Smart Value Investments Ltd v. Protime Investment Litd and Others
Read the full judgment text of LDCS 42000/2012 on BabelCite. This LDCS judgment was delivered on 8 May 2013.
1. This is an application for compulsory sale of a building at 10, 10A, 12 and 12A La Salle Road, Kowloon (“the Building”). The Building stands on Kowloon Inland Lot No. 3275 (“the Lot”), which is divided into 16 equal undivided shares. The Building is a residential building according to the Occupation Permit issued on 4 May 1956. Three out of four flats on the ground floor have been converted into shops. The Building is one of the oldest buildings in the neighbourhood.
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LDCS 42000/2012 IN THE LANDS TRIBUNAL OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION LAND COMPULSORY SALE MAIN APPLICANTION No. 42000 OF 2012 _______________
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_______________ JUDGMENT _______________ Introduction 1.This is an application for compulsory sale of a building at 10, 10A, 12 and 12A La Salle Road, Kowloon (“the Building”). The Building stands on Kowloon Inland Lot No. 3275 (“the Lot”), which is divided into 16 equal undivided shares. The Building is a residential building according to the Occupation Permit issued on 4 May 1956. Three out of four flats on the ground floor have been converted into shops. The Building is one of the oldest buildings in the neighbourhood. Background 2.On 1 June 2012, the Applicant commenced the present proceedings under the Land (Compulsory Sale for Redevelopment) Ordinance (Cap. 545) (“the Ordinance”) against the 3 Respondents. 3.At the material time, the Applicant owned 93.75% (i.e. 15 out of 16) of the undivided shares of the Building, except the remaining undivided share attributable to the unit in the Third Floor of 12A La Salle Road (“the Remaining Unit”). 4.As detailed in the Amended Notice of Application [A2/237-239]:
5.For these reasons, the 2nd to 3rd Respondents are all joined to these proceedings to ensure that they are bound by the order of compulsory sale. The question as to how the proceeds of sale attributable to the Remaining Unit should be distributed under section 11(2) of the ordinance would be a matter for the Trustees, who could, if necessary, apply to the Tribunal for directions under section 4(9) of the ordinance. 6.It should also be mentioned that the Applicant had had difficulty of locating the 2nd Respondent, and all reasonable steps had been taken to do so. 7.By an order of HH Judge Ko on 8 February 2013, service of the Amended Notice of Application on the 2nd Respondent has been dispensed with. It was further ordered that notice be published, within 14 days, in a Chinese and an English newspaper circulating in Hong Kong, and an English newspaper circulating in Ontario, Canada, calling upon all persons claiming to be minority owners of the Lot and who have not been served with the notice of Application to establish their claims before the Tribunal within 21 days of the publication of such notice. Upon the expiration of this 21-day period, the 2nd Respondent shall be bound by the proceedings as if it had been duly served in accordance with section 3(3)(a) of the Ordinance. 8.Such notices were published on 22 February 2013. More than 21 days have elapsed since such publication but the 2nd Respondent has not come forth to make any claim. Accordingly, the 2nd Respondent will be bound by any order that the Tribunal may make. 9.To conclude, when the Applicant appeared before this Court at the trial, as the 1st Respondent remained absent, and both the 2nd and the 3rd Respondents did not raise any opposition, the application was affectively unopposed. It was a matter for the Applicant to come up with formal proof of its case. At the end of the trial, I agreed that it was so done. Judgment was given to the Applicant and I agreed to deliver my reasons for judgment later. I now do so. Matters which require consideration by the Tribunal 10.Under section 3 of the ordinance, the Applicant can only make an application for compulsory sale if it owns a sufficient number of undivided shares in the Lot. 11.Under section 4(1)(a)(ii) of the Ordinance, in the case where any minority owner of the lot who cannot be found, the Tribunal shall require the Applicant to satisfy the Tribunal that the value of the Respondent’s property as assessed in the application is (A) not less than fair and reasonable; and (B) not less than fair and reasonable when compared with the value of the Applicant’s property as assessed. 12.Then, under section 4(1)(b) of the Ordinance, the Tribunal shall consider whether an order for compulsory sale should be made. The Tribunal can only make an order for sale if the 2 conditions provided in section 4(2) are satisfied, i.e.:
Whether the Applicant owns sufficient undivided shares 13.Under section 3(1) of the Ordinance, for an order of compulsory sale to be made, the applicant must own not less than 90% of the undivided shares in a lot. As stated above, the Applicant owns 93.75% of the undivided shares of the Lot. The existing use value (“EUV”) of the Remaining Unit 14.The Applicant relies on the evidence of Mr. Alnwick Chi Hung Chan (“Mr. Chan”). His first EUV report, dated 15 March 2012, was attached to the Notice of Application. Mr. Chan is a Fellow Member of the Royal Institute of Chartered Surveyors in the General Practice Division as well as the Hong Kong Institute of Surveyors elected in 2005. He is now an Executive Director of Knight Frank Petty. He has extensive experience in giving evidence in this Tribunal, the High Court and arbitration hearings. 15.Mr. Chan has valued the units by the direct comparison method. A “reference unit” is selected, and its value is assessed by reference to market comparables. Then comparison is made between the reference unit and the other units. 16.Mr. Chan revised the EUV valuation as at 5 March 2012 in his supplemental report on EUV dated 27 December 2012 and they are as follows:
17.Accordingly, the total EUV is $80,784,000 and the EUV of the Remaining Unit (i.e. 3/F of 12A La Salle Road) is $5,088,000. 18.The direct comparison method is a well-recognized method of valuation. I am satisfied that the above EUV figures are fair and reasonable values for each unit. Age or state of repair justifying redevelopment The evidence filed by the Applicant 19.On this issue, the Applicant relies on the opinion of the following experts:
The approach of the Tribunal 20.As explained by Ribeiro PJ in Capital Well Ltd v Bond Star Development Limited (2005) 8 HKCFAR 578§ 21:
21.In Fairtex v Tso Pee Hong [2012] 6 HKC 167, the Lands Tribunal (Deputy Judge Yu and Mr. Kwok), having considered a number of authorities in this area (in particular Intelligent House Ltd v Chan Tung Shing & Ors [2008] 4 HKC 421 (LT) and Fineway Properties Ltd v Sin Ho Yuen Victor [2010] 4 HKLRD 1 (CA)), explained the proper approach in the following terms:.
22.The Building is now 57 years of age (the occupation permit being issued in 1956). It is of conventional reinforced concrete construction. According to the evidence of Mr. So, the design working life of reinforced concrete framed construction is normally only 50 years. Mr. So says, at [E1/40]: “Base on my investigation, I am of the opinion that the structural frames of the Building are in need of repair as the Building, constructed with reinforced concrete, has passed its design working life given that the Building was designed for a design working life of 50 years. According to my investigation findings … the Building, completed 56 years ago has exhibited signs that its structural frames have deteriorated to the final stages of their design working life.” 23.Mr. So also says that there are 9 aspects where the Building cannot meet the current structural engineering design requirements, especially in respect of the requirement on robustness [E1/39-40]. 24.According to Mr. Wong, when compared with more modern buildings, the following features of physical obsolescence in the Building are found:-
25.Mr. Wong also says that the building is functionally obsolete in various respects due to their age, as follows:-
State of Repair 26.According to both experts (Mr. So and Mr. Wong), it is clearly the case that the Building is also in bad state of repair. 27.The common areas of the Building and 13 out of 16 flats have also been inspected by Mr. So, who reports that these are a number of defects in the reinforced concrete structural members in 9 units. These defects are generally spalling and cracks in the structural members. There is a summary of these defects in a table at Bundle E1/18-20. The structural defects in the units inspected are all accorded “Severity Index 4 (“detailed investigation required and to provide immediate protective measures if necessary”) or 3 (“detailed investigation required”). 28.Mr. So further identifies problems with the thickness of concrete cover, alkalinity of the concrete covers (which affords corrosion protection); concrete strength; increased risk of corrosion due to chloride content; reduction of cross-sectional areas due to corrosion. 29.Mr. So says that “I consider that the structural frames of the Building are deteriorating and they need to be repaired. I also consider that the corrosion of the steel reinforcement bars, and concrete covers being penetrated by carbonation are the results of the age and/or the lack of repair of the Building.” He further adds that, “according to the current condition of the structural frames, the deterioration will continue steadily due to extensive carbonation of the r.c. structural members. It is inevitable that new defects will occur and previous defects though repaired will recur readily, requiring substantial repairs or even partial demolition and re-construction of some defective structural members in the future when, for example, there are unacceptably high reductions in the factors-of-safety, or structural performance factors in the reinforced concrete structural members due to loss of cross-sectional areas of the embedded steel reinforcement bars. Although repairs are possible, repair work will need to be carried out regularly in the future and such repairs will be more and more extensive as the Building becomes order. Also, although the cost of repair may be relatively modest … such costs will escalate in future as the extent and seriousness of the deterioration of the structural members increases with age.” [E1/38]. 30.Mr. Wong reports the state of disrepairs in the various parts of the Building, as follows:
31.As the Tribunal observed in Fairtex, many of the considerations concerning age and state of repair are common to both. A dilapidated building obviously becomes more dilapidated as time goes by. 32.In Mr. Wong’s opinion, the total cost of repairs which are immediately needed is $5,713,807. This is very substantial, given that the construction cost of a new similar building is estimated at $13,307,504. In other words, the repair costs would amount to about 42% of the cost of construction of a similar building. It is evidently not economical to repair the Building. 33.In addition, given the age and lack of repairs in the past, the rate of wear and tear in the Building will increase rapidly with time, and the necessary repairs will take some 16 months. 34.Also, at the risk of stating the obvious, even if the Building is restored to a tenantable standard after the implementation of the repair works, it will not be able to provide the same quality of accommodation that a new building could offer. 35.The Applicant submits that on the grounds of both age and state of repair, the Tribunal is entitled to look at all relevant factors collectively to see if that justified redevelopment even though when each of them is considered alone, it is insufficient to do so: Intelligent House, The applicant further submits that this holding is in Intelligent House is obviously correct as it was never doubted in Fineway 36.For the above reasons, I am satisfied that the redevelopment of the Lot is justified due to the age and state of repairs of the Building. Reasonable steps to acquire the Respondents’ undivided shares. 37.As mentioned above, the Applicant had had difficulty of locating the 2nd Respondent and all reasonable steps have been taken in doing. 38.An offer of HK$9,200,000 has been made to the 1st Respondent. That figure represents the redevelopment value apportioned (on EUV ratios) to the Remaining Unit. But given the questionable title of the 1st Respondent (as explained above), one of the conditions of this offer is that the 2nd Respondent be joined as a party. 39.I agree that this offer was plainly reasonable. Redevelopment Value (“RDV”) of the Lot 40.Mr. Chan estimated the RDV of the Lot as at 25 November 2012 at $144,946,000 (Bundle C1). Just a few weeks before the trial, Mr. Chan revised his estimated RDV in his Supplementary Report dated 26 April 2013. I have considered both valuation reports. I accept his revised valuation report in which he estimated the RDV of the Lot at $145,859,000. I adopt this as the reserve price for the auction of the Lot. Conclusion 41.For the above reasons, the Applicant has demonstrated that all the requirements for an order for compulsory sale have been satisfied and that an order for sale sought by the Applicant should be granted. I made the order accordingly, including that the Building is to be sold for the purpose of redevelopment by way of auction under section 4(1)(b) of the Ordinance, at the reserve price of $145,859,000 under the particulars and conditions substantially the same as those in the draft particular and Conditions of Sale initialed and approved by the Tribunal.
Mr. Victor DAWES, instructed by Messrs Y.T. Chan & Co., for the 1st Respondent 2nd Respondent, absent Mr. Anthony Chan, instructed by Messrs Gallant Y.T. Ho & Co., for the 3rd Respondent | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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