Supergoal Investment Ltd v. Five F Ming House Ltd and Others
Read the full judgment text of LDCS 46000/2011 on BabelCite. This LDCS judgment was delivered on 26 November 2013.
1. This case necessarily engages the question of whether the Land (Compulsory Sale for Redevelopment) Ordinance (“the Ordinance”) should apply to land of which the applicant is already 100 percent owner. That question was answered by the Court of Appeal in the negative, [1] but the decision was doubted by the Court of Final Appeal upon appeal. [2] The question for us is whether we should follow the Court of Appeal decision.
Cited by 24 cases · Cites 11 cases
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LDCS 46000 / 2011 IN THE LANDS TRIBUNAL OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION LAND COMPULSORY SALE APPLICATION NO 46000 OF 2011 __________________ BETWEEN
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_________________ J U D G M E N T
1.This case necessarily engages the question of whether the Land (Compulsory Sale for Redevelopment) Ordinance (“the Ordinance”) should apply to land of which the applicant is already 100 percent owner. That question was answered by the Court of Appeal in the negative,[1] but the decision was doubted by the Court of Final Appeal upon appeal.[2] The question for us is whether we should follow the Court of Appeal decision. 2.Unfortunately, the application is not opposed and we only have the submissions of the applicant. Nonetheless, we are grateful to the applicant’s counsel (Nancy Ngai) for her thoughtful and helpful submissions. 3.Before we attempt to deal with the conundrum, we shall set out the background. Background 4.The applicant is applying for the compulsory sale of all the undivided shares in Sections C, D, E, F, G, H, I and Remaining Portion of Kowloon Inland Lot No 1322, otherwise known as Nos 7, 7A, 7B, 7C, 7D, 7E, 7F and 7G of Victory Avenue, Kowloon for the purposes of redevelopment. For ease of reference, we shall call each lot by their street number (eg No 7C) and the lots collectively as “the Lots”. 5.There is erected on each lot a 9-storey composite building with shops in the basement and domestic units on the upper floors. The buildings on Nos 7, 7A, 7D and 7E are connected and served by one common lift and two common staircases. We shall call this group of buildings “the 1st Group”. Similarly, the buildings on Nos 7B, 7C, 7F and 7G are served by a common lift and two common staircases. We shall call them “the 2nd Group”. There is no common staircase between the 1st Group and the 2nd Group, although they share the same main entrance on the basement level fronting onto the street level of Victory Avenue. We shall call the existing development on the Lots (ie both the 1st Group and the 2nd Group) “the Complex”. The Complex is depicted pictorially in an index diagram provided by Ms Ngai, which is annexed hereto as Annex A. 6.According to Land Registry record, there are altogether 65 units in the Complex excluding the roofs. The distribution of the undivided shares in the Lots/Complex is shown in the table at Annex B. 7.As at the commencement of this case on 21 December 2011, the applicant owned all the undivided shares in the Lots except the following:
8.The percentage of the undivided shares in each lot owned by the applicant at that time was:
9.Since then, the applicant has acquired the interests of the 1st, 2nd, 3rd and 6th respondents and discontinued the application against them. By the time of trial, only the 4th, 5th and 7th respondents remain. 10.The 4th respondent is the owner of 7th Floor & Flat Roof of No 7A. He was adjudicated bankrupt on 20 November 2002 and the Bankruptcy Order has not been discharged. By virtue of section 58 of the Bankruptcy Ordinance, the interests of the 4th respondent in his unit has been vested with the Official Receiver. The application had been served on the Official Receiver but the 4th respondent filed no opposition and did not attend the trial. 11.The 5th respondent is the owner of Basement of No 7C. He filed a Notice of Opposition on 11 January 2012 alleging that “the valuation of the premise is low”. He, however, did not call any evidence and was absent at the trial. 12.The original owner of 5th Floor of No 7E (Don Ngell Lee) passed away on 12 January 1996. A Justice of the Probate and Family Court in the United States of America decreed on 26 April 1996 that William D Chin be appointed administrator of the estate. The said Mr Chin appointed Tsui Robert Che-Kwong to represent the estate. By an order of this tribunal dated 4 December 2012, Mr Tsui was appointed to represent the estate in these proceedings as the 7th respondent. 13.We are given to understand that the applicant and Mr Tsui entered into a settlement on 4 July 2013 although completion of the sale of the 7th respondent’s unit to the applicant is yet to take place pending formal grant of probate. Consequently, Mr Tsui withdrew his Notice of Opposition and offered no evidence to dispute the application despite the expert evidence previously filed. The 7th respondent was absent at the trial but sent a representative to attend the site inspection on 10 September 2013. 14.The percentage of the undivided shares in each lot owned by the applicant by the time of trial is therefore:
15.In view of the absence of any real opposition, the applicant simply called its witnesses at trial to confirm their evidence. The applicant contends that all the requirements of the Ordinance have been satisfied and asks for an order for sale under the Ordinance and consequential directions. (1) Section 3 of the Ordinance – Ownership of the applicant (1a) The threshold percentage 16.Section 3(1) of the Ordinance requires an applicant to have not less than 90% of the undivided shares in a lot before he can make an application. 17.Section 3(5) of the Ordinance provides that the Chief Executive in Council may, by notice in the Gazette, specify a percentage lower than the percentage mentioned in section 3(1) in respect of a lot belonging to a class of lots specified in the notice. 18.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”). Section 3 of the Notice lowered the threshold for compulsory sale in respect of the classes of lots specified in the Notice from 90% to 80%. Those classes of lots includes: “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 under the Ordinance]”. 19.The occupation permit for the Complex was issued on 16 July 1958 and the Complex was more than 50 years old when this case was commenced. The Notice is applicable and the threshold percentage should be 80%. (1b) The applicant’s case 20.According to the Re-Re-Amended Notice of Application dated 9 July 2013, the applicant applies for an order to sell all the undivided shares in the Lots for the purposes of redevelopment on the ground that the applicant is the legal owner of not less than 80% of the undivided shares in the Lots. 21.However, Ms Ngai invited us, in her written opening, to treat this case as two applications – one for the sale of the 1st Group and one for the sale of the 2nd Group. She observed that the buildings in each group are connected by common staircases and the average percentage of the undivided shares owned by the applicant in each group is more than 80%. She submitted that the applicant is entitled to apply under section 3(2)(b) of the Ordinance for the compulsory sale of each group. Relying on the judgment of this tribunal (differently constituted) in Fairtex Development v Tso Pee Hong,[3] she suggested that the two applications should be “consolidated” and tried together. She therefore invited us to make two orders for sale at the end of the day with directions that the Lots be sold in one public auction. 22.To facilitate our ruling, the applicant took out the summons dated 9 September 2013 applying for an order that:
(1c) Our concerns 23.We note that Fairtex was concerned with a similar situation. The applicant there sought an order under the Ordinance for the sale of four adjoining lots on which two pairs of composite buildings were erected. The buildings in each pair were served by common staircases but the two pairs were otherwise not connected. Initially, the applicant relied on section 3(2)(a) of the Ordinance to justify its application. The tribunal drew the applicant’s attention to the Court of Appeal decision in Bond Star and, as a result, the applicant abandoned its initial contention and invoked section 3(2)(b) instead. 24.In dealing with that alternative contention, the tribunal in Fairtex referred to the decisions of the Court of Appeal and the Court of Final Appeal in Bond Star and said:
25.Having read Ms Ngai’s opening in advance, we posed the following questions for her at the beginning of the trial before she opened her case:
26.Bond Star was concerned with an application for the compulsory sale of five lots of land known as Nos 24, 26, 28, 30 and 32 Ming Yuen Western Street, Hong Kong. No 28 shared a common staircase with No 30, but was not connected to Nos 24, 26 and 32. By the time of the trial before the Lands Tribunal, the applicant owned all the properties in the lots except Flat A, 3/F of No 28 which belonged to the respondent. 27.The applicant there contended that it was entitled under section 3(2)(a) to make one single application covering all five lots. The respondent, in opposing the application, argued that that section was not applicable as the applicant already owned all the undivided shares in Nos 24, 26, 30 and 32 and there was no need to seek any order for sale in respect of those lots. 28.After a contested trial, the tribunal (differently constituted) accepted the applicant’s argument and ruled that:
29.The respondent appealed and one of the points taken before the Court of Appeal was: Whether the Ordinance applies to land in respect of which the applicant is already the full owner? 30.The Court of Appeal answered the above question in the negative. We set out the relevant part of the judgment in full below (“CA Decision”):
31.Feeling aggrieved, the respondent in Bond Star appealed further to the Court of Final Appeal. The points actually argued before the Court of Final Appeal did not include the above question. Nonetheless, Ribeiro PJ made this comment at the end of the judgment (“CFA Decision”):
32.We have quoted extensively from the judgments in Bond Star so that the arguments at each level of court may be fully appreciated. (1d) Discussion 33.The first issue that we need to tackle is whether CA Decision is binding on us as a matter of law. 34.Initially, Ms Ngai relied on §41 of CFA Decision and contended that:
35.She prayed in aid the judgment in Fairtex (quoted above) as well as the following judgment of another panel of this tribunal in Top Sail International Ltd v Wong Lai Wei in support of her contention.
36.In our view, the matter is not that simple. It is imperative to read §41 of CFA Decision in its proper context. The Court of Final Appeal dismissed the appeal in Bond Star based on the arguments taken before it. The order (of the Court of Appeal) confining the sale to No 28 was not disturbed because the order was not under appeal and remained valid as between the parties. The Court of Final Appeal did not have the opportunity to fully consider the question under discussion. Nonetheless, the Court of Final Appeal was concerned that the Court of Appeal’s approach might undermine the policy objectives of the Ordinance and made the comment it did. If the issue was so open and shut as Ms Ngai would have it, then there will be no room for any future argument. 37.Ms Ngai concedes, after revisiting CA Decision, that the Court of Appeal did not in fact rule that their decision should not be applicable to section 3(2)(b). She agrees that no valid distinction may be drawn between the subsections in section 3(2). 38.We are mindful of the reminder of the Privy Council in Ogden Industries Pty Ltd v Lucas[6] that:
39.We certainly abide by the doctrine of precedent[7] and recognise the authority of the Court of Appeal. However, it is well recognised that:
40.That proposition was applied locally in Indosuez WI Carr Securities. In that case, Deputy High Court Judge Longley decided that he was not bound to follow the ratio of a relevant Court of Appeal decision in the light of the dicta of the Privy Council in a subsequent case so that he might depart from the ruling of the Court of Appeal if he considered it appropriate to do so.[9] 41.Applying that proposition to this case, although CA Decision was not overruled it has, in our view, been undermined by the subsequent comment of the Court of Final Appeal. We take the view that CA Decision is no longer binding on us and we may depart from it if we consider it appropriate so to do. 42.The next issue is whether we should depart from CA Decision. 43.CA Decision is a well reasoned judgment. Although we are not bound by it in a strict legal sense, it remains highly persuasive. In accordance with the proposition mentioned above, we are not obliged to dissent and should only depart from it if we consider it appropriate to do so. 44.We appreciate that the Court of Appeal had considered the legislative history, the framework and scheme of the Ordinance, noting, in particular, the definition of “lot”, “majority owner” and “minority owner”. It appears that CA Decision was based on the following considerations:
45.The Court of Appeal recognised that its approach might lead to practical difficulties but considered it justified.[10] 46.The Court of Final Appeal also considered the Ordinance in detail. It observed that there are 4 distinct phases in an application which resulted in a compulsory sale under the Ordinance, and said that the two-fold objective underlying the whole process is:
47.We agree with the Court of Final Appeal that CA Decision would undermine the objectives of the Ordinance when it comes to composite site redevelopment.
48.With the greatest respect, we beg to differ from CA Decision. 49.The Court of Appeal made references to the legislative history although it considered that the Ordinance was clear and there was no basis so to do.[13] 50.On our part, we have taken guidance from §§11-17 of the Court of Final Appeal judgment in HKSAR v. Cheung Kwun Yin. [14] We consider that the 3 conditions laid down in Pepper v Hart are met in this case so that we can refer to legislative materials as an aid to interpretation for the purpose of ascertaining the meaning of the statutory language used in the Ordinance. 51.Ms Ngai has diligently located the Land (Compulsory Sale for Redevelopment) Bill as well as the official record of the relevant proceedings of the Provisional Legislative Council for our reference. 52.As the Court of Appeal has pointed out, the Bill was drafted with single lots in mind and did not contain section 3(2) of the Ordinance. 53.At the second reading of the Bill, The Hon Ip Kwok-Him was reported to have said that:
Similarly, The Hon Edward Ho commented that:
Later on, The Hon Ngan Kam-Chuen warned that:
54.And as noted by the Court of Appeal, The Hon Ronald Arculli said that:
But he did not explain how several lots might form the subject of an application given the design of the Bill. 55.When the Bill reached the Committee Stage, the Secretary for Planning, Environment and Lands moved that clause 3 of the Bill be amended. This was how he introduced the amendment:
He also moved some “technical amendments” to Schedule 2 of the Bill. Eventually, clause 3 and Schedule 2 as amended, among other provisions, were passed. 56.A comparison of the Bill and the Ordinance would reveal that:
57.Therefore, the Court of Appeal’s understanding that the Ordinance should only apply to single lots may not be correct (see §44(e) above). 58.In our view, we must look at the Ordinance in a different light, ie that the Ordinance also applies to multiple lots applications. The starting premises is still section 3(1) which caters for single lot applications. The Ordinance permits “an application under subsection (1)” to cover more than one lot provided that the conditions set out in section 3(2) are satisfied. 59.Since the Ordinance has inherited the language of the Bill, it has retained definitions referable to single lots. For example:
60.Given the way section 3(2) is drafted, a multiple lots application satisfying the requirements of section 3(2) is to be regarded as “an application under subsection (1)” which is “an application … to the Tribunal for an order to sell all the undivided shares in the lot for the purposes of the redevelopment of the lot”. Therefore, the context does not exclude but instead presumes the application of section 7(2) of the Interpretation and General Clauses Ordinance that: “Words and expressions in the singular include the plural…”. The word “lot” therefore can mean “2 or more lots” in the context of the Ordinance (compare §44(c) above). 61.The Court of Final Appeal said that: “the power coercively to order sale is confined to ordering the sale of a lot or lots in which a majority owner and a minority owner each hold a proprietary interest.” In the context of multiple lots applications where some of the lots the subject of the application are wholly owned by the applicant, there will still be minority owners of “the lot the subject of the application” if we read “the lot” in plural and the difficulty of construction foresaw by the Court of Appeal (see §44(d)above) will not arise. Alternatively, an applicant contemplating composite site redevelopment may apply for the compulsory sale of the lot or lots that he does not already own, and then ask for directions under section 4(6)(a)(i) for the lot or lots, the subject of any order for sale, be sold together with other adjourning lot or lots that he owns. 62.The purpose of permitting an application to include a lot or lots that is or are wholly owned by the applicant in a multiple lots situation is:
63.For the above reasons, we shall depart from CA Decision. We answer the question posed in §41 of CFA Decision in the negative. 64.Given our decision, it is not necessary for us to discuss the alternative question posed in §42 of CFA Decision. However for completeness sake, we feel obliged to explain ourselves fully. 65.As we have said above, an applicant contemplating composite site redevelopment may either: (i) ask for an order for sale covering the adjourning lots that he already owns; or (ii) confine the order for sale to the lots with minority interests and then ask for directions for those lots to be sold together with adjourning lots that he already owns in one public auction. In our view, so long as the applicant appreciates the need to satisfy the requirements under section 4(2)(a) in relation to the adjourning lots if he opts for option (i), it does not matter how he chooses. The present case falls within this category and the applicant is prepared to justify the whole composite site redevelopment. (1e) Disposition 66.In anticipation of our ruling, the applicant has further taken out the summons dated 10 October 2013 for leave to amend the Re-Re-Amended Notice of Application to enable it to invoke section 3(2)(a) as well as section 3(2)(b).
68.Ms Ngai has very fairly drawn our attention to the fact that the applicant owned less than 80% in No 7A when this case was commenced and concedes that section 3(2)(a) was not satisfied. She confirms that the applicant will only rely on section 3(2)(b). We shall approve the summons dated 10 October 2013 to enable the applicant to invoke section 3(2)(b). 69.In view of the fact that the buildings in the 1st Group and the buildings in the 2nd Group are not connected by any common staircase, Ms Ngai concedes that the applicant should have made two applications, one in respect of each group. Modelling on Fairtex, she invites us to “consolidate” the two applications in terms of the summons dated 9 September 2013. 70.We do not think any order on this summons is necessary. First, Ms Ngai has clarified that she is not asking for a formal “consolidation”. Secondly, it would be in breach of section 3 to treat the applications as “one and single application” (in terms of the summons) as (i) section 3(2)(a) was not satisfied by reason of the ownership in No 7A and (ii) there is no common staircase connecting the buildings in the two groups. 71.In our view, section 3 only sets out the conditions for one application to cover more than one lot. It does not forbid anyone from joining more than one application in a case. More importantly, having all 8 lots included in the present case will enable us to give directions for them to be sold in one single auction and to set a reserve price taking into account their full redevelopment potential. Since all the lots are already before us, we do not need to make any order for “consolidation”. We make no order on the summons. 72.Since the average of the percentage of the undivided shares owned by the applicant in the lots comprising the 1st Group and the 2nd Group respectively is not less than 80%, the applicant is entitled to invoke section 3(2)(b) in relation to each group. 73.In the light of the above, we shall deal this case bearing in mind that we are in fact dealing with two applications, one for each group. The further issues that require determination, as provided in section 4 of the Ordinance, are:
(2) Determination of the EUV of the units 74.The applicant has filed one Notice of Application for both applications. The Notice of Application was accompanied by a valuation report dated 6 December 2011 (“Application Report”) of Wong Chi-Wai of Lawson David and Sung Surveyors Limited (“Mr CW Wong”). Mr CW Wong is a Registered Professional Surveyor (General Practice Division) and a member of the Hong Kong Institute of Surveyor and the Royal Institution of Chartered Surveyors. He has 14 years’ post-qualification experience in the surveying profession and has substantial experience in valuation of properties. We accept his expertise. 75.Mr CW Wong set out in the Application Report his assessment of the EUV of each unit in the Complex as at 29 November 2011. The report was prepared not earlier than 3 months before the filing of the Notice of Application in accordance with section 3 of the Ordinance. 76.He explained in his report the method of valuation as well as the process of his assessment. 77.He adopted the following methodology to assess the EUV of the domestic units of the Complex:
78.Mr CW Wong converted the saleable area of the Flat Roofs on the 7/F or the top Roofs of the Complex by using a conversion factor of 1:3. 79.In assessing the EUV of the shop units on the Basement Floor (actually, on street level of Victory Avenue), Mr CW Wong adopted the following methodology:
80.Mr CW Wong updated his EUV assessment by a supplemental report dated 2 April 2013 (“the Supplemental Report”). He inspected more units of the Complex and took into account the updated property index prepared by the Rating and Valuation Department. He also took into account more domestic and retail comparable transactions. For example, he considered 2 more comparable transactions for the assessment of the unit price of the Reference Domestic Unit (which he maintained at $77,000/sq m) and altogether 7 comparable transactions from 6 nearby buildings in revising the unit price of the Reference Shop Unit (revised upward to $370,000/sq m). 81.Although none of the respondents has disputed the applicant’s assessment, the tribunal is not bound to accept the applicant’s case and may rely on its own experience in evaluating the assessment.[15] (2a) The retail comparables 82.We have extracted some of Mr CW Wong’s adjustments for the retail comparables below (from Enclosure 6 of the Supplemental Report) for discussion purposes:
83.We find the adjustments for location and layout untoward. (2a)(i) Adjustments for Location 84.Mr CW Wong adopted comparable transactions of nearby retail shops fronting onto Victory Avenue (Comparables A1 & A2), Waterloo Road (Comparable A3), Peace Avenue (Comparables A4, A6 & A7), and Soares Avenue (Comparable A5) respectively. 85.As regards location, Mr CW Wong generally applied a –5% adjustment to reflect the difference between the Reference Shop Unit on Victory Avenue and the comparables located on Peace Avenue. It appears to us that Victory Avenue may be a busier street as it has shops flanking both sides whereas Peace Avenue runs parallel to a railway embankment on one side. When we pointed this out to Mr Wong at the trial, he immediately admitted that there was a typographical error and the correct adjustment should have been +5%. He then revised the unit price of the Reference Shop Unit to $384,000/sq m. [16] Even so, we consider that a +5% adjustment may not be adequate given the level of general margin of error in valuation.[17] 86.We inspected all the retail comparables in the afternoon of 10 October 2013 together with Ms Ngai and Mr CW Wong. We observed that Peace Avenue was much quieter than Victory Avenue. There were many eateries and pet shops on Victory Avenue making the street popular. Notably, Comparable A4 on Peace Avenue was used as an office and Comparable A6 (also on Peace Avenue) had no shop window display. These examples illustrate that the opportunity cost for occupying these shop premises on Peace Avenue is low. The inspection therefore confirms our suspicion that a mere 5% allowance for the locational difference between Peace Avenue and Victory Avenue should not be adequate. 87.We also disagree with Mr CW Wong’s treatment of Comparable A3. He considered that the comparable was located on a main street (Waterloo Road) with bus stops and schools nearby and had higher pedestrian flow. Comparable A3, according to his opinion, was superior in terms of location than the Reference Shop Unit and justified a –10% adjustment for location. 88.We pointed out to him that apart from pedestrian flow, the location value of a shop would also depend on “the character of the pedestrians (who they are, what they are there for, etc)”.[18] During the inspection, we drew Mr Wong’s attention to the fact that the shop immediately next to Comparable A3 was in the business of selling household stuffs and supplies.[19] To us, this indicates that the locality may be more suitable for low tier or local trade. We also queried Mr Wong whether his assessment of high pedestrian flow was due to the schools nearby. Mr Wong said he had not visited the area during non-school hours and conceded that Victory Avenue might after all be more popular on account of the eateries and pet shops there. 89.During the inspection, we identified another shop on Argyle Street selling household stuffs and supplies and Mr Wong agreed that that location was inferior to Victory Avenue. 90.We invited Mr Wong to rate the locations we had visited in terms of superiority and he opined that:
91.We do not quite agree with Mr Wong’s opinion. We are not convinced that a shop on Argyle Street (which is a main street similar to Waterloo Road) should attract a unit value lower than a shop on Peace Avenue or as low a unit value as a shop on Soares Avenue (which is relatively quiet with few retail trades). 92.In view of the above analysis, we shall not adopt Mr Wong’s adjustments for location but make our own adjustment as follows:
(2a)(ii) Adjustments for Layout 93.Valuation usually proceeds by way of comparison where the valuer looks for a market transaction that is as close as possible to that which he has to value. He then works on the premise that if the subject matter of his valuation were to be the subject of a similar transaction, it would command the same value as the comparable. Since the comparable will never be identical to the subject matter of the valuation, the valuer will have to make adjustments to the value revealed by the comparable in order to reflect the differences between the comparable and the subject matter of his own valuation. 94.In the case of valuation of a shop, it is well understood that a shop with a wider street frontage (and hence, a bigger shop window) is more valuable than a shop of the same area but with a narrower shop front and a greater depth. This explains why, sometimes, an adjustment for the depth to frontage ratio is required. [20] However, this does not mean that the combination of, say, two standard sized shops of equal frontage and depth (thus yielding 1/2nd the depth to frontage ratio) would justify a higher unit price. Mechanical application of depth to frontage adjustments clearly defies common sense and market expectation that retail shops with long shop fronts can be subdivided and let/sold more profitably (in terms of unit rate) in parts. [21] 95.Using the Reference Shop Unit and Comparable A3 on Waterloo Road as an example:
Mr CW Wong applied an adjustment of –25% to account for its apparent low depth to frontage ratio. However, he might have been clouded by the illusion that the low depth to frontage ratio of Comparable A3 was really caused by the combination of two standard sized shops into one. If he is correct, then the value of Comparable A3 will drop by 25% if the owner subdivides it into two shops each having half of the frontage. The adjustment is clearly inappropriate. 96.While it is not suggested that the “zoning” method should be adopted here, we can use the principle that the immediate area behind the frontage of a shop should fetch a higher value “in terms of zone A” to confirm the correctness of the above analysis. Everything being equal, the immediate area behind the frontage should fetch a similar zone A value whether the frontage is 9.6 metres or 4.8 metres.[22] There is no room for making an adjustment of –25% for the difference in layout.[23] Indeed, Comparable A3 is deeper than the Reference Shop Unit and may fetch a lower unit value (instead of a higher one). 97.Although Mr CW Wong did try to compensate the size of the large shop by making an adjustment for size (ie quantum) by 20%. The two adjustments adding together end up with some -5%, ie the unit price of this comparable is more valuable in terms of layout and size than the Reference Shop Unit which, according to our view, may not be the case. Conceptually, the shop depth and size should be independent factors and the adjustment for one should not compensate the other. This was indeed the case for Comparables A6 and A7. In any event, the application of two or more adjustments which are subjective in nature but intending to compensate each other would only tend to present a picture of false accuracy and mask the error, if any. For instance, when we put to Mr CW Wong that if, by reason of the above analysis, there should be no adjustment for layout, what should be the adjustment for size only. He replied that he would make an adjustment in the order of 5 to 7%. (2a)(iii) Conclusion on EUV 98.We accept the other adjustments of Mr CW Wong and determine the total adjustments for the valuation of the Reference Shop Unit to be as per Annex C. 99.We consider that the adjusted unit rate for the Reference Shop Unit should be $418,183 (which is 8.9% higher than the revised assessment by Mr. CW Wong at trial or 13% higher than his original assessment in the Supplemental Report)and the EUV assessment of the subject shops are at Annex D. 100.We therefore determine the EUV of the units in the 1st Group as at 29 November 2011 to be as follows:
101.And the EUV of the units in the 2nd Group as at 29 November 2011 should be:
102.More particularly, the EUV of the 4th, 5th and 7th respondents’ units are:
(3) Justification for redevelopment 103.The next matter that we are concerned with is whether the redevelopment of the 1st Group and the 2nd Group is justified respectively. This involves, according to section 4(2) of the Ordinance, two considerations, namely:
104.There is one occupation permit issued for the 1st Group and the 2nd Group, which was dated 16 July 1958. In other words, the Complex is about 55 years old. 105.We have considered the expert evidence of Mr Benson Wong Sai-Ning (“Mr B Wong”), a building surveyor, and Mr Wong Chi-Ming (“Mr CM Wong”), a structural engineer, adduced by the applicant for the 1st Group and the 2nd Group. Their expertise is not disputed. 106.Mr CM Wong conducted a structural assessment and prepared a report dated 28 March 2013. He identified the following defects in the Complex:
107.Based on his findings, Mr CM Wong concluded that the structural elements of the Complex were in a poor condition. He opined that the structural elements have passed their design working life of 50 years and are inferior to the current standard. The corrosion of the reinforcement bars has entered the propagation phase and extensive maintenance and repair works are required in the near future. He said that the design and construction of the structural frames have become obsolete over time and the structure failed the current safety standard. He recommended that hammer tapping works be carried out to all the structural members and all revealed cracks and spalling should be patch repaired. 108.Mr B Wong, in his condition survey report dated 28 September 2012, stated that:
109.Mr B Wong estimated that the total costs of immediate repair works to restore the 1st Group and the 2nd Group to tenantable standard come to $21,425,472 which is about 30% of the cost of constructing a new building similar to the Complex. He concluded that the Complex has deteriorated to a state which is beyond reasonable economic repair. As more rapid deterioration would occur in the future, the necessary maintenance and repairs would inevitably be more frequent and extensive making the continued occupation of the Complex not economical and even unsafe. He recommended the owners to redevelop rather than repair given that neither the 1st Group nor the 2nd Group possesses any historical value or architectural merit. 110.No one seeks to challenge these expert evidence and we accept them. Having considered the evidence, we are satisfied that redevelopment of the 1st Group and the 2nd Group is respectively justified due to the age and state of repair of the existing buildings in each group. (4) Reasonable steps to acquire all the undivided shares? 111.The applicant is under an obligation to take reasonable steps to acquire all the undivided shares in the lot the subject of the application. For minority owners whose whereabouts are known, the application is obliged to negotiate for the purchase of such of those shares as are owned by those minority owners on terms that are fair and reasonable. See Section 4(2)(b) of the Ordinance. 112.The minority owners remaining on the 1st Group are the 4th and 7th respondents. The only minority owner remaining on the 2nd Group is the 5th respondent. The fact that all the other minority owners have accepted the applicant’s offer is telltale of the reasonableness of the steps taken respecting them. 113.According to the applicant’s witness Lui Wing-Yan, Senior Property Development Manager of the applicant’s holding company, Henderson Land Development Co Ltd, the applicant made the following offers to the 4th and 7th respondents respectively for the purchase of their units:
114.The applicant also made the following offers to the 5th respondent:
115.Ms Lui said that all the offers made by the applicant were based on the assessment of independent valuer, Lawson David and Sung Surveyors Limited. We note from the offer letters in evidence that the applicant had disclosed the basis of the offer and the expert’s valuation for the reference of the minority owners. These offers included a premium over the expert’s valuation. 116.In considering the reasonableness of the applicant’s offers, we bear in mind the following guidance from the Court of Final Appeal:
117.We appreciate that the applicant was guided by expert opinion in making its offers. No one has really challenged the reasonableness of these offers and there is nothing to suggest that the assessments are other than proper and professional. 118.As we have noted in the introductory part of this judgment, the 7th respondent has now settled with the applicant. We are not apprised of the terms of the settlement and do not know if the offer dated 2 July 2013 had been accepted. Nonetheless, we can safely infer from the settlement that the 7th respondent must have found the applicant’s terms fair and reasonable. 119.The last offers made to the 4th and 5th respondent also farewell against our determination:
120.Based on the above considerations, we are satisfied that the applicant’s offers fall “within the range of what may broadly be regards as fair and reasonable” and the requirement of section 4(2)(b) is satisfied. (5) Whether there should directions for the public auction of all 8 lots and determination of RDV 121.Although the applicant asks for two orders for sale, it is seeking directions to have all 8 lots sold in one single auction. In our view, this is permissible under the Ordinance. 122.Section 4(6)(a)(i) provides that:
In our view, the power to give directions “relating to” the sale and purchase of the lot the subject of the order enables us to go beyond the subject of the application or the order for sale. 123.Section 5(1)(a) of the Ordinance provides that:
And paragraph 2 of Schedule 2 is in these terms:
124.After we have made an order for the sale of the 1st Group and an order for the sale of the 2nd Group in the present case, we may then consider if we should direct both groups to be sold together in one public auction. If so directed, all 8 lots will be sold to one single purchaser in the public auction. 125.The consequence of directing all 8 lots to be sold in one public auction as “the subject of the auction” is that we may take into account their redevelopment potential “on their own” and set a reserve price reflecting their full redevelopment potential in terms of paragraph 2 of Schedule 2. 126.In our view, the above approach will fulfil the objectives of the Ordinance.
127.There are also practical concerns in this case as to why the 1st Group and the 2nd Group must be redeveloped together. According to Mr CM Wong, upon demolition of either one of the two groups of buildings, the remaining group would have to be strengthened to prevent it from collapsing. He said that the design of the Complex is such that one group of buildings would shield the other and it is unlikely that the effect of lateral wind load acting upon the superstructure has been taken into account in the design of the structural elements. Either group of buildings, without the other, would be too slender to withstand the effect of strong wind. He said that in order to carry out strengthening works for one group, it will be necessary to enter and make use of the land where the other group is. That would be impracticable (if not impossible) if the 1st Group and the 2nd Group end up with different purchasers. 128.Furthermore, Mr CM Wong said that the overall process of demolition and construction would be less complicated and the time required for the redevelopment would be shortened accordingly. 129.For the above reasons, we shall, in accordance with paragraph 2 of Schedule 2, take into account the redevelopment potential of all 8 lots (ie the Lots) in assessing the RDV. 130.Indeed, the applicant’s valuation expert, Mr CW Wong, has prepared a report dated 12 August 2013 for the purpose of assessing the RDV of all 8 lots as at 9 August 2013. We agree with him that the residual method is the appropriate method of assessment. This is done by deducting the development costs (including construction costs, professional fees, finance costs etc) and developer’s profit from the estimated gross development value of the completed development. 131.Mr CW Wong opined that the optimum development comprised a block of 27-storey composite development with:
The details of the hypothetical development and residual valuation were set out in Enclosure 14 of the RDV Report.[27] He then assessed the RDV of the Lots as a whole as at 9 August 2013 to be $733 million. 132.Mr CW Wong revised his assessment at the hearing on 11 September 2013. [28] His final assessment is $734 million and Ms Ngai submits that the reserve price for the auction of the Lots should be set at $734 million. 133.Having looked at Mr CW Wong’s revised assessment, however, we would like to repeat our concerns (discussed above) regarding his retail comparables adopted for determining the RDV of the Lots. In the light of our concerns, we have revised his adjustments for location and layout based on the same rationale discussed above but accept the other adjustments. The result is appended at AnnexE. 134.We have gone through the other parts of his assessment in detail. We are satisfied with his valuation assumptions and the values and costs parameters he used. We note that he has adopted the Development Cost Pro-forma recently promulgated by the Hong Kong Institute of Surveyors to facilitate consideration of construction costs in land value assessments.[29] 135.Using Mr CW Wong’s residual valuation format as set out in page 3 of Exhibit A11 but applying $488,000/sq m in assessing the GDV for the shops, our determination of the RDV of the Lots is attached hereto as AnnexF. 136.For these reasons, we adopt $751.3 million as the reserve price for the auction of the Lots. 137.During the course of trial, we discussed with Ms Ngai how the proceeds of sale should be apportioned amongst the majority owner and the remaining owners given the proposal to sell the Lots in one public auction. 138.Ms Ngai initially suggested that the proceeds should first be apportioned to the 1st Group and the 2nd Group pro rata to their respective RDV. Thereafter, she continued, the portion apportioned to each group would be apportioned to the majority and the minority owners of that group on a pro rata basis in accordance with the EUV of their respective units. She submitted that her suggestion was fair having regard to the difference in value of the 1st Group and the 2nd Group by reason of the presence of some rights of way within them. She also said that the RDV of the 2 groups should turn out to be equal as the owners would prefer to release all the rights of way to maximise the redevelopment potential of the land. 139.In our view, Ms Ngai’s suggestion is not consistent with the legislative scheme. Section 10(3)(a) of the Ordinance governs the basis of apportionment of the proceeds of sale. It provides that:
And part 3 of Schedule 1 mandates the apportionment to be:
Thus, the suggestion to apportion the proceeds to each group by reference to their respective RDV is not sanctioned by the Ordinance. The only basis of apportionment is the EUV of the constituent units. 140.We appreciate that the main concern driving Ms Ngai to her suggestion is the presence of those mutual rights of way within the area of the Lots (depicted in yellow in Exhibit A12(a), annexed hereto as AnnexG). If we direct one public auction for the sale of the Lots, both the 1st Group and the 2nd Group will end up in one single purchaser. There will be unity of ownership and possession of both the dominant and servient tenements and any right of way will be extinguished.[30] 141.In our view, the only basis of apportionment of the proceeds of sale sanctioned by the Ordinance is pro rata in accordance with the EUV of the constituent units. On account of the fact that there will be two orders for sale, the proceeds (after deducting the expenses and legal costs etc as provided for by the Ordinance) should first be apportioned to the 1st Group and the 2nd Group pro rata to their respective total EUV. The portion apportioned to each group can then be apportioned to the owners pro rata in accordance with the EUV of their respective units. 142.To test the correctness of our theory, we invited Ms Ngai to consider what the basis of apportionment would be if the applicant had been qualified to invoke section 3(2)(a) of the Ordinance. 143.It can be recalled that the applicant was driven to invoke section 3(2)(b) because it owned less than the specified percentage (80%) of the undivided shares of No 7A at the time of application. Had it waited longer, say, until after it had acquired the undivided shares of the 3rd respondent, it would have been qualified to apply under section 3(2)(a). 144.If the applicant had invoked section 3(2)(a), there would be one single application covering the Lots and the applicant would be asking for one order for sale. All 8 lots would be sold in one auction and section 10(3)(a) and part 3 of Schedule 1 would mandate the apportionment to be pro rata on the basis of the EUV of the constituent units of the Complex. So, the result (from the perspective of the entitlement of the majority and the minority owners) would be the same for both models. (6) Other Incidental Matters 145.The applicant proposes to appoint Chow Wing-Kin Anthony and Chow Suk-Han Anna, both solicitors of Peter C Wong, Chow & Chow, as the sale trustees. Based on the information on their background and experience as set out in their letter dated 6 August 2013, we are satisfied that they are proper persons to be appointed as trustees to discharge the duties imposed on trustees under the Ordinance. The remuneration package proposed in the said letter appears to be reasonable too. 146.The particulars and conditions of sale of the Lots by public auction submitted by the Applicant are also reasonable. Conclusion 147.By the foregoing discussion, we are satisfied that the redevelopment of the 1st Group and the redevelopment of the 2nd Group are respectively justified due to the age and the state of repair of the existing buildings there and that Supergoal Investment Limited (as the majority owner) has taken reasonable steps to acquire the undivided shares in each group. We therefore make an order that all the undivided shares in the 1st Group be sold for the purposes of redevelopment. We also make an order that all the undivided shares in the 2nd Group be sold for the purposes of redevelopment. And we direct that all 8 lots be sold by one public auction. 148.We appoint Mr Chow and Ms Chow as the sale trustees to discharge the duties imposed on them under the Ordinance in relation to the Lots and authorised their remuneration for their service as trustees as provided in their letter dated 6 August 2013. We approve the particulars and conditions of sale of the Lots placed before us and grant liberty to the parties and to the trustees to apply for further directions if necessary. 149.Since the applicant is not asking for costs, we shall make no order as to costs.
Ms Nancy NGAI, instructed by Lo & Lo, for the applicant The 4th respondent was not represented and did not appear The 5th respondent was not represented and did not appear The 7th respondent was represented by Robert C K Tsui & Co. and did not appear Annex A
Annex F
Annex G 
[1] Bond Star Development Ltd v Capital Well Ltd [2004] 2 HKLRD 855. [2] Capital Well Ltd v Bond Star Development Ltd (2005) 8 HKCFAR 578. [3] Unreported, LDCS 20000/2011, 12 September 2012. [4] [2002] 1 HKLRD 308 [5] Unreported, LDCS 19000/2010, 25 November 2011. In addition, we note that this tribunal (differently constituted) has recently applied CA Decision in Super Fortune Investment Limited v Keynote Enterprises Limited, unreported, LDCS 19000/2012, 18 June 2013. [6] [1970] AC 113 at 127 [7] Li CJ said in Solicitor (24/07) v Law Society of Hong Kong (2008) 11 HKCFAR 117 at footnote 2 that: “The doctrine of precedent involves a decision of a superior court binding on a lower court. The doctrine of precedent also includes the doctrine of stare decisis which involves a superior court being bound by its own previous decision.” [8] See Cross and Harris, Precedents in English Law, 4th Edition (1991), p 129. [9] Commissioner of Inland Revenue v Indosuez WI Carr Securities Ltd [2002] 1 HKLRD 308 at §§60-76. [10] See §17 of CA Decision. [11] See §§10-21 of the judgment. [12] See Bond Star Development Limited v Capital Well Limited, supra, §§118-119 & 120(3). [13] See §§18-19 of CA Decision. [14] (2009) 12 HKCFAR 568. [15] See Myers v South Lakeland District Council [2005] EWCA Civ 498; [2005] RVR 301 and Checkpoint Limited v Strathclyde Pension Fund [2003] 14 EG 124; [2003] EWCA Civ 84. [16] See Exhibit A9 page 1. [17] In Graham Miller (Hong Kong) Limited v. Heesing Company Limited, unreported, LDLA 1822 of 1988, 23 September 1988, the Lands Tribunal remarked that 10% is usually considered as a reasonable margin of error in most valuation exercises. And in Shun Fung Ironworks Limited v. Director of Buildings and Lands [1995] HKLR 311, the Lands Tribunal indicated, at § 973, that a margin of error of about 10% is an acknowledged fact in almost any valuation exercise. During the trial, Mr CW Wong accepted a margin of error between 5 to 10%. [18] See Siu Sau Kuen v. the Director of Lands, unreported, LDLR 1/2010, 9 March 2012 at §§160-169. [19] ie 萬豐家居百貨. [20] In Good Faith Properties Limited and Others v Cibean Development Company Limited, unreported, LDCS 42000/2011, 31 May 2013, the expert for the Applicant submitted “if RZM is not to be used for the common comparable, it should be given a downward adjustment, say -10% on layout to reflect its low depth to frontage ratio which is desirous for retail properties” though in the end, he only applied an additional downward adjustment of -5% for the layout and depth ratio difference to the common comparable but not to the other comparables. [21] In contrast, reverse quantum, i.e. an increase in value for size, may otherwise occur when there is shortage of large units in a locality or where national multiples are prepared to pay a premium in competition for securing their presence. [22] Except in the instance where an allowance has to be applied because of an excessive frontage or a narrow frontage [23] Save perhaps for a marginal allowance for the more prominent frontage, say -5% [24] Capital Well Ltd v Bond Star Development Ltd (2005) 8 HKCFAR 578 at §33. [25] Despite we have revised the EUV of the 5th respondent’s unit to $36,750,000, this last offer of $58,099,000 is still within 5% of its share of the RDV as determined by us. [26] See Capital Well Ltd v Bond Star Development Ltd, supra, at §§39-40. [27] At Bundle E2/2978. [28] See Exhibit A11. [29] At Enclosure 15 of the RDV Report (Bundle E2/2982-2983). [30] See Megarry & Wade, The Law of Real Property, 8th Edition (2012), §29-014;Goo & Lee, Land Law in Hong Kong, page 709. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cases cited in this judgment
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Further hearings and rulings under LDCS 46000/2011