Eversound Investments Ltd v. Chan Ying Kai and Others
Read the full judgment text of LDCS 35000/2012 on BabelCite. This LDCS judgment was delivered on 13 September 2013.
1. This is an application under the Land (Compulsory Sale for Redevelopment) Ordinance (“the Ordinance”) for an order to sell all the undivided shares of the lot known as the Sub-section 1 of Section D of Kowloon Marine Lot No 52 situate as Nos 22 and 24 Wan On Street, No 1 Wan Shun Street and No 2 Wan Fuk Street, Kowloon, Hong Kong for the purposes of redevelopment.
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LDCS 35000/2012 IN THE LANDS TRIBUNAL OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION LAND COMPULSORY SALE APPLICATION NO. 35000 OF 2012 ________________ BETWEEN
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_______________ JUDGMENT _______________ 1.This is an application under the Land (Compulsory Sale for Redevelopment) Ordinance (“the Ordinance”) for an order to sell all the undivided shares of the lot known as the Sub-section 1 of Section D of Kowloon Marine Lot No 52 situate as Nos 22 and 24 Wan On Street, No 1 Wan Shun Street and No 2 Wan Fuk Street, Kowloon, Hong Kong for the purposes of redevelopment. Background 2.There is erected on the lot an 8-storey tenement building (including the G/F but excluding the roof) with 4 units on each floor connected by two common staircases. The building forms part of a larger development called Block B, Nos 22 and 24 Wan On Street, Nos 1, 3, 5, 7, 9, 11 and 13 Wan Shun Street and Nos 2, 4, 6, 8, 10, 12 and 14 Wan Fuk Street (“Block B”). Each unit in the building was allotted 1 of the 33 equal undivided shares in the lot and the remaining 1 share was allotted to the roof. 3.When the applicant commenced these proceedings on 25 April 2012, it owned 28 equal undivided 33rd shares representing approximately 84.8485% of the undivided shares in the lot and there were 6 respondents. 4.Since then, the applicant has acquired the undivided shares of the 1st Respondent, the 3rd Respondent, the 4th Respondent and the 6th Respondent in the lot, and discontinued the proceedings against them. As at the date of trial, only the 2nd Respondent (“R2”) and the 5th Respondents (“R5s”) remained. 5.R2 is the registered owner of Ground Floor, No 1 Wan Shun Street (“R2’s unit”), having acquired it back in 2005. R2 filed a Notice of Opposition dated 29 May 2013 and has appeared in person at trial. 6.R5s were apparently the developer of the building and still are the registered owners of the roof of the building. There is no record of their death or any grant of probate relating to them. According to the applicant, their solicitors have duly served the papers on R5s. R5s have not filed any Notice of Opposition and, at one stage, they instructed a solicitor to inform the applicant that they chose not to respond to the application and would leave it to the Tribunal. 7.In the premises, we are satisfied that the application should proceed. The issues 8.Section 3(1) of the Ordinance generally requires an applicant to have not less than 90% of the undivided shares in a lot before it can make an application. Section 3(5) then provides that the Chief Executive in Council may, by notice in the Gazette, specify a percentage lower than 90% in respect of a lot belonging to a class of lots specified in the notice. 9.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”). The Notice lowered the threshold for compulsory sale from 90% to 80% and one of the classes of lot specified therein is “a lot with each of the building erected on the lot issued with an occupation permit at least 50 years before the relevant date [ie, the date of the application]”. 10.The occupation permit of Block B was issued on 4 February 1960, which was more than 50 years old as at the date of the application. The lot is covered by the Notice and the applicant, who then owned over 80% of the undivided shares in the lot, was clearly entitled to make the application. 11.According to section 4 of the Ordinance, the issues that require determination are:
12.Of the remaining respondents, only R2 put in a Notice of Opposition stating: “收購價錢不可在同區買下相似物業, 地鋪加閣樓方便老人家”. In her witness statement, R2 elaborated that: -
13.R2 confirmed at the beginning of the trial that her real dispute was on the applicant’s valuation of her unit. Given the stance of R2, the focus of the trial is on the determination of EUV and RDV. Issue (1): Determination of EUV 14.The applicant instructed Mr Alnwick Chan of Knight Frank to advise them on valuation matters. Mr Alnwick Chan is a Fellow Member of the Royal Institute of Chartered Surveyors in the General Practice Division as well as Hong Kong Institute of Surveyors. R2 does not dispute Mr Chan’s expertise and we are satisfied with his academic and professional qualifications. 15.Mr Alnwick Chan compiled a valuation report on the EUV of all the units comprising the lot as at 21 February 2012. The report (dated 24 April 2012) was prepared not earlier than 3 months before the date of the application and accompanied the notices of application served on the respondents. The requirements concerning the report under section 3(1) of the Ordinance are satisfied. 16.Mr Alnwick Chan later updated his assessment after he inspected more units and on account of the latest property indices published by Rating and Valuation Department. His latest assessment is contained in a supplemental report dated 7 December 2012. 17.In his EUV assessments, Mr Alnwick Chan adopted the assumptions specified in Part 1 of Schedule 1 to the Ordinance and took into account the condition of the units as revealed from inspections. He employed the comparative method of valuation with reference to recent transactions in the vicinity of the lot. He selected G/F, No 22 Wan On Street as the reference shop unit and 4/F of No 24 Wan On Street as the reference domestic unit. He worked out the unit price of the reference shop unit with reference to 6 comparables from 4 buildings nearby. He also worked out the unit price of the reference domestic unit with reference to 13 comparables from 10 different buildings nearby. He made adjustments to reflect the differences in characteristics between the reference units and the comparables (such as time, location, building age, internal condition, frontage, headroom, layout, size, floor level and view). Based on such unit prices, he worked out the EUV of all the units in the building by making adjustments to reflect their differences. He converted the saleable area of the roof as domestic by using a conversion factor of 1:8. He took into account the latest property indices published by Rating and Valuation Department. 18.Mr Alnwick Chan observed from site inspections that the actual use put to the G/F units at No 1 Wan Shun Street (ie R2’s unit) and No 2 Wan Fuk Street were at variance with the use permitted by the occupation permit and the approved building plans as follows:
19.As there were uncertainties on the basis of assessing the EUV of the G/F units, Mr Alnwick Chan carried out his assessment based on two different scenarios:-
20.Furthermore, Mr Alnwick Chan noted the presence of an unauthorised cockloft inside R2’s unit. 21.The applicant’s other expert Mr Raymond Chan also noted from his own inspection the change of use of R2’s unit. However, he did not have access to R2’s unit at the time of inspection to confirm the existence of the cockloft. Mr Raymond Chan, however, was able to confirm that there was no record of any approval by the relevant authority for the change of use of or the building of a cockloft inside R2’s unit. 22.In his evidence, Mr Alnwick Chan recommended us to adopt scenario 1. He said that if we were to adopt scenario 2, we might be sending the wrong message to those facing acquisition for compulsory sale that they could take conversion actions on their premises without obtaining the necessary approval from the relevant authorities so as to get an enhanced compensation. He also explained that for the same reason he had not taken the unauthorised cockloft into account in his assessment as a matter of principle. In his closing submission, Mr CY Li, SC (the applicant’s counsel) submitted that it would be unfair to R5s (the owners of the roof) if scenario 2 was to be adopted and the unauthorized cocklofts taken into account as the G/F units would then get a larger share of the sale proceeds. 23.R2 confirmed in evidence that her unit had been left vacant for a few years. Before that, it was rented out to a tenant for his business of repair of air-conditioners. She was unable to produce evidence to confirm that such change of use had been approved by the Buildings Department. She further confirmed the existence of the cockloft at the time of her purchase, and she was unable to produce the necessary approval for such building works. 24.R2 testified at trial that she would like to receive HK$6 million for her unit because she required that amount of money to purchase a replacement property for her retirement. However, she did not adduce any expert evidence to confirm that her unit, assessed in accordance with the Ordinance, should worth that much. She did not challenge the valuation evidence of Mr Alnwick Chan at all. 25.We agree with the applicant that the EUV of R2’s unit should be assessed on the basis of its permitted domestic use and ignoring the value of the unauthorized cockloft. Mr Alnwick Chan’s assessment is in accordance with the Ordinance and R2 has not succeeded in disputing the assessment. 26.Having considered everything, we accept Mr Alnwick Chan’s assessment of the EUV of all the units in the lot (including R2’s unit) based on scenario 1 as set out on page E/1175 of the trial bundle, which is annexed hereto as Appendix A for easy reference. Issue 2: Whether redevelopment is justified? 27.Since there is really no dispute on this, we shall be brief in recounting the substantial evidence adduced by the applicant. Suffice for us to say that we have considered all the evidence carefully. 28.To start with, we note from the occupation permit that the existing building is about 53 years old. 29.The applicant commissioned Dr Sammy Chan to provide a structural assessment report dated 7 December 2012 for the building. Dr Chan is a Registered Structural Engineer and a Registered Inspector (List of Engineers) under the Buildings Department Ordinance and we are satisfied with his academic and professional qualifications. 30.Dr Chan (together with his team of engineers) carried out visual inspection on the structural elements of the existing building and discovered a total of 51 defects (including concrete spalling, spalling with exposure of corroded reinforcing bar and water seepage) and unauthorized building works (including unauthorized enclosed balconies on 6/F, unauthorized mezzanine floor above the retail shops on G/F, unauthorized metal canopy on the roof and unauthorised subdivision of some of the domestic units). In-situ and laboratory tests revealed that the protective concrete cover had carbonated and the embedded steel reinforcements were extensively blistered, corroded and pitted. 31.Dr Chan opined that the degradation of the structural members had adversely affected the overall stability of the building and could cause local structural failure of the members. Given the considerable extent in terms of area and degree of defects, he said that normal concrete repair works might not be a cost-effective solution to restore the overall integrity of the building. Furthermore, he considered that the building structures had been overloaded and overstressed for many years due to the presence of unauthorized building works and their structural integrity might have been damaged already. 32.In conclusion, Dr Chan opined that the existing building had already undergone severe degradation rendering it not worthwhile to be rectified by convention repair and maintenance measures. He expressed doubts about the overall structural integrity of the building and considered that conventional repair and maintenance works might not be a long-term measure to relieve the prevailing degradation. For the purpose of his assessment, he adopted the cost estimate of a qualified quantity surveyor of about HK$12.3 million for the structural repair works. 33.The applicant also commissioned Mr Raymond Chan to survey the existing condition of the building. Mr Chan is a Building Surveyor and an Authorised Person. We are satisfied with his academic and professional qualifications. 34.Mr Raymond Chan led a team of surveyors to inspect the external facades, the roof, the internal communal area (including the staircases) and those units of the building which were accessible to them and compiled a condition survey report dated 28 November 2012. 35.Based on their findings, Mr Raymond Chan opined that the building was generally in a dilapidated and potentially dangerous condition and the structural stability of the building had been compromised by the unauthorized building works therein. He said that extensive repair works would have to be carried out to extend the life span of the building, but the continuous maintenance costs would be increasingly high given the age of the building. He further opined that the design of the building was obsolete and substantial upgrading works would have to be carried out to bring it in line with current legislative requirements and the upgrading costs would be enormous. 36.In conclusion, Mr Raymond Chan said that the building was in a state of disrepair with its structural frames in a dilapidated condition. Some of the building components and finishes were at the end of their effective life span and substantial repairs would have to be carried out to bring it up to tenantable standard. Adopting the cost estimate of a qualified quantity surveyor, he estimated that the non-structural repair costs would be around $8.2 million. He expressed reservations that, aside from the astronomical costs that need to be incurred for the repair and maintenance of the building, 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. 37.R2 has not challenged the evidence of Dr Sammy Chan and Mr Raymond Chan and we accept their findings and opinions. The total estimated costs of repair comes to about HK$20.5 million, which is over 43% of the total EUV of all the units of the existing building HK$47,504,558. 38.Having regard to all these evidence and considerations, we are satisfied that the redevelopment of the lot is justified due to the age or state of repair of the existing building thereon. We should add that despite what was alleged in her witness statement, R2 has adduced no evidence on the alleged sentimental value of her unit.
39.The applicant is under an obligation to take reasonable steps on terms that are fair and reasonable to acquire the undivided shares of the minority owners. The fact that all the minority owners except R2 and R5s have accepted the applicant’s offers is telltale of the reasonableness of the steps taken respecting them. 40.The applicant called Mr Alex Au-Yeung to testify on the steps taken regarding R2 and R5s. The Applicant was guided by the expert valuation of Mr Alnwick Chan in making the offers. Mr Alnwick Chan (as we have noted) 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, and we have accepted his EUV assessment. 41.The offers made by the applicant to the remaining respondents may be summarised in the following table:
42.Mr Au-Yeung testified that the applicant generally offered a price higher than the valuation of Knight Frank. The offer letters contained details of Knight Frank’s valuation so that the respondents could better appreciate the offer. The Applicant had been willing to mediate and did suggest mediation to the remaining respondents but they never responded. 43.Despite the Notice of Opposition of R2, no one has really challenged the reasonableness of these offers. 44.We observe that the offers generally fall “within the range of what may broadly be regarded as fair and reasonable” (per Mr. Justice Ribeiro PJ in Capital Well Ltd v Bond Star Development Ltd (2005) 8 HKCFAR 578 at para. 33). The latest offers also fare well against our determination:
45.Based on the unchallenged evidence of Mr Au-Yeung and the above considerations, we are satisfied that the applicant has taken reasonable steps in acquiring all the undivided shares in the lot and that (insofar as it is necessary) it has negotiated with R5s on terms that are fair and reasonable. Issue 4: Determination of RDV 46.According to the latest RDV report of Mr Alnwick Chan dated 24 June 2013, the RDV of the lot as at 5 June 2013 is HK$75,800,000. 47.Mr Alnwick Chan adopted the residual method of valuation in assessing the RDV of the lot. That was done by deducting development costs (including construction costs, professional fees and finance costs) and developer’s profit from the estimated gross development value of the completed development. He opined that a composite building with retail shops, domestic entrance lobby and switch room on the G/F, with retail shops, lift lobby and machinery on the 1/F and residential units on 2/F to 20/F should be the optimum development on the lot upon redevelopment. The details of his hypothetical development and residual valuation are set out in Appendix 9 of his report. 48.In addition, Mr Alnwick Chan mentioned in his report that a nearby plot of land had recently been auctioned with an accommodation value of HK$49,102 per square metre. He said that his assessment of HK$75.80 million for the lot in question represented an accommodation value of HK$50,472 per square metre which compared favourably with that transaction. 49.We have gone through the valuation in detail. We note that Mr Alnwick Chan’s assessment is based on recent retail and residential sale comparables in the vicinity and we agree with his assumptions and the values and costs parameters he used. 50.We accept Mr Alnwick Chan’s valuation and determine the reserve price for the sale of the lot should be HK$75,800,000. Issue 5: Matters incidental to the order for sale 51.The applicant proposes to appoint Mr Ho Chi-Kit and Mr Cheung Chi-Yu, both solicitors of Katherine YW Or & Co, as the sale trustees. Based on the information on their background and experience as set out in their letter dated 19 June 2013, we are satisfied that they are proper persons to be appointed. We also approve the remuneration package proposed in the said letter. 52.Mr Li has also provided a set of draft particulars and conditions of sale by public auction (H/1697-1715 of the trial bundle) for our consideration. We understand that these are the usual terms used for compulsory sale and we approve them. Conclusion 53.For the above reasons, we are satisfied that the redevelopment of the lot is justified due to the age and state of repair of the existing building thereon and that the applicant (as the majority owner) has taken reasonable steps to acquire all the undivided shares in the lot. We 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. 54.We 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 authorise their remuneration for their service as trustees as provided in their letter dated 19 June 2013. We approve the particulars and conditions of sale of the lots placed before us and grant liberty to the parties and the trustees to apply for further directions if necessary. 55.On costs, the applicant does not seek costs against R5s but Mr Li has submitted that R2 should bear one-third of the applicant’s costs given her opposition. During the course of the trial, we repeatedly prompted R2 (who attended the trial with her daughter) to reconsider her stance given the evidence. Her rejection of the applicant’s latest offer appears to us to be irrational and may turn out to be detrimental to her own interest given our determination above. Be that as it may, given the stance adopted by R5s the applicant would have to prove its case at trial in terms of the statutory scheme and we do not think what was done (or not done) by R2 has made any real difference. Consequently, we make no order as to the costs as between the applicant and R2 and R5s. 56.This judgment is written in English because the substantial evidence filed by the applicant is in English. We grant liberty to R2 to contact the clerk of Member Lo within 14 days from the date of this judgment to make arrangement for the judgment to be orally interpreted to her by a Court Interpreter if required. （註：第二答辯人可於判決作出後的14天內連絡盧審裁處成員的書記，以便安排法庭傳譯主任把本判案書以口頭方式傳譯至中文給第二答辯人聽。）
Mr C.Y. LI instructed by M/S So, Lung & Associates, for the Applicant 2nd Respondent, In person 5th Respondents, absent Appendix A
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