Good Trader Ltd v. Hinking Investments Ltd
Read the full judgment text of LDCS 1000/2006 on BabelCite. This LDCS judgment was delivered on 30 March 2007.
1. This is an application made by the Applicant for an order for sale pursuant to section 3(1) of the Land (Compulsory Sale for Redevelopment) Ordinance, Cap. 545 (“the Ordinance”).
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LDCS 1000/2006 IN THE LANDS TRIBUNAL OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION Land Compulsory Sale Application No. LDCS 1000 of 2006 ________________ BETWEEN
________________ Coram: H.H. Judge WONG, Presiding Officer, Lands Tribunal and >Mr. W.K. LO, Member, Lands Tribunal Dates of Hearing: 5 to 8 March 2007 Date of Handing Down of Judgment: 30 March 2007 ________________ JUDGMENT ________________ Background 1.This is an application made by the Applicant for an order for sale pursuant to section 3(1) of the Land (Compulsory Sale for Redevelopment) Ordinance, Cap. 545 (“the Ordinance”). 2.The Applicant is the sole owner of the 6-storey building erected on the Remaining Portion of Kowloon Inland Lot No. 1703 and known as No. 125 Tung Choi Street, Kowloon, Hong Kong (“No. 125”). The Applicant is also the majority owner of the 6-storey building erected on the Remaining Portion of Kowloon Inland Lot No. 1704 and known as No. 127 Tung Choi Street, Kowloon, Hong Kong (“No. 127”). Apart from the Ground Floor of No. 127 (“the Premises”), which is owned by the Respondent, the Applicant owns all the remaining units of No. 127. 3.In addition, the Applicant is the sole owner of the 6-storey building erected on the Remaining Portion of Kowloon Inland Lot No. 1702 and known as No. 123 Tung Choi Street, Kowloon, Hong Kong (“No. 123”). The Applicant has stated in the Notice of Application that it intends to redevelop No. 123, No. 125 and No. 127 together and has submitted a valuation report in respect of all 3 properties. However, the Applicant has confirmed at the trial that the order sought is in relation to No. 125 and No. 127 only. 4.The buildings at No. 125 and No. 127 (“the Buildings”) are both completed in 1960 and are more than 40 years old. All the upper floors of the Buildings are vacant, but there are tenants occupying the ground floors. There is a staircase connecting the Buildings, which is intended for common use by the occupiers of the Buildings. The average of the percentage of the undivided shares owned by the Applicant in No. 125 and the percentage of the undivided shares owned by the Applicant in No. 127 is 91.67%. There is no dispute that the requirements laid down in sections 3(1) and 3(2)(b) of the Ordinance are fulfilled and the order sought can cover both No. 125 and No. 127. 5.The Respondent agrees that the Applicant has taken reasonable steps to acquire the Premises from the Respondent, and hence section 4(2)(b) of the Ordinance has also been satisfied. The disputes between the parties are only related to the requirements in section 4(2)(a)(i) of the Ordinance, which reads as follows:-
(underlines added) 6.The Applicant contends that the redevelopment of No. 125 and No. 127 is justified due to the age or state of repair of the buildings. The Applicant submits that “the age” and “state of repair” are two separate grounds of justification and if the Applicant can satisfy the Tribunal on either one of these two grounds, the order for sale should be granted. The Respondent, on the other hand, contends that the Applicant has failed to satisfy the Tribunal that the redevelopment is justified on both grounds. Thus, we have to determine whether the Applicant has established either one of these two grounds to justify the redevelopment. The age or state of repair 7.Before we look at “the age” and “state of repair” separately, we have to decide whether these two factors are indeed separate and distinct from each other. No doubt, section 4(2)(a)(i) of the Ordinance uses the word “or” to separate these two factors. So presumably, these are two separate factors. However, the word “or” in a statute can sometimes be interpreted as “and” and vice versa. We have to see whether this way of interpretation is applicable to section 4(2)(a)(i). 8.Normally, when one considers the age of a building, it is very natural to consider the physical conditions of the building as well. It is because deterioration in the physical conditions of a building, such as fair wear and tear, occurs when the building is ageing. Thus, the physical conditions of a building can reflect the age of the building to some extent. Indeed, when Ms. Lan, counsel for the Respondent, was asked by the Tribunal as to how one can determine whether a building is old enough to justify redevelopment, she also naturally answered that one can look at the conditions of the building. The conditions of the building would depend on the state of repair of the building. Thus, it seems natural to consider the age and the state of repair of a building together. 9.Nevertheless, we accept that there could be scenarios where redevelopment of a new building is justified because of the state of repair of the building. For examples, a new building having been structurally damaged by fire or landslide might warrant redevelopment as it would not be viable to repair the building economically or physically. In such situations, obviously one has to consider the age and the state of repair separately, and the state of repair of such a building alone should be a ground to justify redevelopment. 10.Thus, we are of the view that the word “or” in section 4(2)(a)(i) should not be interpreted as “and”, and the two factors, i.e. “the age” and “state of repair”, can each separately constitute a ground to justify redevelopment. The age 11.The Ordinance does not define “the age” in section 4(2)(a)(i) at all. However, it cannot be doubted that the main purpose of the Ordinance is to encourage redevelopment of “old” rather than “new” buildings in Hong Kong. So when “the age” of the existing building is relied on as the sole ground to justify redevelopment, the building must be “old” enough to justify redevelopment. But, how old must the building be before the Tribunal can grant an order for sale? This is the question we have to answer. 12.Mr. Chain, counsel for the Applicant, submits that “age in the context of the Ordinance means more than just a certain number of years, and includes facilities etc.” In this regard, the Applicant produced the 2nd Witness Statement of Yau Kwok Fai to show that the Buildings have no basic facilities such as elevator, gas supply, fire alarm, fire extinguisher, fire hose, ramp access, public antenna and other modern basic facilities. Mr. Chain also relies on the Chinese words for “the age”, i.e. “齡期”, in the Chinese version of section 4(2)(a)(i) of the Ordinance to argue that “the age” should be interpreted to mean “the period” in which the existing development was built. Mr. Chain even suggests that it would be naïve to think that “the age” means just the age and nothing else. 13.First of all, we do not agree with Mr. Chain’s interpretation of the Chinese words “齡期”. If we separate the two Chinese words, the word “齡” in Chinese means “age” and the word “期” in Chinese means “period”. When they are put together, they form a phrase “age period”, but it is extremely far-fetched to suggest that “age period” in the context of the Ordinance refers to “the period when the existing development was built”. The more natural meaning of these two Chinese words in the Ordinance should be “the period of age” or “the duration of age” of the existing development. In other words, “齡期” refers to “how long the existing development has been built”, rather than “when it was built”. This meaning is clear in the English version of the Ordinance, because only the word “age” is used, not “the period in which the existing development was built”. If the intention of the Ordinance was to refer to “the period in which the existing development was built”, then the English version could simply use this phrase or similar phase to spell out the intention rather than using the word “age”. 14.We also fail to see how the ordinary meaning of “age” could include facilities. An old building equipped with modern facilities such as those mentioned by the Applicant is still an old building. Likewise, a new building without any such modern facilities is still a new building. Clearly, age and facilities are not interrelated and should not be treated as the same. If the Ordinance did intend to include facilities as the factors that the Tribunal has to consider under section 4(2)(a)(i), the Ordinance could simply insert the word “facilities’ in the section. There is absolutely no reason why the Ordinance would miss out the word and yet ask the Tribunal to consider “facilities” under the umbrella of “age”. Just like “state of repair”, which is in fact closely related to age, the Ordinance also spells it out in the section. We see no reason why the Ordinance would not in the same way spell out “facilities” in the section if they were indeed relevant factors. Thus, we do not agree with the interpretation of Mr. Chain. We are of the view that “the age” in section 4(2)(a)(i) simply means the age of the existing development and does not include facilities. 15.So, how do we determine at what age a building should be redeveloped? The Ordinance does not stipulate that a building should be redeveloped when it attains a certain age such as 40 or 60. We do not think that it should be the right approach to fix a certain figure on the age either. A building that is designed to last for 100 years may still be considered young when it is 40 years old. A building that is designed to last for 50 years may be considered to be old at the age of 40 years. So it will not be sensible to fix a certain number of years as the age to justify redevelopment. 16.However, a building will have its own life span. All building materials will deteriorate over the years and will not last forever. With better materials, a building will last longer, but with not so good materials, a building will have a shorter life. So there is a physical life to a building. Mr. Chain disagrees with this and submits that there is no life span for a building because it is not right to assume that a building will not be maintained. However, maintenance will only extend the normal life span of a building but it does not mean that a building has no life span. So when the age of a building is being considered, reference should be made to the life span of a building. 17.Apart from the physical life span mentioned above, a building will also have its economic life span. Deterioration occurs over the years. When the deterioration comes to the end stage, it ends the physical life of a building. However, when the deterioration has not come to the end stage, but it is serious enough that the cost of maintenance will outweigh the building’s economic value, it will also end the economic life span of the building. The economic life span of a building is different from the state of repair of a building. A building may well be in good state of repair at the present moment, but if in the near future the building will still need substantial maintenance and it would not be worthwhile economically to carry out such maintenance, it ends the economic life span of the building. 18.We are of the view that when the age of a building is being considered under section 4(2)(a)(i), the Tribunal has to determine whether the building has come to the end of its physical life or its economic life. When either the physical life span or the economic life span comes to the end, it will be justified to redevelop the building. 19.However, the Applicant has not produced any evidence to show that either the physical life or the economic life of the Buildings has ended. Mr. Chain argues that it would be too technical to establish whether such life spans have ended, and hence it would not be the intention of the Ordinance to have this requirement. We disagree with this argument. Just like the state of repair, which is also a technical matter, the Applicant is required to produce evidence, including expert report, to substantiate the justification for redevelopment. If the Applicant wants to rely on the age of the existing development as a ground for the application, it should also produce such evidence, including expert report, to substantiate the ground, no matter how technical it is. In fact, the life span of a building is not something extraordinary. It is something well known in the building industry. The Applicant’s own witness, Mr. Yau Kwok Fai, who is not an expert but has experience in the building industry, also referred to the life span of the proposed new building in his 2nd witness statement. So it would not be difficult to obtain expert evidence in relation to the life span of a building. 20.Since the Applicant has failed to prove either the physical life span or the economic life span of the Buildings has ended, we are of the view that the Applicant cannot rely on the age of the Buildings to justify redevelopment. The state of repair 21.As to the state of repair, the parties have factual disputes of whether the existing development is in a state of disrepair. The Applicant accepts that the burden of proof is on the Applicant but submits that the burden is not a heavy one. The Applicant called three witnesses, Mr. Lee Kit Cheong (“Mr. Lee”), Mr. Chan Chi Ho Andy (“Mr. Chan”) and Mr. Yau Kwok Fai (“Mr. Yau”) to give evidence at the trial. The Applicant submits in the closing submission that even on the limited evidence adduced in this case, the Tribunal should have no difficulty in concluding that the Buildings are in a state of disrepair. On the other hand, the Respondent chose not to call any evidence but submits that on the evidence adduced by the Applicant at the hearing, the Applicant fails to satisfy the Tribunal that redevelopment is justified due to the state of repair of the Buildings. We have to analyze the evidence of the witnesses called by the Applicant before we are in a position to determine this issue. 22.The Applicant admits that the Applicant had not carried out any detailed survey or test after taking into consideration the cost factor. Also, the Applicant admits that the instruction given to Mr. Lee Kit Cheong was “simply to remedy what he could see to be in need of immediate attention”. However, we find that as the Applicant bears the burden of proof, it must adduce sufficient evidence for the Tribunal to consider. The Applicant chose not to spend extra cost to prepare its case is clearly a matter for the Applicant, but it takes the risk that the Tribunal may not be satisfied with the available evidence. Evidence of Mr. Lee Kit Cheong 23.Of the three witnesses called by the Applicant, Mr. Lee’s evidence is most important because (a) he was the one who was specifically instructed by the Applicant to report on the defects in the Buildings and the recommended remedies and (b) he was a professionally qualified building surveyor with the necessary expertise of completing the assignment instructed by the Applicant. 24.The instruction to Mr. Lee’s employer DTZ Debenham Tie Leung Project Services Ltd. was “to conduct a general condition survey on the Buildings. It was set out in Mr. Lee’s Condition Survey Report dated 13 June 2006 (page 833 of Exhibit AR-3) that “the objective of the survey was to identify the defects of the Premises, to identify any illegal structure of the Premises, to identify any immediate danger from these Premises, and to appraise the general condition of the Premises.” 25.In giving evidence, Mr. Lee confirmed that he had recorded down all the defects he had identified upon his visual inspection. He also recommended “carrying out hammer taping tests to identify any defective rendering and concrete, carry out patch repairs and repainting” and carrying out “a comprehensive survey… to define the exact location of the repair work” for the suspected water seepage he noted during the course of his inspection (pages 834 and 836 of Exhibit AR-3). 26.Mr. Lee also confirmed in his Condition Survey Report that all major defects were mentioned even though not every single defect he had found was included. In the section titled “survey findings” in his Condition Survey Report, Mr. Lee summed up all the major defects in the Buildings, under the following headings: -
27.In his Condition Survey Report, Mr. Lee had the following conclusion and recommendations: -
28.In addition, Mr. Lee estimated the total basic repair cost for the remedial works recommended in the Condition Survey Report to be $366,000, a break-down of which is as follows: -
29.During cross examination, Mr. Lee did not agree with the Respondent that no substantial repairing work would be required in at least 7 to 10 years, after his recommended repairing work was carried out. He explained that this would actually be dependent on the quality of the repairing work. He also clarified that the “immediate hazard” stated in section 6 of his Condition Survey Report was only meant to be the possible health hazard that might be caused by the corroded water piping along the external wall. 30.Mr. Lee stressed that even after his recommended repairing works were completed, there would still be recurring costs for repairing other defects that might come up from time to time in the future. He further estimated that such recurring costs of repair would be about the same as his estimate for the repairing works in his Condition Survey Report, i.e. $366,000 per year. At this juncture, when being asked by the Tribunal whether he had any evidence that there would be certain type of repairing works in the future years, either every year or every 2 to 3 years, Mr. Lee replied that he had gathered no evidence at the time of his survey to substantiate the existence of any such defect in the Buildings that should warrant future repair works. 31.Also, when being told that the estimated “recurrent” repairing cost of $366,000 would represent about 0.55% of the agreed estimated existing use value of the Buildings (at $66,667,000), Mr. Lee could not give any opinion as to whether this percentage of annual repairing cost to value was a reasonable figure or not for buildings of this type and this age. 32.Finally, in re-examination, Mr. Lee explained that his budgeted repairing cost of $40,000 for the replacement of drainage pipes was only sufficient for replacing about half of the corroded pipes. Since as he reckoned that the remaining half would be replaced a few years later, he did not include that in his recommended cost estimate in his Condition Survey Report. Evidence of Mr. Chan Chi Ho Andy 33.Mr. Chan was a professional valuation surveyor who was instructed by the Applicant to prepare several valuation reports in respect of the Buildings. He did inspect the Buildings prior to carrying out his valuations. 34.In his evidence, Mr. Chan agreed that for valuation purpose, the conditions of the Buildings, which referred to the outlook of the Buildings both externally and internally, was a relevant factor in valuation. He would allow a downward adjustment of 5 to 10% to reflect unsatisfactory conditions. For the present case, he considered that the interior of the units were in fair condition at the time of his first inspection on 11 May 2006. In his second inspection held on 8 November 2006, he maintained the same view that the interior of the units was in a fair maintenance condition. As to the external condition of the Buildings, he opined that it was also in a fair condition. The evidence of Mr. Yau Kwok Fai 35.Mr. Yau was the 100% shareholder of the Applicant who made the decision to acquire the Applicant’s properties in late 2005. Mr. Yau produced his witness statement dated 6 March 2007, which stated that when the Applicant acquired the properties, “the Buildings were in a very dilapidated condition with the upper floors mostly unoccupied.” Mr. Yau added, “we have no information about the past renovation or repairs history of the buildings. If we were to make any overhaul of the Buildings, we need to carry out a lot of tests on the structure and other aspects of the Buildings to ensure that any repair works carried out by us will be up to standard and complied with the Buildings Ordinance.” He estimated the rough costs of the tests to be in the region of $1 million. The Applicant’s submission 36.The Applicant submitted that although the Applicant had not carried out any detailed survey, and no test was performed, it was a commercial decision taken by the Applicant with the objective of saving unnecessary costs. More importantly, the Applicant submitted that Mr. Lee’s evidence had to be understood in context, in that he had only “carried out visual inspection and his recommendation to have limited remedial works was simply to remedy what he could see to be in need of immediate attention.” Hence, Mr. Lee’s opinion that recurring costs would be incurred in the future should also be considered with this background of limited remedial works in the first place. Besides, the Applicant submitted, “no matter how much maintenance is to be carried out at an old building, the owners are left with an old building, which will become older with the passage of time.” Therefore, citing the evidence of Mr. Lee and Mr. Yau, the Applicant submitted that even on the limited evidence in this case, the Tribunal should have no difficulty in concluding that the Buildings are in a state of disrepair. The Respondent’s submission 37.The Respondent said that since all the illegal structures and the broken glazing belong to the units owned by the Applicant, it would not be unreasonable to expect the Applicant to bear the entire cost of their removal and replacement. As a result of these adjustments, the total cost estimate prepared by Mr. Lee only amounted to $366,000 less $70,000, or $296,000. 38.The Respondent pointed that it was the expert evidence of Mr. Lee that “(a) the defects he identified are not structural in nature; (b) no immediate danger is noted; and (c) the defects identified could be repaired with costs of 0.44% (using $296,000) or 0.55% (using $366,000) of the value of the buildings ($66,667,000).” 39.The Respondent submitted that after carrying out the repair works recommended by Mr. Lee, which are essential to rectify the defects, the minimum safety and hygiene standard for the Buildings would be achieved. It was more likely than not that the Buildings would then have new drainage piping and newly redecorated external wall and with no major repair works required to be done in the next 7 to 10 years. Therefore, the Tribunal should treat Mr. Lee’s evidence regarding “the recurring costs” with utmost caution. 40.The Respondent criticized Mr. Lee for arriving at the conclusion that it would not be cost effective to repair the Buildings since Mr. Lee has apparently failed to consider that “(a) the repair cost of $366,000 was insignificant if compared with the value of the buildings; and (b) even for new buildings, it would normally cost 0.2 – 0.3% of its value for maintenance and repair every year.” Also, although Mr. Lee stated in his Condition Survey Report that redevelopment would be justified because it would increase the value of the land and also improve the environment of Tung Choi Street, the Respondent submitted that these considerations were clearly irrelevant in the present proceeding. 41.Finally, the Respondent submitted that, since Mr. Lee clarified that the only “immediate hazard” he identified in his Condition Survey Report was the possible health hazard caused by the corroded water piping along the external wall, the Applicant failed to establish that the state of repair of the Buildings was in such a condition as to justify redevelopment. 42.As regards to the evidence of Mr. Yau, the Respondent submitted that since he was a director of Vantage International (Holdings) Ltd. (“Vantage”), and with Vantage’s subsidiaries involved in various civil and construction projects including building maintenance works and with Mr. Yau’s experience in the field, the condition of the Buildings must be fair at the time of purchase. Otherwise, Mr. Yau would not have purchased the Buildings (with the exception of the Respondent’s ground floor unit) with an intention to refurbish for leasing. In fact, in the Circular issued by the Board of Directors of Vantage to its shareholders, it was stated that the properties in the Buildings would generate good rental return after refurbishment. So, the Respondent submitted that it is inconceivable that the Buildings were in such a poor condition as described by Mr. Yau in his witness statement. The Tribunal’s findings on the state of disrepairs of the Buildings 43.The Applicant submitted that “no matter how much maintenance is to be carried out at an old building, the owners are left with an old building” even if after carrying repairing works. That may be true. However, the provisions of the Ordinance certainly does not envisage the situation that redevelopment must be justified whenever repair costs are to be incurred. We think that it is all a matter of evidence as far as what kinds of repairing works are required, and what amount of repairing cost is warranted. Then, the Tribunal should compare the evidence with the existing use values of the buildings before determining whether redevelopment is justified. 44.We also agree with the Respondent that in the course of deciding whether redevelopment is justified, we should not consider factors such as that advanced by the Applicant’s expert witness, i.e. to increase the value of the land or to improve the environment of the immediate vicinity. Instead, we have to restrict ourselves to the provision, i.e. section 4(2)(a)(i) of the Ordinance. 45.After considering the evidence of the witnesses called by the Applicant, we find that there was clearly no evidence that the defects identified were structural in nature and/or posed immediate danger the aversion of which would require substantial expenditure. In addition, the estimated repairing cost for the defects identified by Mr. Lee amounted to only about 0.5% of the total existing use value of the Buildings. It would be reasonable to expect any owner of older properties such as the Buildings to spend cost of this proportion for the repairs. We therefore agree with the Respondent that the Applicant has failed to adduce sufficient evidence to justify redevelopment due to the state of repair of the Buildings. Other justifications 46.The Applicant submits that “justify” does not mean necessary, but it means “reasons acceptable to right thinking people as sound and tolerable” (see Ojutiku and another v. Manpower Services Commission [1982] I.C.R. 661). The Applicant suggests that the reasons advanced by Mr. Yau are sound and tolerable, and that these are essential matters which called for a commercial decision. The Applicant further relies on the fact that the Respondent is also interested in redeveloping the Buildings as the best possible evidence that redevelopment is justified. 47.We totally reject these arguments. Commercial decision is never a ground for redevelopment under section 4(2)(a)(i) no matter how sound or tolerable it is. The fact that the Respondent is also interested in redeveloping the Buildings may also be due to commercial reasons rather than the age or state of repair of the Buildings. It cannot be evidence to support these two grounds. We do not find it necessary to refer to other grounds to justify redevelopment except the two grounds mentioned in section 4(2)(a)(i). Conclusion 48.By the aforesaid reasons, we find that the Applicant has failed to satisfy the Tribunal that the intended redevelopment is justified due to the age or state of repair of the Buildings and hence we shall not make an order for sale in pursuance of section 4(2)(a)(i) of the Ordinance. 49.We therefore order as follows:-
Mr. Benjamin CHAIN instructed by M/S Peter K.S. Chan & Co. for the Applicant Ms. Gekko LAN instructed by M/S Tang & Lee for the Respondent |
Cases cited in this judgment
Further hearings and rulings under LDCS 1000/2006