Eversound Investments Ltd v. Leung Kwok Nun and Others
Read the full judgment text of LDCS 32000/2012 on BabelCite. This LDCS judgment was delivered on 29 August 2013.
1. This is an application (“the Application”) made under the Land (Compulsory Sale for Redevelopment) Ordinance, Cap. 545 (“the Ordinance”) for an order of compulsory sale of all the undivided shares of the Remaining Portion of Kowloon Marine Lot No. 52 (referred to as “the Lot”).
Cited by 3 cases · Cites 3 cases
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LDCS 32000 / 2012 IN THE LANDS TRIBUNAL OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION LAND COMPULSORY SALE APPLICATION NO. 32000 OF 2012 __________________
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_________________ REASONS FOR JUDGMENT
The Application 1.This is an application (“the Application”) made under the Land (Compulsory Sale for Redevelopment) Ordinance, Cap. 545 (“the Ordinance”) for an order of compulsory sale of all the undivided shares of the Remaining Portion of Kowloon Marine Lot No. 52 (referred to as “the Lot”). 2.At the time when the application is heard, the Applicant submits that the Application is preceded by several earlier applications for sale of the adjacent lots by the Applicant, namely LDCS 5000, LDCS 36000, LDCS 4000, LDCS 34000, LDCS 33000 and LDCS 11000. The Tribunal has granted orders for sale under the Ordinance in all the above said applications. There are still two more applications for compulsory sale of adjacent lots in the same development, being application LDCS 35000 of 2012 which has been heard on 11 July 2013 and application LDCS 10000 of 2012 which has been heard on 18 July 2013. 3.In many respects, the present application is highly similar to the above said LDCS applications as the property details and the position of the majority owner and the remaining minority owners are nearly the same. 4.The existing building (“the Building”) on the Lot is a block of 8-storey residential building. There are altogether 24 units (i.e. 8 storeys x 3 units per floor). They have the street address description of Nos. 15 & 17 Wan King Street, Nos. 16 & 18 Wan Shun Street. It falls within Block C of the development encompassing Nos. 15, 17, 19, 21 & 23 Wan King Street and Nos. 16, 18, 20, 22, 24 & 26 Wan Shun Street. The occupation permit (“OP”) of Block C was issued on 25 April 1960. The OP actually covers various buildings within Block C including the Building. The Building is therefore more than 50 years old when the Applicant made the application on 18 April 2012. The ground floor units are according to the occupation permit certified for domestic purpose but they had in the past been used for business (i.e. non-domestic) purposes. The upper floor units are all certified for domestic purpose. 5.A total of 66 undivided shares of the Lot were allotted for the Building, the details of which are shown in the table at paragraph 5.4.8 of Mr Alnwick Chan’s report at Bundle D(1)/12 and are as tabulated in Appendix A of this Judgment. 6.At the time of the Application, the Applicant is the majority owner, owning 83.33% of the equal undivided shares in the Lot. There were 7 Respondents whose units the Applicant had not been able to acquire. 7.After the commencement of the Application, the Applicant has been able to acquire the units of the 1st Respondent and the 2nd Respondent and the action against the 1st Respondent and the 2nd Respondent have been discontinued. 8.Recently, the Applicant has entered into agreement to purchase the 6th Respondent’s unit. With completion scheduled to take place on 31 July 2013. The 6th Respondent has notified the Tribunal that she no longer opposes the Application. 9.The details of the remaining Respondents are as follows:-
10.The R3, R4, R5, and R7 have all neither raised any opposition nor present in the hearings of this application. An order for dispensing with services on the R3, R4, R5, and R7 under section 3(4) of the Ordinance was granted by this Tribunal on 20 November 2012. The publication of notices in newspaper pursuant to the aforesaid order was duly complied with. 10.11. To conclude, when the Applicant appeared before this Court at the trial, as all the remaining minority owners had not raised any opposition and were all absent, 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. Determination of the existing use values (“EUV”) of all units in the Building 12.Pursuant to section 3 of the Ordinance, the Application was accompanied by a valuation report (“Application Report”) dated 18 April 2012 prepared by Mr Alnwick Chan of Knight Frank Petty Ltd. (“Mr A. Chan”), the Applicant’s valuation expert witness, containing the assessments of the values of all units (which are conveniently termed as the existing use values, the “EUV” of all units) in the Building on the Lot as at 21 February 2012. The date of valuation is within 3 months from the date of the present application. I am satisfied with Mr A. Chan’s academic and professional qualifications, and accept his expertise in giving evidence. 13.Under section 4(1)(a)(i), if there is a dispute between the parties on the EUV of the units in the Building on the Lot, the Tribunal has to determine the values. Section 4(1)(a)(ii) further provides that, in the case of any minority owner of the lot who cannot be found, the majority owner of the lot is required to satisfy the Tribunal that the value of the minority owner’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 majority owner’s property as assessed in the application.” 14.In the Application Report of 18 April 2012, Mr A. Chan explained the method of valuation and the process of his assessment to arrive at the EUV of each unit of the Building. 15.In his valuation of the EUV of the domestic units of the Building, Mr A. Chan adopted the following methodology :
16.For the roof of the Building, Mr A. Chan converted the saleable area of the roof as domestic by using a conversion factor of 1:8. 17.The Applicant has noted from site inspection that the existing use of the Ground Floor units is at variance with the use permitted by the occupation permit. In assessing the EUV of all Ground Floor units, Mr A. Chan carried out his valuation based on two different scenarios, i.e. scenario 1, assuming permitted domestic uses as shown in the occupation permit for the Building and scenario 2, assuming the existing non-domestic uses. 18.Mr A. Chan updated the Application Report by a supplemental report dated 10 April 2013 (“Supplemental Report”) in which he revised the EUV of all the units in the Building after taking into account the inspection of more units in the Building and the updated property index prepared by the Rating and Valuation Department. In the Supplemental Report, Mr A. Chan repeated the exercise he did in the Application Report with the new information and set out his revised assessments of the EUV of each unit as at 21 February 2012. 19.At the trial, Mr Li confirms that the Applicant adopts Mr A. Chan’s scenario 1 valuation for the Ground Floor units even though this will be to the benefit of the remaining Respondents (R3, R4, R5 R6 & R7). 20.In the Judgment of a similar case Eversound Investments Limited v. Wong Hiu Man and others, LDCS 1000/2012 (unreported) dated 15 August 2013, the Tribunal (HH Judge Ko and Member Pang) accepted the submission of Mr C.Y. Li, SC, counsel for the applicant and the EUV valuation of the expert (also the same Mr A. Chan as in the present Application) based on scenario 1. In that case, Mr Li submitted that there were two reasons that scenario 1 (domestic use) valuation for the ground floor units which were certified for domestic use under the OP should be adopted. Firstly, the term EUV normally used in the applications under the Ordinance has been coined by practitioners and was indeed never used in the Ordinance. “Instead, an applicant is required by Part 1 of Schedule 1 to the Ordinance to set out his assessment of the “market value” of each property on the lot assessed on the basis of the assumptions mentioned therein. He refers to the discussion on “market value” at pages 100-102 in Cruden, Land Compensation and Valuation Law in Hong Kong, 3rd Edition (2009) and submits that if the actual use is against the law, unless there is evidence that such contravention will not create any title problem, an informed and prudent purchaser will not be willing to pay a price on the basis of such illegal use.” Secondly, “the occupation permit issued for the Building has specified domestic use for the Ground Floor units. There is clear evidence of material change of use of these units, see the expert report of Mr. Raymond Chan, the building surveyor. In the absence of proof of due compliance with the Buildings Ordinance, such change of use would render the title of the units defective: see J. Sihombing & M. Wilkinson, Hong Kong Conveyancing Law & Practice Vol. 1 III, LexisNexis Butterworths, para. [183.1]…It is for the party who contends that any change of use is legal or proper on the basis that the risk of any enforcement action is theoretical to justify it. The Applicant has acquired all the Ground Floor units and does not seek to defend the actual use.” 21.I agree with the above Judgment of LDCS 1000/2012 in the adoption of scenario 1 valuation for the Ground Floor units in the Building. Hence, in the present Application, I accept Mr Chain’s submission and the EUV valuation of Mr A. Chan based on scenario 1. Therefore, I determine that for the purpose of this Application, the EUV of all units in the Building, including the 5thRespondents’ unit, as at the relevant date of valuation of 18 October 2011 are as shown in the Supplement Report of Mr. A. Chan: see the table at Bundle E/ 1058 which is reproduced as Appendix B of this judgment. 22.I am also satisfied, insofar as it is necessary, that the value of the Respondents’ units as assessed by Mr A. Chan is not less than fair and reasonable and not less than fair and reasonable when compared with the value of the Applicant’s properties:
Section 4(2) of the Ordinance - Justification and Reasonable Steps 23.The second determination under Section 4(1)(b) of the Ordinance is whether an order of sale should be made. According to Section 4(2) of the Ordinance, this would involve 2 considerations, namely :-
24.The Applicant has to satisfy this Tribunal that the above statutory requirements were met, otherwise, an order of compulsory sale ought not be granted. 25.Firstly, for the requirement under (a) above, I have considered the expert opinion of Dr Sammy Chan, the structural engineer and Mr Raymond Chan, the building surveyor. Both have filed their expert reports and were called to give evidence. I am satisfied with their academic and professional qualifications, and accept their expertise in giving evidence. 26.Dr Sammy Chan conducted a structural assessment of the Building and prepared a report dated 10 April 2013. He (together with the team of engineers assisting him) carried out inspection of the Building and identified a total of 98 defects which exhibited signs of structural defects including concrete spalling, spalling with exposure of corroded reinforcing bar and water seepage. He further carried out the following tests on the existing structural conditions of the Building:- (a) compressive strength test, (b) carbonation test, (c) chloride content test, (d) cement content test, (e) sulphur content test, (f) cover meter test, (g) open up survey, and (h) infra-red thermographic survey. The tests show that the concrete cover has lost its function to protect the embedded reinforcement of the reinforced concrete members. As a result, the overall stability of the Building may be adversely reduced by such degradation of structural members. 27.Dr Sammy Chan opined that the Building has undergone severe degradation which renders it not worthwhile to be rectified by conventional repair and maintenance measures. Since the nature and extent of structural strengthening works to the Building are more complicated and substantial as compared with localized repair works, the implementation of a conventional repair and maintenance works package for the Building may not be a long-term measure to relieve the prevailing degradation problem. Nevertheless, based on the cost estimate report prepared by the quantity surveyor Aria & Associates Ltd, Dr Sammy Chan estimated that the structural repair costs would be in excess of $11.01 million. He further expressed the view that the proposed repair works would not be a costs effective solution. 28.The Applicant also commissioned Mr Raymond Chan (together with the team of surveyors assisting him) to survey the existing condition of the Building. Mr Raymond Chan in his report dated 18 March 2013 examined various components of the Building and identified the defects including the unauthorized building works (“UBWs”) therein. He further set out the features of obsolescence of the Building which did not comply with the current standards and statutory requirements which gave rise to safety concerns. 29.Mr. Raymond Chan concluded that the Building was generally in a dilapidated and potentially dangerous condition. The structural stability of the Building is affected by the defects and the UBWs. Some of the building components and finishes were at the end of their effective life span. Without substantial repairs, the Building would not be up to tenantable standard but it might not be feasible or practical to undertake such repair as it would entail closure of the Building for a substantial period of time. Based on the cost estimate report prepared by independent quantity surveyor, Mr Cheung Tat Tong, the cost of the proposed non-structural repair works was estimated to be above $8.27 million. Given that the Building was more than 53 years old, the continuous maintenance costs are expected to be increasingly high. Furthermore, as the Building was in obsolete design, the upgrading costs would invariably been enormous and would be unjustifiable in comparison with complete redevelopment. 30.The Applicant submits that given the total EUVs based on scenario 1 of $41,803,198, the estimated substantial repair costs for the structural and non-structural works of over $19 million is unjustified. 31.There is no contrary expert evidence and I accept the expert evidence of Dr Sammy Chan and Mr Raymond Chan. I am satisfied that the redevelopment of the Lot is justified due to the age and the state of repair of the Building:
Reasonable Steps to Acquire All the Undivided Shares in the Lot 32.The Applicant is under an obligation to negotiate on terms that are fair and reasonable in a situation when the whereabouts of a minority owner are known. 33.The Applicant submits, based on the testimony of Mr Alex Au-Yeung (the General Manager of the Applicant), that it has complied with the statutory obligation to negotiate with the remaining Respondents (R3, R4, R5, R6 and R7) on terms that are fair and reasonable although the parties have not reached any settlement. 34.The Applicant made 3 offers to each of the Respondents (R3, R4, R5, R6 & R7) as follows. The offers were based on the valuations done by Mr A. Chan of Knight Frank (i.e. EUV of each of the Respondents’ unit/ EUV of all units in the Building x RDV of the Lot) but were all higher than the valuations.
35.On the unchallenged evidence of Mr A. Chan and Mr Alex Au-Yeung, I agree with the Applicant that the offers made to the Respondents (R3, R4, R5, R6 & R7) were fair and reasonable. The Applicant was guided by expert opinion in making its offers. Mr A. Chan is a professional valuation surveyor from a reputable firm of surveyors in Hong Kong. There is nothing to suggest that his valuation is other than proper and professional. The Respondents (R3, R4, R5, R6 & R7) did not participate in any mediation proposed by the Applicant and has never formally responded to the offers. In the premises, I am satisfied that reasonable steps have been taken by the Applicants to acquire the interest of the Respondents (R3, R4, R5, R6 & R7) and the offers made by the Applicant “falls within the range of what may broadly be regarded as fair and reasonable” as said by Mr. Justice Ribeiro PJ in Capital Well Ltd v. Bond Star Development Ltd (2005) 8 HKCFAR 578 at para. 33. Thus, I conclude that the Applicant has taken reasonable steps to acquire all the undivided shares in the Lot. Reserved Price for the Auction 36.The Applicant submits that the reserve price for the auction of the Lot should be fixed at $78,100,000, based on the assessment by Mr A. Chan of the redevelopment value (“RDV”) of the Lot as at 5 June 2013 in his revised RDV valuation report of 5 June 2013. 37.I have considered Mr A. Chan’s valuation. I agree with him that the residual method has to be employed as the method of assessment of the RDV of the Lot. This is done by deducting development costs (including construction costs, professional fees, finance costs etc) and developer’s profit from the estimated gross development value of the completed development. 38.Mr A. Chan opined that the optimum development on the Lot comprised a block of 21-storey composite development with shops on the G/F, lift lobby and machine room on the 1/F, and domestic units on the 2/F to 20/F with 2 flats per floor (with average saleable area of 19.25 sq. m.). The details of the hypothetical development and residual valuation were set out in Appendix 9 of his RDV valuation report (Bundle C/316). The details of the comparables with adjustments were set out in Appendix 7 (for shop comparable at Bundle C/288) and Appendix 8 (for residential comparable at Bundle C/313). I have gone through his valuation in details. I am satisfied with his valuation, including the valuation assumptions that he has adopted and the values and the costs parameters that he has used in his valuation. 39.Based on Mr A. Chan’s valuation, I decide that the reserve price for the auction of the Lot should be $78.10 million. Trustees 40.I find that Mr. Ho Chi Kit and Mr. Cheung Chi Yu, both of Messrs. Katherine YW Or and Co., solicitors, nominated by the Applicant, are suitable persons to be appointed as trustees to discharge the duties imposed on trustees under the Ordinance. The remuneration, on a lump sum basis of $60,000 (exclusive of reasonable disbursements and expenses) is also reasonable and will be allowed accordingly. Particulars and conditions of sale of the Lot 41.The particulars and conditions of sale of the Lot by public auction submitted by the Applicant are also reasonable and will be adopted accordingly. Costs 42.There be no order as to costs as no one has asked for costs. Conclusion 43.For the above reasons, I am satisfied that the redevelopment of the Lot is justified due to the age and the state of repair of the existing building on the Lot and that Eversound Investments Limited (as the majority owner) has taken reasonable steps to acquire all the undivided shares in the Lot. I therefore make an order that all the undivided shares in the Lot, the subject of this application, be sold by public auction for the purposes of development. The reserve price for the auction of the Lot shall be HK$78.10 million. I appoint Mr Ho Chi Kit and Mr Cheung Chi Yu as the sale trustees to discharge the duties imposed on them under the Ordinance in relation to the Lot and authorized their remuneration for their service as trustees as provided in their letter dated 19 June 2013. I approve the particulars and conditions of sale of the Lot placed before us and grant liberty to the parties and to the trustees to apply for further directions if necessary.
Mr C.Y. LI, instructed by M/S Tony KAN & Co., for the Applicant The 3rd Respondent, absent The 4th Respondent, absent The 5th Respondent, absent The 6th Respondent, absent The 7th Respondents, absent
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