous owners of the Building became executed in favour of the Applicant. Completion gradually took place afterwards whereby units were gradually acquired by the Applicants.

4.6 By reason of the assignment of interest, many of the previous office bearers of the management committee of IO had left office or resigned. As the management committee was no longer quorate, the IO had become dysfunctional and could not operate. The regular maintenance and repairs to the common parts become adversely affected.

4.7 By 31^st August 2021, the IO became completely defunct after the resignation of its chairperson and secretary. Since then:-

4.7.1 By reason of the defunct IO, management fees were no longer collected from the owners of the Building since in or about June 2021.

4.7.2 The Applicant did not and were unwilling to participate in the affairs of the IO. No office bearer in the management committee were re-elected.

4.7.3 All repair/maintenance to the common parts and other services of the Building completely ceased due to the defunct IO. As a result, the conditions of common building facilities deteriorated very quickly.

4.8 Regarding the units acquired by the Applicant since 2019 onwards:-

4.8.1 The Applicant left most (if not all) of them to be vacant.

4.8.2 As gathered from the records and findings of the conditions survey experts, no proper repair nor maintenance was carried out to such units.

4.9 By reason of the above, the deterioration of the conditions of the building, if any is found by the Tribunal, was caused by the Applicant’s acquisition and its blighting effect.

4.10 The Tribunal is invited to consider the effect and extent of acquisition blight on the existing state of repair of the Building when assessing the statutory requirement under section 4(2)(a)(i) of Cap 545, and accordingly exercise caution when deciding whether redevelopment is justified.

5. Unreasonable Conduct of the Applicant

5.1 The Applicant became in possession and control of all affairs of their units after their acquisition since 2019.

5.2 According to the 4^th and 5^th Respondents (“R4R5”), after the Applicant’s acquisition:-

5.3 A lot of debris (including wooden planks and nails) and other garbage was placed at the corridors and lobby of the Building;

5.4 Broken glass was intentionally placed at the doorstep of unit 3D (the unit owned by R5), causing safety hazards to its occupants;

5.5 The Building’s electrical switches were turned off by unknown persons;

5.6 The fire alarms became manually triggered without any outbreaking of any fire or smoke.

5.7 The fire hydrants/extinguishers were intentionally damaged and released which caused flooding in the common corridors.

5.8 …

5.9 …

5.10 …

5.11 By reason of the aforesaid unreasonable conduct:

5.11.1 The Applicant did not take reasonable steps to acquire all the undivided shares in the lot;

5.11.2 The Applicant did not property negotiate for the purchase of those shares as owned by the minority owners on fair and reasonable terms.

5.11.3 The Applicant failed to discharge its duty under s4(2)(b) of Cap 545.

6. Reserve Price cannot be lower than the EUV (at the time of application or updated)

6.1 It is averred that R1’s interest cannot be compulsorily acquired at a price which results it to be in a worse off position than that the market value of R1’s unit being realizable individually in the open market and without conditions imposed (ie without the effect of the acquisition and Cap 545 application).

6.2 Any order for compulsory acquisition of R1’s unit with the entire building as a whole and with conditions imposed (ie building covenant for redevelopment within 6 years) at a reserve price below its market price (ie real value – when sold individually in open market without taking into account of its redevelopment potential) would constitute an unlawful deprivation of property and infringement of Art 6 and 105 of the Basic Law.

6.3 Subject to the assessment of the updated redevelopment value (“updated RDV”) of the Lot at the time of trial, in the event that it is found that the apportioned updated RDV to R1’s unit is lower than its EUV (or its updated EUV) without taking into account its redevelopment potential and inhibiting effect of underlying acquisition on its value under Pointe Gourde principles), no order for sale of the Lot shall be made with reserved price based upon its updated RDV.”

261.In addition to my earlier findings that the applicant has not made any reasonable offers to the respondents, I have sympathy on the “Acquisition Blight” faced by the respondents after 2019. When Mr W L Hui on behalf of the applicant was cross-examined by Mr But, he had difficulty in suggesting what reasonable steps have been taken to acquire all the undivided shares in the lot save the various offers made. Mr W L Hui in fact agreed that the applicant had done nothing as regards the management of the Building, leaving it in acquisition blight. Graffiti and signs of vandalism were noted during our joint inspection on 6 May 2025. While Mr W L Hui tried to explain that he had consulted legal advice and was given the answer that the applicant might be accused of having conflict of interest if it had taken up the management issues. However, in Smart Wealth Asia Pacific Limited v. The Incorporated Owners of Kelly Court, LDBM 251 of 2013 (unreported, dated 31^st December 2013), the majority owner holding then 92.5% of the undivided shares of the Kelly Court applied to the Tribunal for dissolution of the management committee of the respondent and for appointment of an administrator under section 31 of the Building Management Ordinance, Cap 344. At §22 of the judgment, the Tribunal remarked that such an application was necessary because there was no functioning management committee in place for such appointment.

262.I note in the present case in particular, “(s)ince in or about mid-2019, many of S&Ps entered into by the previous owners of the Building became executed in favour of the Applicant. Completion gradually took place afterwards whereby units were gradually acquired by the Applicants”. “By reason of the assignment of interest, many of the previous office bearers of the management committee of IO had left office or resigned. As the management committee was no longer quorate, the IO had become dysfunctional and could not operate. The regular maintenance and repairs to the common parts become adversely affected.”

263.The applicant only made the Application on 14 February 2023. That is, for a period up to 5 years, there has been no proper and expedient management of the Building.

264.The Ordinance did not specify how or when the majority owner can secure the threshold of 90% (or other percentages specified by the Ordinance) may apply to the Tribunal for a compulsory sale order. Having said that, I suppose the majority owner would acquire the threshold by legal and not oppressive means.

265.In response, Mr Kwong for the applicant referred to Far Union Investment Limited & Others v Ever Legend (H K) Limited & Others, LDCS 21000/2020 (unreported, dated 17 November 2023), where the Tribunal stated the following:

“301. It is further complained that the applicants have not properly maintain their units. To the contrary, they have damaged their units, by removing the window and frames. Plaster to wall has been removed exposing the concrete and steel bar. And the doors are removed and replaced by steel gates. He describes the Building as a ‘war-torn’ building.

302. Mr Chain submits that this is intentional blighting act of the applicants to create a situation that the Building is ripe for redevelopment.

303. As Ms Lui said in her oral evidence, the applicants acquired their units for redevelopment. One could not expect the applicants to carry out renovation like people who acquired a flat for self-use or letting out. It is sufficient for us to note that when we are dealing with the assessment of age and state of repair, we would bear the complaint in mind. Yet at this stage, and having heard all the evidence and visited the site, we are not convinced that the applicants intentionally blight the Building.”

266.Relying on Far Union Investment, therefore, the applicant suggests that all it had really done was to acquire units in the Building and leave them vacant in anticipation of redevelopment. However, in that case, the majority owners did apply to the Tribunal to dissolve the management committee of the Building. By an order of the Tribunal dated 29 January 2018, the management committee was dissolved, and an administrator was appointed with direction to convening the general meeting[96].

267.While I agree that the applicant is under no obligation to renovate or repair the units they had acquired, Far Union Investment must be distinguished from the present case in that the applicant chose to let the common parts into disrepair for a period up to 5 years. More particularly, the applicant has not, like the majority owner in Kelly Court or those in Far Union Investment, applied to the Tribunal for dissolution of the management committee of the Building and for appointment of an administrator under section 31 of the Building Management Ordinance, Cap 344.

268.I note the Tribunal in Far Union Investment did remark at §299 that “if the management committee does not discharge its duty properly, any owner may bring the action under the Building Management Ordinance to discharge the management committee and to form a new management committee.”

269.I have reservation on this dictum because, in reality, it may not be possible for the minority owners to reinvigorate a defunct onwers’ corporation owing to lack of quorum and voting power. In any event, this dictum was made following the preceding sentence that the Tribunal found no evidence as to the annual or regular maintenance that has not been carried out by the incorporated owners of the Building that had worsened the condition of the common area of the Building. In comparison, signs of deterioration and vandalism were noted in the present case. In respect of the latter, it was only in late 2024 when the applicant took the initiative to install a gate at each of the main entrance and rear entrance of the Building for security reasons.

270.In such regard, I agree with the further remark in Far Union Investment at §304 that:

“While we note that the applicants acquired the units for redevelopment, the way how they handle the internal condition could well be different from an owner who acquired a property for residency or letting out. The consideration is they should not do anything to their units to affect the enjoyment of the Building by the other owners.”

271.On the one hand, in the present case, there is evidence by reference to the photographs taken in different periods of time that the applicant, having full control of its units through its “patrol team”, left open the windows. According to Mr John Lau, the open windows caused water to have directly entered into the interior of the applicant’s units. In particular, the stagnant water ponding found in Flat B on 6/F was believed to have seeped into the units below[97]. It is thus unreasonable for Mr Wong to include the cost of repair of these units for the sake of comparing the degree of deterioration in the state of repair.

272.More importantly, ficus microcarpa (also known as Chinese banyan) as recognized by Mr Philip So had extended from Roof A and Roof C to the external walls of the Building damaging its structure while these units had been acquired by the applicant for more than 5 years.

273.Davey v Harrow Corporation [1958] 1 QB 60 was a case of cracking of walls due to root penetration. Lord Goddard ruled at p 71 that:

“The nuisance consists in allowing the trees to encroach from the land of their owner into that of his neighbour. The owner must keep his trees in, just as he may not allow filth to escape from his premises onto that of his neighbour ...”

274.In Delaware Mansions Ltd v Westminster City Council [2001] UKHL 55, [2002] 1 AC 321, damage to a building was caused by the roots of a London plane tree. The House of Lords ruled that the encroachment of the roots a continuing nuisance. A real risk of damage to the land and the foundations was foreseeable. Cracking in the building was consequential.

275.As regards R3’s objection, they complained that before the applicant obtained 80% ownership of the Building, they did not receive any purchase offer from the applicant. It was only after the applicant obtained 80% ownership of the Building that the first purchase offer for Shop F was provided[98].

276.With respect to R3, however, the Ordinance does not require the majority owner to make an offer to all owners of the building for the purpose of acquiring the threshold to make a compulsory sale application. To repeat, the Court of Final Appeal only stated in Capital Well, supra, at §2 that:

“(the Ordinance) permits a person owning at least 90% of the undivided shares in the Lot, who has failed to acquire the balance of the undivided shares despite having made appropriate efforts to do so, to apply to the Lands Tribunal for a compulsory order requiring sale of the lot for the purposes of redevelopment.”

277.In fact, the applicant did make an offer to R3 on 12 January 2023 before it made the Application on 14 February 2023. It was open for R3’s acceptance on or before 2 February 2023.

278.Turning to the history of the offers made by the applicant, R4 complained that he had accepted the applicant’s offer whereby both parties signed a provisional sale and purchase agreement provided by the applicant. Nevertheless, the applicant unilaterally revoked the contract[99].

279.R4 purchased Flat D, 2/F of the Building on 27 February 2017 at $2,900,000. According to R4, the applicant’s agent made an offer to purchase his unit at $8,300,000 plus compensation in the amount of $3,038,000. However, by the time he was going to sign the contract, he was informed that the applicant had acquired 80% ownership of the Building and the sale fell through[100]. By reference to the provisional sale and purchase agreement provided by R4[101], however, it was undated and the applicant had not signed on it. There was no binding contract.

280.R5’s complaint was similar to R4[102] but the applicant had signed on the provisional sale and purchase agreement which was dated 4 March 2021[103]. This notwithstanding, as stated by R5 in his witness statement dated 20 March 2024 at §3, he was led by the applicant to cancel the provisional sale and purchase agreement[104]:

“但本人臨與申請人簽正式買賣合約之際，申請人剛剛購置足夠的業權份數以作強拍申請，申請人因此通知本人交易告吹 ......”

281.Nevertheless, by reference to clause 7 of the provisional sale and purchase agreement (which is recited below), I had reservation on whether the applicant could withdraw unilaterally though R5’s then representing solicitors agreed to the applicant’s request:

“...... 本合約在買賣雙方簽署後即成為必買必賣合約。若買賣雙方中任何一方(以下稱為「毀約方」)未能根據本合約之條款完成交易，則守約方有權向毀約方追究一切損失、支出及費用，並可向法院申請“強制覆行” 本合約，......”

282.In such regard, Mr Hui explained in his witness box that:

(i)  R4 of Flat D, 2/F and R5 of Flat D, 3/F are brothers;

(ii)  Flat D, 2/F was sold to R4 at an auction pursuant to a Court Order pursuant to a Memorandum of Charge and a Charging Order obtained in LTBM 91/2015. As a result, the title deeds for Flat D, 2/F were not complete;

(iii)  As there was doubt on the title of Flat D, 2/F, the applicant only signed on the provisional sale and purchase agreement for Flat D, 3/F, but not on the provisional sale and purchase agreement for Flat D, 2/F. R4 and R5, however, insisted that both their flats must be sold together.

(iv)  Because of this, even the sale for Flat D, 3/F could not proceed. The parties had no choice but cancelled the transaction for Flat D, 3/F in the end.

283.If this being the case, I accept that it was not unreasonable for the applicant not to proceed with the acquisition of Flat D, 3/F.

284.R6’s complaint was similar to that of R3 and I make no further comment on it.

285.On the other hand, I share with R2 as regards the unreasonable treatment by the applicant[105]:

“A year and a few months ago, a provisional agreement for sale and purchase was signed regarding Shop B of Lo Fok Hee, my father, and my Shop D between the purchaser and us at the purchase price of HK$30 million for each shop. But only shop B was sold at the end, and they refused to purchase Shop D. We oppose their action to significantly lower the price of Shop D in a short period of time. We just request that they shall complete the transaction at the same price of HK$30 million…”

286.More history of the above matter can be discerned from the witness statement prepared by R2 dated 1 May 2024:

“3. I, the 2^nd Respondent became the registered owner of Shop D, Sun Ming Building, 22 Sun Ming Street since 1982; and my late father LO FOK HEE was the registered owner of Shop B in the Building … until 2021… and my brother LO CHIU MING is in charge of his affairs.

4. I, Lo CHIU MAN, an engineer by trade for the fishing community in Aberdeen for over 50 years. My father and I were operating our day-to-day business from Shop B and Shop D in the Building to cater for a large customer base in the area. I also raised my family in the cockloft of Shop B and D in the past 40 years. This is not only my father’s legacy; this is also our family home, our livelihood. …

5. In 2021, the Applicant’s agent approached myself and my late father in an attempt to make an offer to purchase Shop B and Shop D in the Building. … we were told that the purchaser has already gained majority stake in the Building, and that would be the last opportunity to agree a good deal with them or we will risk entering into Compulsory Sale.

6. After a lengthy negotiation, we agreed on the purchase price of HK$30,000,000 for Shop B and HK$30,000,000 for Shop D. We were given TWO cheques of HKD 500,000 as the downpayment prior to exchange of contracts.

7. Soon after we exchanged the contract for Shop B, the Applicant gave up the purchase of Shop D unexpectedly and demanded that I dropped the price of Shop D, else they would withdrew the offer of Shop D. I was really taken aback by their cunning moves, so I did not accept their demand to drop the sale price and the HKD500,000 downpayment was returned.

8. …The Applicant has no intention to purchase Shop D with the agreed price of HKD30,000,000. Their motive was to persuade my late father and I into selling both units but as soon as they crossed the 80% majority stake threshold for compulsory sale after purchasing Shop B, they slashed their offer for Shop D and eventually withdrawn their offer.

…

14. In the offer of Shop B and D, a relocation fee of $7,000,000 is part of the offer and together with the property value of $23,000,000 made up the total value of $30,000,000. As reference, only the $23,000,000 was registered in the government record … which did not truly reflect the real transaction value. The recent offers of Shop D did not mention any relocation fee (that was stated in the original offer of Shop D made in 2021) ….”

287.During the joint inspection on 6 May 2025, I found that the only access to the unauthorized cockloft in Shop D is through the ground floor of Shop B. I accept that R2’s family would not have sold Shop B if Shop D would not be sold at the same time. With respect, I am persuaded that either the applicant or its agent had misled R2’s family into signing the Agreement for Sale and Purchase for Shop B and Shop D together but in the event the applicant was content to purchase Shop B only. The applicant failed to provide any defense in this regard.

288.In addition, R2 complained in his closing submission dated 1 June 2025 that the offers by the applicant were all “subject to contract”:

“當日我簽了單邊的必買必賣合約，但原來最終是有條件的。根據對方最後的意願，對方拒絕了買賣。今天對方的律師給我一封信，話會作出收購，但如果我亦是簽了，然後對方又再一次繞一個大圈近兩個月去考慮最後是否完成買賣，如果對方最後也是不完成買賣，好似上次那次的事實的結果，就是我實際的經歷，這是否對我公道和合理呢。還是這次應該是對方先簽了一份對方必買必賣的合約，給我考慮作出賣出的決定呢， 如果今次也是與上次一樣，最後對方反悔，我賣不成，但法庭也判決了。對我是絕對的不公道。”

289.I am surprised that at this late stage of the Application, the offer by the applicant was still subject to contract. I agree that R2 has rightly raised his concern. Even if he had signified his acceptance, the applicant may once again adopt a wait-and-see attitude to see if the judgment of the Tribunal turns out in its favour or otherwise before it proceeds to complete the purchase[106].

Order

290.In conclusion, I have considered that the applicant has failed to take reasonable steps to acquire all the undivided shares in the Lot in terms of the offers made to the 2^nd named R1, R2 and R3. In addition, being the majority owner of the Building since 2019, the applicant had not taken the necessary steps during acquisition of all the undivided shares in the Lot for maintaining reasonable management of the Building. This latter included, for instance, no application by the applicant to the Tribunal for the appointment of an administrator under section 31 of the Building Management Ordinance.

291.Not only the applicant lay back, leaving the windows of its acquired units open and allowing water to enter into the interior of the applicant’s units, but it had also paid no regard to the growth of the ficus trees on its roof units. This would have damaged the waterproofing membrane on the roof and concrete structure of the exterior walls, thereby creating a fait accompli for the poor state of repair of the Building. If an owner or occupier does not create the nuisance, but knows about it, or has a way of knowing about it or that it is likely to happen in his flat and allows the nuisance to continue, he is liable whether he is intentional or otherwise.

292.The Application is hereby dismissed.

Costs

293.I make a costs order nisi that the applicant do pay the costs of these proceedings (including any reserved costs) to the 2^nd named R1, R2, R3, R4, R5 & R6, with certificate for counsel (if any), to be taxed on the High Court scale if not agreed. Unless any parties apply by summons to vary the costs order nisi, it shall become absolute upon expiration of 14 days from the date of this judgment.

294.Last but not least, I thank Counsel for their able assistance.

Mr Jeremy Kwong, instructed by Messrs Iu, Lai & Li, for the Applicant

1^st named 1^st Respondent, unrepresented, absent

Mr Adrian But, instructed by Messrs Anthony Chiang & Partners, for the

2^nd named 1^st Respondent

2^nd Respondent, unrepresented, appeared in person

3^rd Respondent, unrepresented, appeared in person

Mr Anson Wong Yu Yat, instructed by Messrs Chan & Chan, for the 4^th & 5^th Respondents

Mr Solomon Lam, instructed by Messrs So, Lung & Associates, for the 6^th Respondent

Appendix 1

Appendix 2