Pandix Ltd v. Tse Oy Moon

LDCS 3000/2009

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

Lands COMPULSORY sALE Application No. 3000 of 2009

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BETWEEN

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REASONS FOR JUDGMENT

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Written Reasons

1.After hearing and reading submissions and evidence before me, I have granted judgment in favour of the Applicant on 8 October 2010 and made an order for sale under the Land (Compulsory Sale for Redevelopment) Ordinance, Cap. 545 (“the Ordinance”) with reasons reserved. I now give my written reasons for the judgment.

The Application

2.This was an Application made under the Ordinance for an order of compulsory sale of all the undivided shares of and in : -

(1) Sub-section 3 of Section H of New Kowloon Inland Lot No. 317 (No. 287 Sai Yeung Choi Street North, Kowloon) (“the 1^st Lot”); and

(2) The Remaining Portion of Section H of New Kowloon Inland Lot No. 317 (No. 289 Sai Yeung Choi Street North, Kowloon) (“the 2^nd Lot”).

3.There were 2 buildings erected on the 2 lots respectively with the building at No. 287 Sai Yeung Choi Street North sharing a common staircase with the building at No. 289 Sai Yeung Choi Street North. There was 1 residential unit on each of the Ground Floor to 4^th Floor and 1 basement unit in each building for storage, making a total of 10 residential units (each given 1 undivided share) and 2 basement units (each also given 1 undivided share). The 2 buildings were about 54 years old.

4.The Applicant was the registered owner of all the undivided shares of the 2 lots with exclusive right to use all the units of the buildings (“the Applicant’s Units”), except 1 undivided shares (out of 12) of the 2^nd Lot held by the Respondent with exclusive right to use the domestic unit at 3^rd Floor of No. 289 Sai Yeung Choi Street North (“the Respondent’s Unit”).

5.The average of Applicant’s undivided shares of the 1^st and 2^nd Lots was 91.67%. I was satisfied that the Applicant was entitled to make this Application pursuant to section 3(1) of the Ordinance.

6.The Respondent did not appear in the hearing. I was satisfied that the notices published in the Chinese and English newspapers pursuant to the Directions of this Tribunal dated 14April 2010 were sufficient to bring the Respondent to the attention of this Application and the hearing on 8 October 2010.

7.Since the Respondent did not appear in the hearing, I therefore requested the Applicant to prove its case to justify its application for making the order according to the Ordinance. In my judgment, even if it was uncontested because of the absence of the Respondent, unless the Applicant has satisfied this Tribunal with sufficient credible evidence that all the requirements and conditions as laid down in the Ordinance were duly met, the order for sale should not be granted. Since the Applicant’s evidence was not challenged, I therefore directed that all the witness statements, expert reports and documents filed by the Applicant in support of the Application be admitted as evidence in the hearing without calling the makers.

Valuation of the Existing Use Values (“EUV”) as per Part 1 of the Schedule 1 of the Ordinance

8.Under section 4(1)(a) of the Ordinance, the first determination by the Tribunal would have been the determination of dispute, if any, on the EUV valuations undertaken in the application valuation report filed pursuant to section 3(1)(a) of the Ordinance. However, if the Respondent cannot be found, pursuant to section 4(1)(a)(ii) of the Ordinance, the Applicant had a duty to satisfy this Tribunal that the value of the Respondent’s Unit as assessed in this application was not less than fair and reasonable, and in particular, when compared with the value of the Applicant’s Units.

9.After reading and reviewing the valuation reports dated 3 March 2009 and 29 June 2010 respectively of Mr. Charles Chan, FRICS, FHKIS, Chartered Valuation Surveyor, I was satisfied that the EUV of the Respondent’s Unit as assessed by Mr. Chan satisfied the above test that it was not less than fair and reasonable, and in particular, when compared with the EUVs of the Applicant’s Units. I accepted the opinion of Mr. Chan that direct comparison method was an appropriate valuation method for these properties. And I also accepted that the valuation was based on good market comparable transactions with suitable adjustments. According to Mr. Chan, the EUV for $1,670,000 of the Respondent Unit represented 9.82% of total EUVs of the 2 lots. The EUVs of all the units of the existing buildings accepted by this Tribunal were:-

Floor	Existing Use Values as at 11 February 2009
	No. 287 Sai Yeung Choi Street North, Kowloon (1st Lot)	No. 289 Sai Yeung Choi Street North, Kowloon (2nd Lot)
Basement	$ 740,000	$ 650,000
G/F	$ 1,52,000	$ 1,520,000
1/F	$ 1,570,000	$ 1,570,000
2/F	$ 1,620,000	$ 1,620,000
3/F	$ 1,580,000	$ 1,670,000
4/F	$ 1,470,000	$ 1,470,000
Total EUVs		$ 17,000,000

Justification for Redevelopment and Reasonable Steps Taken

10.The second determination under section 4(1)(b) of the Ordinance is whether the compulsory order for sale shall be made. According to section 4(2) of the Ordinance, this would involve 2 statutory requirements, namely:-

(1) Was the redevelopment of the 1^st and 2^nd Lots justified due to age or state of repair of the existing buildings; and

(2) Has the Applicant taken reasonable steps to acquire all the undivided shares in 1^st and 2^nd Lots.

11.If the Applicant failed to satisfy this Tribunal that the above statutory requirements are met, be it an uncontested application, an order for sale ought not be granted.

12.For requirement (1) above, I have taken into consideration of the expert opinion of :- (a) Mr. Raymond Chan, FRICS FHKIS, a Chartered Building Surveyor and an Authorized Person as stated in his report dated June 2010; and (b) of Ir. Barry Liu, a Chartered Structural Engineer and Authorized Person as stated in his report dated June 2010. The experts were of the view that that the existing buildings were in poor and dilapidated condition, namely :-

(1) The main roof suffered from serious water leakage and the 4^th floor ceiling suffered from concrete spalling;

(2) The construction of unauthorized structures had damaged the waterproofing system of the main roof;

(3) The waterproofing system had reached the end of its serviceable life;

(4) The external walls were defective with serious water seepage problem, cracks and concrete spalling;

(5) There were numerous missing window sashes;

(6) Delaminations were found at the external facade;

(7) Asbestos containing materials were found and they would adversely affect the health of occupants;

(8) Unauthorised building works caused serious concrete defects and affected the structural stability of the existing buildings;

(9) Spalled concrete was found at the common staircases, which were the only means of escape for occupants;

(10) The staircases contravened current statutory requirements and electrical installations were not enclosed in fireproof enclosures;

(11) No emergency lighting had been provided at the common areas and staircases;

(12) The existing buildings were not served by any lift which was a functional obsoleteness;

(13) There was no refuse disposal installation;

(14) The main cutout fuse, the individual fuse switches and surface cables were all exposed and not provided with a fire-rated enclosure or segregation barrier;

(15) The existing buildings lacked earth bonding and equipotential earthing conductors;

(16) The existing potable water supply system was made from galvanized iron pipes, which contravened the current Water Authority regulations;

(17) The existing buildings lacked fire services installations, such as fire alarms, fire hydrants/hose reels and fire extinguishers; and

(18) The concrete strength of the reinforced concrete samples was unsatisfactory and failed to comply with the original design standard. The floor slabs were recorded as being fully carbonized, meaning that the concrete was much more susceptible to corrosion than normal concrete. The existing buildings were structurally unsafe.

13.Miss Verna Lui Counsel for the Applicant, submitted that although extensive repair works could extend the existing buildings’ life span, as explained in the experts’ reports, the continuous maintenance costs would be high.  Most of the building components and finishes were at the end of their effective life span and without substantial repairs, the existing buildings were not up to tenantable standard.

14.Further, Miss Lui relied on the comment of Ir. Benny Liu that general concrete repair works would not restore the concrete strength to its original design standard. The structural strength of the existing buildings was substantially below their original design standard and the expected 50-year design life of the existing buildings had been reached.  Without extensive structural strengthening, the existing buildings were structurally inadequate and unfit for habitation.

15.Apart from the professional opinions of the experts, I also looked at the primary evidence supporting the opinions including:- the photographs, the survey records and the various tests results (including:- Rebound (Schmidt) Hammer tests, Coring & Compression tests and Chloride Content & Carbonation tests) in coming my decision. I accepted Miss Lui’s submissions that the expert opinions were sound and supported by the facts.

16.Further, in consideration of the evidence above, I was entitled to look at all of the above collectively to see if redevelopment was justified, even though when each of them, if considered alone, was insufficient to do so. I was satisfied that the evidence showed that the existing buildings on the 2 lots had reached beyond the design working life of 50 years and the state of repair was poor. The existing buildings were structurally unsafe and unreasonable high costs may have to be incurred to restore them into an acceptable standard but no evidence seemed to suggest that any reasonable owners would do so. I was therefore satisfied that the redevelopment of the 1^st and 2^nd Lots was justified due to age and state of repair of the existing buildings.

17.In Intelligent House Ltd v Chan Tung Shing & Others [2008] 4 HKC 421, this Tribunal formulated certain tests, which included some economic perspective, for deciding whether or not a redevelopment is justified due to age or state of repair. However, the correctness of these tests were subsequently questioned by the Court of Appeal “without the benefit of hearing full argument” in Fineway Property Ltd v Sin Ho Yuen VictorCACV 95 of 2009 (Unreported). I do not intend to deal with the correctness of the relevant tests formulated in Intelligent House  on “age” and “state of repair” in this Application as it was not necessary for me to do so. I was satisfied with the facts and expert opinions adduced before me that the redevelopment was justified due to age and state of repair of the existing buildings.

18.For requirement (2) above, I have taken into consideration of the evidence of Mr. Chan Chi Hing. He was a director of the Applicant and had been involved in the conduct of this proceeding. He said that the Applicant had made attempts to negotiate with the Respondent to purchase the Respondent’s Unit. On 31 March 2008, the Application through its solicitors, made an offer to the Respondent to purchase the Respondent’s Unit at a price of $3,000,000. However, the Respondent did not respond to this offer. By a letter dated 17 March 2009, the Applicant, through its solicitor, made another offer to the Respondent at a price of $3,755,869. According to his evidence, it did not just reflect the market value of the Respondent’s Unit at the time. According to the professional advice of Mr. Charles Chan, the offers for the Respondent’s Unit took also into account of a fair and reasonable share of the redevelopment value of the 2 lots. However, no reply was received by the Applicant again.

19.According to the evidence before me, subsequently, a reply was received by the Applicant in April 2009. By a letter dated 17 April 2009, from a Mr. Kit Lui, an individual claiming to be the nephew of the Respondent and to represent her in this matter, the Applicant was informed that the Respondent had already passed away. In his letter, no particulars of when and where this happened. Mr. Lui allegedly made representation that he was in the process of taking out the appropriate steps to apply for letters of administration for the estate of the Respondent. He also claimed that he had the authority to discuss with the Applicant about the acquisition of the Respondent’s Unit. He expressed his wish in the letter that the matter could be resolved by negotiation. However no documents had ever been produced to the Applicant by Mr. Lui at any stage of this proceeding to prove his authority in this matter.

20.Despite without proper proof, the Applicant continued to discuss the matter with this Mr. Lui. By another letter dated 18 June 2009, Mr. Lui, allegedly acting on behalf of the Respondent, expressly rejected the 17 March 2009 offer for $3,755,869 and said that it was not fair and reasonable. The only basis of such rejection, as stated in his letter, was that the “fair value” of the Respondent’s Unit “is much more than $3,700,000” and “higher offers were made to other owners”. However, Mr. Lui did not give any particulars of his statement and did not make any counter-offer at all.

21.As a final attempt to acquire the Respondent’s Unit by negotiation, by a letter dated 29 September 2010 addressed to both the Respondent and Mr. Lui, the Applicant offered the Respondent $7,073,280.00 for acquiring the Respondent’s Unit. Given that the range of acquisition prices of all other units of the existing buildings was from $3,900,000 to $ 6,300,000, this was the highest offer, amongst others, made to a minority owner for a single unit. Counsel for the Applicant, Miss Lui, submitted that this latest offer, same as those previous offers, was more than fair and reasonable as it took into account of a fair and reasonable share of the redevelopment value of the 2 lots. However no reply for this latest offer, up to the date of hearing, was ever received from neither Mr. Lui nor anyone else representing the Respondent.

22.I was also told that apart from discussing the matter with Mr. Lui, who allegedly claimed to represent the Respondent without any proper proof, the Applicant also made its own attempts in verifying the accuracy of Mr. Lui’s assertions by inquiring with the Births and Deaths Registry.  However, as at 21 July 2009, no death registration record in Hong Kong relating to the Respondent was found. Further, as at 17 December 2009 no application for grant had been lodged for Letters of Administration or Probate at the Probate Registry of the High Court, despite Mr. Lui’s claim in his letter dated 17 April 2009 that he and his mother, the sister of the Respondent, were “presently retaining Hong Kong legal counsel to file the Letters of Administration to establish legal title”, Miss Lui submitted that the status as at 28 September 2010 remains the same.

23.The Applicant also wrote to the Official Solicitor on 4 December 2009 seeking assistance on the matter.  However, the Official Solicitor stated that in the absence of proof of death, it would not be possible for anyone, including the Official Solicitor, to step in to represent the estate of the Respondent.

24.The Applicant also submitted that, in fact, no claims were formally made to this Tribunal by any person claiming to be a minority owner within the 42-day deadline imposed by the Lands Tribunal pursuant to the Order made on 19 January 2010.

25.Having considered the above, I accepted that despite letters, notices and advertisements advising those minority owners who wish to establish their claims to come forward, the Respondent, be that was Madam Tse personally (if she was alive), Mr. Lui or anyone else claiming to be a representative of the Respondent (if she was deceased), did not respond to any of the Applicant’s offers since June 2009 or make any formal claim to this Tribunal. In my judgment, the various offers made at different stages of the proceedings by the Applicant were fair and reasonable because they were duly communicated through all possible means to the Respondent and her apparent representative, namely Mr. Lui and were made according to the advice of valuation expert and the statutory formula. I also accepted that no one, be that was the Respondent or anyone else claiming to represent her, had ever made any reasonable offer to the Applicant for any constructive discussion.

26.Further, I also noted that the proposed reserve price of $ 72,000,000 of the 2 lots would give a proportionate value (calculated at the Respondent’s pro rata interest of the development at 9.82%) of the Respondent Unit at $ 7,070,400. In my judgment, the latest offer in the sum of $7,073,280 made on 29 September 2010 clearly represented a fair and reasonable share of the redevelopment potential of the 1^st and 2^nd Lots.

27.In coming to my decision above, I also considered the relevant tests formulated in Intelligent House and Capital Well Ltd v Bond Star Development Ltd [2005] 4 HKLRD 363 and was satisfied that the requirements were met.

28.By reasons of the above, I was therefore satisfied that the order for compulsory sale ought to be made.

Auction Reserved Price for the Auction

29.The Applicant’s expert Mr. Chan had prepared another valuation report for the purpose of determination of the auction reserve price in accordance with the requirement as set out in paragraph 2 of Schedule 2 of the Ordinance. Mr. Chan gave his view that the redevelopment value of the 2 lots, as at 24 September 2010, was $ 72,000,000. In carrying out the valuation, Mr. Chan used the residual valuation method and was of the view that the optimum hypothetical development should be private residential. I had carefully considered and reviewed the steps taken, assumptions made and comparables used by Mr. Chan in the valuation and accepted that they were reasonable in the circumstances.  I was satisfied that $ 72,000,000 was the open market value of the 2 lots reflecting their redevelopment potential, on their own. I therefore accepted Mr. Chan’s opinion being reasonable and approved that the reserved price for the auction shall be $72,000,000.

The Order for Sale

30.I therefore made an order for compulsory sale in the following terms:-

(1) The Tribunal is satisfied that the EUV of each unit as set out in the valuation reports filed for this Application is fair and reasonable and is fair and reasonable when compared with EUVs of the Applicant’s Units;

(2) Having considered the evidence adduced in the Tribunal that redevelopment of the 1^st and 2^nd Lots is justified due to the age and state of repair of the existing development on the 2 lots, and that the Applicant has taken reasonable steps to acquire all the undivided shares in the 2 lots including that of the Respondent;

(3) All the undivided shares in the 2 lots, the subject of the Application, be sold by way of a public auction for the purposes of redevelopment of the 2 lots under s.4(1)(b) of the Ordinance;

(4) Mr. Bernard Tam and Mr. Samuel Ching, nominated by the Applicant, be appointed trustees (“the Trustees”) to discharge the duties imposed on trustees under the Ordinance in relation to the 2 lots and the Trustees be authorized to charge such remuneration for their services in accordance with the terms set out in the letter from Messrs. King & Co., Solicitors & Notaries dated 28September 2010;

(5) Service of a copy of the order for sale on the Respondent be dispensed with. Further, the Applicant is to publish notices in substantially the same form as the draft as attached to the draft order within 21 days from the date hereof in a Chinese newspaper and an English newspaper circulating in Hong Kong on the same day;

(6) For the purpose of a sale of the 2 lots by public auction under s.5(1)(a) of the Ordinance:-

(a) The sale of the 2 lots be on the particulars and conditions substantially the same as those in the draft Particulars and Conditions of Sale initialed and approved by the Tribunal;

(b) The reserve price be set at HK$72,000,000;

(c) Subject to further extensions that the Tribunal may subsequently allow upon the application of the purchaser of the 2 lots or its successor in title, the redevelopment of the 2 lots shall be completed and made fit for occupation within a period of 6 years after the date on which the purchaser of the 2 lots becomes the owner of the 2 lots;

(7) Liberty to the Applicant, the Respondent and the Trustees to apply to the Tribunal for further directions; and

(8) No order as to costs.