Mckesson Ltd v. Great Shop Ltd
Read the full judgment text of LDCS 9000/2012 on BabelCite. This LDCS judgment was delivered on 4 December 2013.
1. This is an application for compulsory sale of all the undivided shares in Section C of New Kowloon Inland Lot No. 27 and Section B of New Kowloon Inland Lot No. 27 (collectively “the Lots”), known as Nos. 344 & 346 Lai Chi Kok Road, Kowloon, Hong Kong, for the purposes of the redevelopment of the Lots pursuant to Section 3(1) of the Land (Compulsory Sale for Redevelopment) Ordinance, Cap. 545 (“the Ordinance”).
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LDCS 9000 / 2012 IN THE LANDS TRIBUNAL OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION LAND COMPULSORY SALE APPLICATION NO. 9000 OF 2012 __________________
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_________________ J U D G M E N T
1.This is an application for compulsory sale of all the undivided shares in Section C of New Kowloon Inland Lot No. 27 and Section B of New Kowloon Inland Lot No. 27 (collectively “the Lots”), known as Nos. 344 & 346 Lai Chi Kok Road, Kowloon, Hong Kong, for the purposes of the redevelopment of the Lots pursuant to Section 3(1) of the Land (Compulsory Sale for Redevelopment) Ordinance, Cap. 545 (“the Ordinance”). 2.There is erected on the Lots a pair of 4-storey buildings (“the Building”) served by one common staircase covered by one occupation permit dated 22 March 1950. While there are 5 undivided shares allotted to Section C of New Kowloon Inland Lot No. 27, ie No. 344 Lai Chi Kok Road under a Deed of Covenant dated 15 March 1971, there exists no Deed of Covenant for Section B of New Kowloon Inland Lot No. 27, ie 346 Lai Chi Kok Road and nor there exists any undivided shares for this lot. More particularly, Section B of New Kowloon Inland Lot No. 27 is 100% owned.3.The applicant commenced the present proceedings on 17 January 2012 (“the Application”). At that time, save the unit on Ground Floor of No. 344 Lai Chi Kok Road, the applicant owned 3/5th of the equal and undivided shares in Section C of New Kowloon Inland Lot No. 27 and 100% of Section B of New Kowloon Inland Lot No. 27 as follows:
4.The applicant is relying on section 3(2)(b) of the Ordinance in making this application to cover the Lots. It contends that it was entitled to make the present application by virtue of the Land (Compulsory Sale for Redevelopment (Specification of Lower Percentage) Notice under Section 3(5) of the Ordinance (“the Notice”). 5.The respondent is the only minority owner of the Lots. On 20 February 2012, the respondent, through its solicitors, Messrs Tony Kan & Co, filed a notice of opposition but by a letter dated 20 June 2013 from Messrs Tony Kan & Co to the applicant’s solicitors, Messrs Ford, Kwan & Co and another letters dated 3 September 2013 and 20 November 2013 to the Lands Tribunal, it is the respondent’s position that it would not adduce any evidence to oppose the Application. Nor the respondent took part in these proceedings. 6.In light of the above, Mr CY Li, SC, counsel for the applicant, simply called the witnesses to prove the applicant’s case. The applicant contends that all the requirements of the Ordinance have been satisfied and asks for an order for sale in terms of the draft order submitted. Section 3 of the Ordinance – Ownership of the Applicant 7.Section 3(1) of the Ordinance requires the applicant to have not less than 90% of the undivided shares in a lot before it can make an application. 8.Section 3(5) of the Ordinance also states that the Chief Executive in Council may, by notice in the Gazette, specify a percentage lower than the percentage mentioned in subsection (1) in respect of a lot belonging to a class of lots specified in the notice. 9.Pursuant to Section 3(5) of the Ordinance, the Notice was gazetted on 22 January 2010 and tabled at the Legislative Council meeting on 27 January 2010. It came into operation on 1 April 2010. Section 3 of the Notice lowered the threshold for compulsory sale, insofar as it is applicable, from 90% to 80%. Section 4(1)(b) of the Notice specified one of the classes for the purposes of Section 3 as “a lot with each of the building erected on the lot issued with an occupation permit at least 50 years before the relevant date (which is the date of the application)”. 10.The occupation permit of the Building was issued on 22 March 1950, which is more than 50 years as at the date of application. The Building therefore is covered by the Notice and the applicable percentage is 80%. 11.As at the date of application, the Applicant owned 80.0% of the shares in the Lots. The Applicant was clearly entitled to make the application. 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”) prepared by Mr Fung Wai Man also known as Daniel Fung (“Mr Daniel Fung”) of Landbase Surveyors Ltd, 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 Lots as at 30 December 2011. 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 Lots, 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 9 January 2012, Mr Daniel Fung 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 Daniel Fung adopted the following methodology :
16.For the roofs of the Building, Mr Daniel Fung converted the saleable areas of the roofs as domestic by using a conversion factor of 1:8. 17.In assessing the EUV of the Ground Floor units, Mr Daniel Fung adopted the following methodology:-
18.Meanwhile, Mr Li, SC notes the occupation permit dated 22 March 1950 is a domestic permit issued under the 1935 Buildings Ordinance. Recently in Tsuen Wan Trade Association Education Foundation Ltd v Chui Kam Ying [2012] 2 HKLRD 1163, Jeremy Poon J, deciding on a similar issue, ruled that “even if two domestic permits had in fact been issued, it does not necessarily follow that the Property can be used for residential purposes only. ….. This inferentially but strongly shows that the Property can in fact be used for non-residential purposes legally.” Mr Li, SC however finds no clear evidence, for instance, by reference to the approved building plans dated 29 August 1949, that the permitted legal use of the ground floor units is non-domestic. Nevertheless, the applicant is satisfied that the ground floor units should be valued as shops, the value of which might be more than the proper market price. 19.Mr Daniel Fung updated his EUV assessment by a supplemental report dated 14 November 2013 (“the Supplemental Report”)[1], adjusting the saleable areas of the Building on the basis of agreement with the respondent’s expert (which is not called to give evidence). The EUV of all units in the Building as at the relevant date of valuation of 30 December 2011 are shown at paragraph 8.1 of Supplemental Report which is reproduced below:
20.I am satisfied, insofar as it is necessary, that the value of the respondent’s unit as assessed by Mr Daniel Fung 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 21.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 :-
22.The Applicant has to satisfy this Tribunal that the above statutory requirements were met; otherwise, an order of compulsory sale ought not be granted. 23.Firstly, for the requirement under (a) above, I have considered the expert opinion of Mr Wong Tung Sang (Mr Wong), the structural engineer and Mr Fung Brian Pak Yan (“Mr Brian Fung”), the building surveyor. Both have filed their expert reports and were called to give evidence. Their expertise is not disputed. 24.Mr Wong conducted a structural assessment of the Building and prepared a structural appraisal report dated 4 January 2012 and a supplementary structural appraisal report dated 3 October 2012. He found the following defects in the Building:
25.Mr Wong concluded that the Building has exceeded its normal concrete design lift of 50 years. Given the extent and degree of concrete deterioration, repair works are not the long term solution to restore it to the original requirement let alone to upgrade it to the current higher design standards. Demolition of the Building is well justified. Otherwise, constant inspection has to take place and it can cost $100,000 each time for such monitoring and repair. 26.Mr Brian Fung in his condition survey report dated 28 December 2011 and his supplemental condition survey report dated 3 October 2012 examined various components of the Building and identified the defects therein:
27.Mr Brian Fung estimates that the repair costs required is $8,136,000 and time required is 4 months but such repair works cannot meet the requirement of escape route and staircases which cannot be built without affecting the stability of the Building. Here, Mr Li, SC submits that $8,136,000 is not an insignificant amount when compared with the total EUV of the Building assessed at $41,100,000. 28.Mr Brian Fung concluded that given the current unsatisfactory state and age of the Building, redevelopment is justified. 29.There is no contrary expert evidence and I accept the expert evidence of Mr Wong and Mr Brian Fung. I am satisfied that the redevelopment of the Lots is justified due to the age and the state of repair of the Building:
Reasonable Steps to Acquire All the Undivided Shares in the Lots 30.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. 31.The applicant had made 5 offers to acquire the respondent’s unit as follows:
32.I appreciate that the applicant was guided by expert opinion at least in making the 3rd to 5th 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. 33.The last offer made to the respondent also fares well against our determination:
34.In considering the reasonableness of the applicant’s offers, I bear in mind the following guidance from the Court of Final Appeal:
35.In the premises, I am satisfied that the applicant’s offers fall “within the range of what may broadly be regarded as fair and reasonable” and the requirement of section 4(2)(b) is satisfied. Reserved Price for the Auction 36.The applicant submits that the reserve price for the auction of the Lots should be fixed at $69,000,000, based on the assessment by Mr Daniel Fung of the redevelopment value (“RDV”) of the Lots as at 8 November 2013 in his Supplemental Report of 14 November 2013. 37.I have considered Mr Daniel’s valuation. I agree with him that the residual method is the appropriate method of assessment of the RDV of the Lots. 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 Daniel Fung opined that the optimum development on the Lots comprised a block of 23-storey composite development with shops on the G/F, commercial accommodation on the 1/F, and domestic units on the 2/F to 22/F. The details of the hypothetical development were set out in paragraph 9.4 of the Supplemental Report and the residual valuation was set out in Appendix 25 of the Supplemental Report. He assessed the RDV of the Lots as at 8 November 2013 to be $69,000,000. 39.I have gone through Mr Daniel Fung’s valuation in details. Notwithstanding my reservation that Mr Daniel Fung has relied on just two comparables at Lai Chi Kok Road for formulating his assessment for the sales price for shops on ground floor and just two comparable developments for formulating his assessment for the sales prices for domestic units which may not be adequate, I am satisfied with his valuation, including the valuation assumptions he has adopted, the values and the costs parameters that he has used in his valuation. The respondent also is not going to introduce any evidence to challenge the assessment. 40.In the circumstances, I adopt $69 million as the reserve price for the auction of the Lots. Trustees 41.I find that Mr Ma Ho Fai and Ms Tsang May Ping, senior partner and partner respectively of Messrs Woo, Kwan, Lee & Lo, nominated by the applicant, are suitable persons to be appointed as trustees to discharge the duties imposed on trustees under the Ordinance in relation to the Lots and I authorise their remuneration for their service as trustees as provided in their letter dated 28 November 2012. Particulars and conditions of sale of the Lots 42.The particulars and conditions of sale of the Lots by public auction submitted by the applicant are also reasonable and will be adopted accordingly. Costs 43.There be no order as to costs as no one has asked for costs. Conclusion 44.For the above reasons, I am satisfied that the redevelopment of the Lots is justified due to the age and the state of repair of the existing building on the Lots and that Mckesson Limited (as the majority owner) has taken reasonable steps to acquire all the undivided shares in the Lots. I therefore make an order that all the undivided shares in the Lots, the subject of this application, be sold for the purposes of redevelopment. I appoint Mr Ma Ho Fai and Ms Tsang May Ping as the sale trustees to discharge the duties imposed on them under the Ordinance in relation to the Lots and authorize their remuneration for their service as trustees as provided in their letter dated 28 November 2012. I approve the particulars and conditions of sale of the Lots placed before me and grant liberty to the parties and to the trustees to apply for further directions if necessary.
Mr C Y LI, SC, instructed by Ford, Kwan & Co., for the applicant Attendance of Tony Kan & Co., for the respondent, was excused | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||