Day Bright Development Ltd and Others v. Choi Pak Ling and Others

IN THE LANDS TRIBUNAL OF

THE HONG KONG SPECIAL ADMINISTRATIVE REGION

LAND COMPULSORY SALE APPLICATION NO. 13000 OF 2012

BETWEEN

________________________

________________________

Coram: His Honour Judge KW WONG, Presiding Officer and Mr Lawrence PANG, Member, of the Lands Tribunal

________________________

J U D G M E N T

________________________

Background

1.This is an application for compulsory sale of all the undivided shares in Section D of Inland Lot No. 3536 and the Remaining Portion of Inland Lot No. 5099 (collectively “the Lot”), with a building erected thereon known as Nos. 209 & 211 Tsat Tsz Mui Road (“No. 209” & “No. 211”) and Nos. 8 & 10 Nation Street (“No. 8” & “No. 10”), North Point, Hong Kong (“the Building”), for the purposes of redevelopment pursuant to Section 3(1) of the Land (Compulsory Sale for Redevelopment) Ordinance, Cap. 545 (“the Ordinance”).

2.The Building is a block of 9-storey commercial/residential building served by 2 common staircases. The front elevation of the Building is facing Tsat Tsz Mui Road and the rear facing Nation Street, a private lane. The Building comprises 9 levels, with 4 shops on the ground floor for commercial use and 4 residential units on each of the first to the eighth floor. Each of the shops and residential units is assigned 1/36th undivided share of the Lot. 

3.The Building is in fact part of a larger building complex known collectively as Kut Cheong Mansion comprising a pair of free-standing unconnected parallel rows of buildings with Nation Street separating them. Externally, each row appears to be one single composite structure consisting of 7 similar and contiguous tenement buildings. One row of the Mansion is facing King’s Road and the other Tsat Tsz Mui Road, and the Building belongs to the latter. The rear portions of the two rows of buildings fronting private lane Nation Street open at Healthy Street East on the west and a scavenging lane on the east. This Nation Street is created by all owners of Kut Cheong Mansion granting a mutual right of way to each other. The Building is therefore only one of these tenement buildings of Kut Cheong Mansion. Each of these tenement buildings stands on certain lots of lands sub-divided into a number of undivided shares and governed by its own deed of covenants. In response to a question put to him at trial, Mr So Kin Shing (“Mr So”), the structural engineer instructed by the applicants, was of the view that given modern technology, the Building can be free-standing with or without supports, depending on the outcome of a structural survey, even though the adjourning buildings are pulled down. However, he confirms he has not carried out any such survey to the Building as he has not been instructed to do so.

4.The constituent tenement buildings of Kut Cheong Mansion stand on a rectangular-shaped site basically arranged in two rows of seven. There are 4 units on each level of the tenement building arranged in an array of 2 x 2. Each unit is assigned a street number. The 4 units of the Building in question are assigned Nos. 209 and 211 Tsat Tsz Mui Road and Nos.8 and 10 Nation Street, depending on the street/road a unit is facing. The occupation permit covering the Building was issued on 8 September 1960, i.e. more than 50 years before the date of application on 1 February 2012 (“the Application”).

5.The Lot is not intended to be redeveloped on its own. The entire Kut Cheong Mansion will be pulled down and redeveloped as a merged site. Companies controlled by the same developer have started acquisition of units of the Kut Cheong Mansion for such purpose for some time. They are able to acquire 100% ownership of units in some of the tenement buildings. So far, only six applications under the Ordinance in respect of seven tenement buildings of Kut Cheong Mansion require the determination of the Tribunal. Two applications (LDCS15000/2012 and LDCS16000/2012) have already been concluded by this Tribunal (differently constituted). Two separate compulsory sale orders in respect of two sets of lots have been made. The lots which are subject matters of the applications have already been sold by way of public auction.

6.This is one of the four outstanding applications relating to Kut Cheong Mansion in which the applicants are not 100% owners of the lots. When this Judgment is handed down, one application has been heard by the same panel of the Tribunal, and the other by Member Pang sitting alone, with decisions pending.

The Recent Decisions of Supergoal[1] and Many Gain[2]

7.On 26and 29November 2013, a differently constituted panel of this Tribunal handed down two decisions in respectively Supergoal and Many Gain which decided, inter alia, the Court of Appeal (“CA”) decision in Bond Star [3] on the interpretation of Section 3(2) of the Ordinance, which has consistently been applied by this Tribunal, is not to be followed; and the Tribunal came to a construction of the said provision different from the CA. Further, Many Gain requires the applicants to bring before the Tribunal all lots intended to be redeveloped together so as to enable the Tribunal to give directions for them to be sold in one auction, and to set a reserve price reflecting the full redevelopment potential[4] of all the lots of the joint development.

8.The aforesaid decisions obviously have serious impact on the present case and the other outstanding applications relating to Kut Cheong Mansion.

Bond Star

9.The question of whether the Ordinance is applicable to land of which an applicant is already 100% owner has once been a hotly disputed issue in compulsory sale applications.  On application under the Ordinance, the Tribunal has to determine whether the statutory conditions for a compulsory redevelopment order are met. Once it is satisfied that such order should be made, unless the parties all agree to some other method of sale with approval of the Tribunal, the lot(s) must be sold by auction subject to a reserve price which is fixed by reference to its/their redevelopment potential. This is one of the legislative safeguards for protection of the minority owners whose properties are to be sold compulsorily, perhaps in the extreme case against his/her view, for redevelopment purpose.

10.Obviously, the higher the reserve price, the more compensation a minority owner may obtain in the compulsory redevelopment when the lot(s) are sold. Such reserve price can also form an objective yardstick for assessing whether the applicant has taken reasonable steps to acquire the undivided shares of the minority owners as required by section 4(2) of the Ordinance.

11.Schedule 2, §2 of the Ordinance sets out the statutory formula of the reserve price, as follows:

“The lot the subject of the auction shall be sold subject to a reserve price –

(a) which takes into account the redevelopment potential of the lot on its own (or, where 2 or more lots are the subject of the auction, on their own); and

(b) approved by the Tribunal.”(emphasis added)

12.It is not uncommon, like the present case, that a developer may wish to acquire the adjacent lots and develop them as a joint site. Normally and in most cases, the redevelopment potential of a lot, and thus its redevelopment value, will be greatly enhanced if assessed on a composite site basis than on a single lot basis. Accordingly, the more lots of the redevelopment to be included in the application, a higher redevelopment value can normally be achieved according to this statutory “on its/their own” formula.

13.In Bond Star, the applicant put together 5 lots comprising 6 pieces of adjacent lots the subject matter of its application to the Lands Tribunal. In fact in respect of 4 of them the applicant had already acquired 100% ownership. For reasons unique to it, the respondent in Bond Star saw fit to contend that the subject matter of the application should be restricted to the lot which the applicant had not 100% owned. At the first instance trial, the Tribunal ruled that the language of Section 3(2)(a) of the Ordinance did not preclude the applicant from combining lots of which it had owned 100%. An order for sale was made in respect of all the lots the subject of the application.

14.The matter went on appeal on a number of grounds. The Court of Appeal (“CA”), applying a purposive construction to the Ordinance, considered that the Ordinance did not permit an applicant to join in lots where the owner had already 100% owned. It held no order was required for lot the applicant had already wholly owned. In §§14 and 16, Roger V-P has this to say:

“14….Nevertheless, there would be no purpose in permitting an applicant to join, in an application in respect of one lot, a number of other lots where no order for sale is needed. It is clear from s.4(2) that the Legislature envisaged there would be minority owners “of the lot the subject of the application.” If one were to apply a purposive construction to the Ordinance it would be clear that such a course would not lead to a construction which would enable an applicant to so apply. …

16. … It would put a considerable strain on the construction of the Ordinance if s.3(2) were to be construed in such a way to permit an application to be made in respect of a number of lots where the applicant already was the full owner of one or more of those lots….”

15.Roger V-P developed further his reasoning by reference to the definition of “minority owner”. The learned V-P’s conclusion was reached without reference to Hansard.  However, in §18 of Bond Star he said he took some comfort from some speeches made by legislative members on 7 April 1998 at the second reading of the Bill of the Ordinance regarding the undesirable “pencil” effect caused by the Bill applicable only to single lots, and that the Secretary for Planning, Environment and Lands (“SPEL”) did not say anything to disagree with members in this respect.

16.The CA therefore varied the Tribunal’s decision to confine the sale to the lot which the applicant did not wholly own.

17.The CA decision in Bond Star was appealed against to the Court of Final Appeal (“CFA”) as Capital Well [5]. The main judgment in the CFA was delivered by Mr Justice Ribeiro PJ.

Capital Well

18.The issues taken on appeal were unrelated to the construction of Section 3(2)(a) of the Ordinance. However, Ribeiro PJ considered it necessary to comment on the CA’s construction of the Ordinance in this respect. From §§39 to 42, he stated:

“39. There is, however, a danger that if the power is so confined the policy objectives of the Ordinance may be undermined. …

40. Plainly, 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. However, in cases where a majority owner qualifies for the making of such a compulsory order and wishes to have that lot put up for auction together with adjacent redevelopment lots wholly owned by him, the question arises as to whether, on its true construction, the Ordinance precludes the Tribunal from making an order for sale in respect of the composite site. That matter was not in issue and was not argued before us. In the light of the policy concerns noted above, we wish expressly to leave that question open for possible future consideration.

41. Additionally, if a restrictive construction of the Ordinance is required, we wish expressly to leave it open for possible future consideration whether the Tribunal has a discretion to give suitable directions (under s.4(6)(a) of the Ordinance or otherwise) concerning conduct of the sale designed to secure that the sale of the single lot, the subject of its order, can take place together with the sale of the other redevelopment lots, similar to the directions given by the Court of Appeal in Golden Bay Investment Ltd v Chou Hung [1994] 2 HKC 197 at 200-202, or along analogous lines.

42. These issues raise difficult questions and the best course may be for them to be addressed by the legislature with a view to ensuring that the objectives of the Ordinance are not frustrated.”

19.It is against the aforesaid backdrop that the Tribunal in Supergoal and Many Gain considered it necessary to re-visit the construction of the Ordinance made by the CA in Bond Star.

Supergoal & Many Gain

20.In Supergoal, the applicant made application under the Ordinance in respect of a site comprising 8 lots of lands on which 2 groups of buildings forming one composite development were built. The two groups were unconnected in the sense that, save and except that they shared a common entrance at the basement, they did not share any common staircase. Each group was served by two common staircases and a lift. At the commencement of the application the applicant was 100% owner of 3 lots in one group. At the time of trial, it had further acquired 100% ownership in 2 more lots in another group, thus owning 100% in 5 out of 8 lots the subject of the application. At any material time, the applicant owned an average of more than 80% in each lot, whether on entire site or group basis. The applicant originally applied to have all the 8 lots sold for the purpose of redevelopment.

21.Before trial commenced, the applicant through counsel invited the Tribunal to treat the application as two, one in respect of each group, but have the two consolidated and heard together. The applicant relied on the decision of the Tribunal (differently constituted) in Fairtex Development Ltd v Tso Pee Hong & Others [6] which had similar facts with Supergoal. The Tribunal in Supergoal posed for consideration of the applicant’s counsel two questions[7], which in our view boils down to one, and is this: given the CFA’s comment as aforesaid, whether the construction of section 3(2) of the Ordinance by the CA in Bond Star was still binding on the Tribunal. The Tribunal was apparently guided by the principles applied by the Court of First Instance in Commissioner of Inland Revenue v Indosuez WI Carr Securities Ltd [8].

22.The differently constituted Tribunal in Supergoal came to the conclusion that Bond Star, though not expressly over-ruled by the CFA in Capital Well, was undermined. It applied the principles[9] in Indosuez, and decided that it was not bound to follow the said CA decision[10].

23.The said constituted Tribunal further considered though it was not obliged to follow the CA’s decision, it was also not bound to dissent from it unless it was appropriate to do so[11]. It then attempted to answer the following question posed by the CFA as follows:

“… in cases where a majority owner qualifies for the making of such a compulsory order and wishes to have that lot put up for auction together with adjacent redevelopment lots wholly owned by him, the question arises as to whether, on its true construction, the Ordinance precludes the Tribunal from making an order for sale in respect of the composite site.”[12]

24.After another round of analysis taking into consideration of, inter alia, the underlying objectives of the Ordinance, the speeches and changes made to the Bill during the legislative process, the Tribunal came to a view that the CA’s understanding of the provision in question only applicable to single lots might not be correct[13]. It then decided to depart from the CA decision in Bond Star[14]. The construction of section 3 of the Ordinance by the Tribunal in Supergoal is different from that by the CA in Bond Star, and can be understood in following paragraph:

“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.”[15]

25.It is also stated in §65 of Supergoal the following:

“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.”

26.Since the said constituted Tribunal came to a view that section 3(2) of the Ordinance did not forbid applicant to include lot(s) of which the applicant is 100% owner, it made no order for consolidation but “bore in mind” that it was dealing with two applications, one for each group[16].

Many Gain

27.Many Gain concerns a section 3(2) (b) application in which there were 2 buildings in Ka Shin Street sitting on 2 lots but were connected by a common staircase. Like Kut Cheong Mansion in the present case, there were adjoining lots which the developer intended to consolidate to form a larger merged site for redevelopment but it did not include all of them in one single application. Instead, a total of 6 similar applications have been made to the Tribunal. Four have been discontinued after the applicants have become 100% owners of the lot in question. Apart from Many Gain the other one has been tried by a differently constituted Tribunal and judgment was pending when the decision in Many Gain was handed down.

28.Although Many Gain concerns some different issues, from §§42 to 47, the Tribunal re-affirmed its views in Supergoal. It was further of the view that by virtue of section 4(6)(a)(i) of the Ordinance, the Tribunal has power to give directions whether a lot can be sold together with other adjourning lots owned by the same applicant in the same auction. It goes without saying that if such direction is made, the subject matter of the auction will be enlarged to include lots not being the subject of the application. The Tribunal considered that such practice would promote the “two-fold objectives of the Ordinance”[17], namely,

(i) minimizing the possibility of someone exercising “ransom power” through the medium of public auction, thus facilitating urban renewal;

(ii) ensuring the minority owners receiving fair and reasonable compensation having regard to the full redevelopment potential of the land.(emphasis added by the said Tribunal)

29.When consolidating the sale of adjoining lots in a batch to be sold in a single auction, Many Gain considered that the reserve price would accordingly be transformed to reflect the redevelopment potential of the merged lot, presumably by operation of the formula in Schedule 2 §2 – the “on their own” instead of the “on its own” formula will be engaged. In §48, the Tribunal in Many Gain had this to say”

“Returning to the present case, the applicant will need to bring all the lots before the same tribunal to enable the tribunal to give directions for them to be sold together in one public auction and to set a reserve price that would reflect their full redevelopment potential. Since another panel of this tribunal has already heard evidence concerning the application for the compulsory sale of No.28 & 28A and 30 & 30A, Ms. Ngai is agreeable to adjourn this trial and to apply to the tribunal dealing with LDCS31000/2012 to enlarge the scope of that case to encompass all the lots”

This Panel’s View

30.The decision of a differently constituted Tribunal is only persuasive and not binding on another panel of the Tribunal, though it would be desirable for decisions of the same Tribunal on similar factual situation to be consistent in order to achieve certainty. However, unless and until Bond Star has been impliedly over-ruled by the principles enunciated in Indosuez, by the doctrine of precedent, Bond Star, being a CA authority, should be binding on this Tribunal. In our judgment, the decisions in Supergoal and Many Gain raise at least the following issues, namely,

(i) They took the view that all lots intended for redevelopment as a merged site have to be disclosed and sold together. Section 3(2) of the Ordinance does not preclude such application, even the applicant is already the 100% owner of some lots. Even if the application is made on single lot basis, all lots intended to be redeveloped together need be included in the application or disclosed to enable the court to make sales direction under section 4(6)(a)(i). In our view, it boils down to:

(a) whether Bond Star should continue to be binding on the Tribunal; and

(b) whether the Ordinance, or section 4(6)(a)(i) in particular, empowers the Tribunal to include other adjacent lots intended to be redeveloped as a merged site in the application or in the auction order, even against an applicant’s view.

(ii) Further, the said constituted Tribunal in Many Gain took the view that the reserve price in the circumstances would be fixed to reflect the full redevelopment potential. This issue is connected with issues in the preceding sub-paragraph in a certain way because if the Tribunal has power to compel joining of lots in the application, apparently the “on their own” instead of “on its own” formula according to §2 Schedule 2 of the Ordinance will be applicable. In our view, however, the setting of “reserve price” relates to a more fundamental question: the legislative intent of the Ordinance as to the extent that a minority owner, whose property is to be sold compulsorily to give way to redevelopment, can share in the profit in that redevelopment. The question can be put in other words: whether the minority owner’s compensation is to be calculated by reference only to the lots on which his property situates, or to cover other adjourning lots which the developer has managed to put together for redevelopment purposes. 

Indosuez

31.It is necessary to see what the Indosuez’s principles are and whether they are applicable such that this Tribunal being a lower court can depart from the CA’s decision in Bond Star.

32.Indosuez is an appeal from the Board of Review decision on tax.The Court of First Instance was called upon to determine, inter alia, whether the taxing authority was permitted to apportion profits derived from different sources. It was because the taxing authority was then confronted with two decisions, namely, a local CA decision which determined that such apportionment was impossible on ground there being no such statutory provision, and a subsequent Privy Council decision which said, though obiter, that the absence of a specific provision in our statutes for apportionment did not obviate the necessity to apportion between the two sources.

33.Deputy Judge Longley adopted the principles more thoroughly explained by the learned authors of Cross and Harris in Precedent in English Law (4^th ed), Chap IV in the following paragraph which is also referred to in Supergoal:

“A High Court judge of first instance confronted with a decision of the Court of Appeal which has not been expressly overruled by a later House of Lords’ case may cease to be bound by it because the House of Lords considered that the Court of Appeal misinterpreted the authorities on which the impugned decision was based. The Judge is then not obliged to follow the Court of Appeal, but he is not bound to dissent from their conclusion. The previous decision is undermined rather than directly overruled.”

34.The Deputy Judge considered in the circumstances of the tax case before him, it was open to the taxing authority to apportion the profits, i.e. to depart from the Court of Appeal decision. The Deputy Judge further considered this so-called “implied overruling” or “undermining” extended to misinterpretation of law or any reasoning leading to the ratio decidendi of a case decided by a lower court if the superior court has decided that reasoning faulty[18].

35.In Indosuez, the CA’s reasoning in one decision was obviously found faulty by the Privy Council in another decision. The basis for no apportionment said by the CA was queried and directly quashed by the Privy Council’s comment, though it was an obiter. This Tribunal has no quarrel with this principle. In our judgment, in order for this exception to Stare Decisis to be applicable, it must be the reasoning of the decision or the process by which the ratio is arrived at that is impugned. Any comment by a higher court falling short of the required standard may not be sufficient.

36.In our view, what the CFA in Capital Well has said is that ifthe power to order sale is so confined to land which the applicant is not already the 100% owner, the policy objectives of the Ordnance may be undermined (emphasis added). As put by Mr Mok of counsel for the applicants, and we think correctly, it is only the undesirable practical result flowing from the CA’s construction of section 3(2)(a) of the Ordinance that the CFA has raised concern. Nothing said in §§39 to 42 of the CFA decision in Capital Well has the effect of “undermining” or “implied over-ruling” the reasoning or the process by which the CA arrived at its conclusion in Bond Star. Though doubts over the outcome and undesirable effects of the construction were raised, the reasoning or the interpretation process of the CA in Bond Star was untouched.

37.On the other hand, the CFA had this to say[19]in Capital Well, namely,

“Plainly, 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.”

38.This expression appears to support the CA’s conclusion in Bond Star that the lot or lots must not be 100% owned by the applicant otherwise there will not be any minority owner. At least it is not inconsistent with the CA’s construction. In our view the observation of the CFA tallies with the legislative intent as revealed from the records when the Bill went through the legislative process[20]. In any event Capital Well expressly said it wished to reserve the question for future consideration when it had the benefit of full argument before them. If the CFA considered it necessary to particularly flag this issue to be re-visited later, in our view it preferred to leave the interpretation as it is now for the time being. Further it is apparent, given the limited assistance then, the CFA could not rule out the CA’s construction of the Ordinance otherwise it would not have said that if such “restrictive construction is required”[21] the court could make directions similar to those given by the CA in Golden Bay Investment Ltd [22]or along analogous lines. At the very least the CFA considered the issues raise difficult questions and suggested the best course may be for them to be addressed by the legislature.

Whether to Follow Supergoal & Many Gain

39.We totally appreciate that the construction of section 3(2)(a) of the Ordinance in Supergoal may have the effect of enabling sale of all the lots intended to be redeveloped in one batch, thus avoiding some lots being held in random by some bidders in the auction. No matter it is the original developer or any third party who proves successful in the auction, the land can be redeveloped as an entire site without impediment in line with the objectives of the Ordinance. In addition, such construction also benefits minority owners as they can have a larger share of the redevelopment profit. However, no matter how sound and attractive the construction of section 3(2)(a) arrived at by the said Tribunal in Supergoal may appear, it is to be remembered that the Tribunal is bound by any decision of the CA, unless the exception is applicable. By reasons of what have been discussed above, with the greatest respect to the differently constituted Tribunal in Supergoal and Many Gain, this panel of the Tribunal is of the view that the threshold for applying Indosuez has not been reached. The CFA’s comments in Capital Well, though posing serious questions touching upon the policy objectives of the Ordinance, are insufficient to render Bond Star not binding on the Tribunal. By the doctrine of precedent, we consider we are still bound by the CA’s construction of the Ordinance in Bond Star.

Power to Compel Inclusion of lot(s) which the applicant co-owns with others or is 100% Owner

40.In view of our conclusion aforesaid, the question of compelling an applicant to join in adjoining lots which they are already 100% owners and intended for a merged site development as suggested in Supergoal and Many Gain does not arise.

41.The next question is whether section 3(2) of the Ordinance or other provisions of the Ordinance empowers the Tribunal to compel inclusion of lots not already subject matters of the application in the application or to be sold together.

42.In our judgment, §41 of Capital Well sheds light on this issue. When framing a question for its future consideration, the CFA said:

“Plainly, 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. However, in cases where a majority owner qualifies for the making of such a compulsory order and wishes to have that lot put up for auction together with adjacent redevelopment lots wholly owned by him, the question arises as to whether, on its true construction, the Ordinance precludes the Tribunal from making an order for sale in respect of the composite site.”(emphasis added by us)

43.The first part of the paragraph supports the proposition that there is no power to compel joining or adding a 100% owned lot to the application. The choice of word “wishes” in the second part when the CFA framed the issue suggests that it recognizes a right to choose (and necessarily a right not to so choose) on the part of the applicant.

44.From a survey of the provisions of the Ordinance, it does not appear to this Tribunal that the court is empowered by the Ordinance to compel combination of lots which the majority owner owns (no matter 100% or not). There is no provision stipulating that in the event a majority owner owns two or more lots which can fit in either section 3(1) or 3(2) he should go about it under 3(2) or have the lots auctioned in one batch. The non-mandatory word “may” is deployed in these provisions.

45.It was suggested in Many Gain that by virtue of the Tribunal’s power to make directions “relating to” the sale and purchase of the lot the subject of the order under section 4(6)(a)(i), the Tribunal may include adjacent lots as the subject of the auction. It follows that even if the applicant fails or refuses to include adjacent lots intended for a merged site development when it makes its application under section 3, so far as such information is available, the Tribunal can direct those lots to be auctioned, and thus setting a reserve price based on the enlarged site.

46.Compulsory acquisition of land for redevelopment purpose is entirely a creature of statue. Any substantive rights of a party and power given to the court should, in our view, be created expressly by the Ordinance. The preamble of the Ordinance states, inter alia, the Ordinance is “to enable persons who own a specified majority of the undivided shares in a lot to make application for an order for sale of all the undivided shares in the lot for purpose of redevelopment of the lot … and for matters incidental thereto or connected therewith” (emphasis added). In our judgment, therefore, the subject of the order for sale must logically refer to the lot which the applicant places before the court in his application unless there is express power in the Ordinance to compel joining of other lots. It appears to this Tribunal that very substantive power would have been created by section 4(6)(a)(i) if it were to enable the Tribunal to joining in applicant’s other lots which are otherwise not before it. Further, if section 4(6)(a)(i) were to give power to include in the auction the applicant’s other lots not subject of the application, thus varying the reserve price (in most cases, upward) by triggering a spill-over effect on the “on its/their own” formula, very substantive powers and rights would had been created and given to respectively the court and the minority owners. We believe if that were the legislative intention more express provisions would have been employed. In our view, section 4(6)(a)(i) is not even engaged before any order for sale is made.

47.Further, section 4(6)(a)(i) cannot be read in isolation. After the Tribunal has gone through the statutory exercise prescribed under section 4(1)(a) and is satisfied all conditions are satisfied, it may make an order under section 4(1)(b)(i), which states:

“… making an order that all the undivided shares in the lot the subject of the application be sold…” (emphasis added)

48.The other sub-sections of section 4 go on to deal with various situations likely to be encountered in the compulsory sale, such as rights of tenants. Section 4(6)(a)(i) stipulates:

“Where the Tribunal makes an order for sale, it may order, subject to [not relevant to the present discussion] that … and it may also give directions as it think fit –

(a) Relating to –

(i) the sale and purchase of the lot the subject of the order, including (but without limiting the generosity of the foregoing) settling the particulars and conditions of sale of the lot;” (emphasis added)

49.In our judgment, “the subject of the order” mentioned in section 4(6)(a)(i) refers to an order already made by the Tribunal under section 4(1)(b)(i). Necessarily it means the lot the subject of the application. So the powers created by section 4(6)(a)(i) are restricted to directions incidental to the sale of the lot the subject of the application unless the court has already seized of other lots by other empowering provisions.

50.By reasons of the above and coupled with what this panel’s views on the legislative intent of the reserve price and section 3 after reviewing the Hansard[23], with the greatest respect to the differently constituted Tribunal in Many Gain, we do not consider section 4(6)(a)(i) empowers the tribunal to compel combination of lots not already before the Tribunal to form the subject matter of  the application.

51.Having said that we agree that if separate applications have already been made to the Tribunal in respect of individual lots of a merged site, upon application and in appropriate cases the Tribunal do have power under section 4(6)(a)(i) to make directions for them to be sold to, say, one single purchaser in one auction as if the lots constitute a single lot along the line in Golden Bay Investment Limited as mentioned by the CFA in Capital Well. That is, however, subject to the pre-condition that the Tribunal has already seized of all the lots by other empowering provisions. Further, by reasons of our view on the reserve price reached below[24], we consider that in the circumstances the reserve price for each lot/lots should be confined to the original lot or lots the subject of the application. The over-all market prices for the respective lots to be sold in the said manner will then be determined by market force.

The Reserve Price & Legislative Process in the Provisional Legislature

52.As seen from above, the CA in Bond Star had referred to certain speeches made by legislators when the Bill was read in the Legislative Council. The differently constituted Tribunal in Supergoal had gone through some of the speeches and amendments when the Bill was passed and came to conclude that the CA’s understanding might not be correct[25]. However, Mr Mok of counsel for the applicants submitted that the Supergoal’s comments were misconceived. Mr Mok places before this Tribunal a bundle of what he considers to be a more complete record of the Provisional Legislature to make good his submission.

53.The following can be gleaned from the records of the Provisional Legislative Council placed before the Tribunal:

(i) 21 January 1998: According to the Official Record of Proceedings, the then SPEL moved the Bill to be read for the second time in the Council. The debate was adjourned and Bill referred to the House Committee. The following 2 areas of the Bill in its original drafting are worth mentioning:

(a) Section 3(1) of the Bill was drafted similar to the current section 3(1). The current section 3(2) is non-existent;

(b) Schedule 2 §2 is drafted differently, and is as follows. It is noted that the “on its own” formulation of the reserve price was not there.

“The lot the subject of the auction shall be sold subject to a reserve price –

(a) Which takes into account the redevelopment potential of the lot; and

(b) approved by the Tribunal”

(ii) 28^th February 1998: The Bills Committee under the House Committee of the Council held a meeting for examination of the Bill. From subsequent speeches/reports the said meeting was one of at least 12 meetings held by the Bills Committee.  According to the meeting minutes (BC127-08/97-98), members examined the Bill clause-by-clause in accordance with a list of their concerns. It is recorded in §13 of the meeting minutes:

“Referring to the LS’s (“Law Society”) suggestion that the reserve price should take into account the redevelopment potential of the lot “on its own”, members considered this suggestion fair as it would be difficult to assess the reserve price if other factors such as the potential of adjacent sites acquired by the majority owners were taken into account. Moreover, even if the majority owners owned a number of adjacent lots, they might not be the successful purchaser of the lot at the auction. The Administration agreed to introduce CSAs [Committee Stage Amendment] to Schedule 2 to specify that the reserve price should take into account the redevelopment potential of the lot “on its own” (or, where two or more lots were the subject of the auction, on their own).”

(iii) 27 March 1998: A House Committee meeting was held and a paper entitled “Report of the Bills Committee on Land (Compulsory Sale For Redevelopment) Bill” was prepared and annexed to meeting minutes. It is noted that a list of Committee Stage Amendments (“CSA”) was annexed to the report as appendix. In the concluding paragraphs of the report, it was stated:

(a) Subject  to the CSA to be moved by the government as per the appendix, the Bills Committee supported the Bill;

(b) The Bills Committee recommended the resumption of the second reading debate of the Bill on 7^th April 1998.

(iv) §9 of the said report addressed concerns of some members on the “pencil” effect of the Bill which was not ideal from redevelopment perspective. While the then Committee supported the concept of comprehensive development, from what has been recorded it appears that the majority members of the Committee were more concerned with a situation where a developer might bundle lots which it had already acquired the threshold percentage together with lot it had no undivided shares at all, thus oppressively acquiring the latter against the owners’ will. The report went on to say:

“… As the Bill does not prohibit the majority owners holding 90% of the undivided shares in each of the lots to make one application for the sale order in order to redevelop the lots together, the Bills Committee accepts that the minimum acquisition percentage should apply to a lot per se.”

(v) The committee went on to say that it would deal with the technical problem in respect of buildings connected to one and other by a common staircase. It also stated that the government had taken on board members’ suggestion that an average of 90% interest in each of the lots had to be acquired by the majority owners.

(vi) It is noted from the CSA already annexed the following:

(a) The current version of section 3(2)(a) & (b) was introduced as proposed additions (then as section 3(1A) under the CSA[26];

(b) The words “on its own (or, where 2 or more lots are the subject of the auction, on their own)” were proposed to be added, and such formula subsequently became the current version of Schedule 2 §2(a).

(vii) 7 April 1998: This was the date on which the Provisional Legislative Council resumed the Second Reading debate of the Bill. The Chairman of the Bills Committee, the Hon Arculli, some legislators who were also members of the Bills Committee and the SPEL made their speeches. Some of their speeches were referred to in Bond Star and Supergoal.  After their speeches the Bill was read for the second time. The Council immediately went into House Committee stage. The CSA were put to legislators almost clause-by-clause and were all accepted. Council then resumed and the Bill was read for the third time and passed. From these records, the second reading, amendment of the Bill by the CSA and the third reading all took place on the same day.

(viii) According to the Record of Proceedings on 7 April 1998, Hon Arculli addressed the Council as the chairman of the Bills Committee on the report of the Committee before the second reading. Some paragraphs relevant to the present discussion are:

“[27]Another focal point of discussion in the Bill Committee was whether owners holding an average of 90% of aggregate undivided shares in contiguous lots should be allowed to make an application to redevelop the lots as a package. Whilst we fully support the concept of comprehensive redevelopment, our concern was that should such approach be adopted, there may be situations where an applicant did not own any undivided shares in one of the lots whilst holding 90% of the aggregate undivided shares. The Bills Committee considered that it could not be justified on the sole ground of comprehensive redevelopment to compel all the owners of such a lot to sell their properties against their will. We, therefore, agreed that the ownership percentage should apply to each lot except where two buildings served by a common staircase in which case it would be the average of the undivided shares of the lots on which the buildings stand.

…

[28]… The amendments to be moved later by the Secretary for Planning, Environment and Lands at the Committee stage are the product of concerted efforts on the part of deputations appearing before the Bills Committee, members of the Bills Committee and the Administration so as to ensure a fair and balanced new policy to expedite urban renewal in order to provide environmental improvement as well as much needed housing for the community, …” (emphasis added)

(ix) The SPEL, when addressing the Council before the second reading, had also said through clause-by-clause discussion in a spirit of co-operation, the Committee examined the Bill and that in turn greatly helped the government draw up the amendments to improve the Bill. He went on to say:

“We have reached consensus with the Committee on these amendments which I will explain further when they were introduced at the Committee stage.”

(x) When section 3(2)(a) and (b) (then as section 3(1A) and referred to as clause 3 in the minutes) was proposed to be added to section 3 of the Bill and put to the Committee for a vote, the SPEL said the following:

“Subclause (1A) [i.e. 3(2)(a) and (b)] specifies that if the majority owner makes an application covering two or more lots, he must own not less than 90% of the undivided shares in each lot. It also provides for the average to be taken for the purpose of calculating the percentage of the undivided shares of two or more lots on which there are two buildings joined by a common staircase.”

54.From the above, this Tribunal observes:

(i) The controversy associated with the extent to which a minority owner can share in the redevelopment benefits was acknowledged by the legislature as early as 28 February 1998 and before the second reading. A consensus was reached by then: the minority owner was to share only up to the full redevelopment potential of lot, not the entire site of the redevelopment. The “on its/their own” formula was agreed[29]. This was reflected in the CSA (already in place as at 27^th March 1998), subsequently adopted in full and ended up in the Schedule 2 §2 of the promulgated Ordinance. Although whether a minority owner should be allowed to have a larger share of the often lucrative development is debatable, or whether the reasons leading to the original consensus remain justifiable given the current socio-economical situation, the above clearly shows that when the Bill was at its early stage, a consensus had been reached between legislators and the administration to exclude the redevelopment potential arising from the majority’s ownership of adjacent lots from assessing the reserve price.

(ii) The main concern then was to prevent unscrupulous developer to bundle unnecessary adjacent lots which it owned with lot(s) it did not own, leading to oppressive compulsory acquisition. An intention to guard against unnecessary inclusion of lots is evinced. Section 3(2) was introduced to ensure the threshold percentage is present in respect of each and every lot the subject of the application. The only exception is section 3(2)(b) for building straddling 2 or more lots, but still the safeguard is there: the average should meet the threshold percentage. From a perusal of the above records, there is however, no suggestion that the legislation intends to bring in all lots which a developer owns, whether 100% owned or otherwise: see §53(ii) above for the meeting minutes. Quite the contrary, only single lots, not combined lots, were anticipated the subject of the application.

(iii) By comparing the CSA already drawn up by 27March 1998 and the amendments to the Bill moved and approved on 7April 1998, they are one and the same amendments. It is also fair to say that for the “on its/their own” formula, it was agreed by the administration and the legislature as early as 28February 1998 at one of the Bills Committee’s meeting. This issue did not appear to be controversial.

55.The “pencil” development concern was raised on 7April 1998 by some of the legislators during the second reading debate. The speech of the SPEL referred to in Supergoal appeared to deal with such concern. However, from the information set out in the preceding paragraphs, it is noted all speeches were in fact made on 7April 1988 in the same afternoon. The proposed amendments to the Bill (including the amendment to section 3(2) and Schedule 2 §2) were all agreed before the said Council meeting (at least as early as 28March 1998) and remained agreed throughout. It therefore cannot be said that after some legislators had raised the pencil development concern the SPEL then introduced section 3(2) to address those concerns.

56.One may argue that section 3(2)(a), though added to the Bill with the primary objective of avoiding the oppressive “bundling” effect, may help address the “pencil buildings” problem brought by the original Bill. We are of the view that in looking for the legislative intent of whether the Ordinance permits the joining of lots the applicant is 100% owners and/or empowers the court to compel joining in adjoining lots, the Hansard is not helpful, if not against such argument. Further, since the CA in Bond Star has come to a construction which the CFA has not over-ruled, the said questions remained to be answered in the negative. On the other hand, the Hansard is indicative of the legislative intent of restricting the reserve price to the redevelopment potential of the lot(s) the subject matter of the application on its/their own.    

57.By reasons of the aforesaid, we do not consider it necessary to consolidate all the outstanding applications of Kut Cheung Mansion in one proceeding nor do we consider this Tribunal can compel the applicants to include all lots of Kut Cheung Mansion in one application as suggested in Supergoal and Many Gain. The reserve price will be fixed according to the “on its/their own” formula by reference to the subject lots of the application.

58.With the aforesaid principles in mind, this Tribunal proceeds to examine the present application.

The Present Application  

59.When the 1^st applicant, the 2^nd applicant, the 3^rd applicant and the 4^th applicant (hereinafter collectively referred to as “the applicants”) commenced the present proceedings, the corresponding ownerships of the respective units of the Building are shown in the table below:

Floor	No. 209	No. 211	No. 8	No. 10
Ground Floor	2nd Applicant	2nd Applicant	2nd Applicant	2nd Respondent
1st Floor	3rd Applicant	2nd Applicant	2nd Applicant	3rd Applicant
2nd Floor	1st Applicant	2nd Applicant	2nd Applicant	1st Applicant
3rd Floor	2nd Applicant	2nd Applicant	2nd Applicant	2nd Applicant
4th Floor	2nd Applicant	2nd Applicant	2nd Applicant	2nd Applicant
5th Floor	2nd Applicant	2nd Applicant	2nd Applicant	4th Applicant
6th Floor	3rd Applicant	4th Applicant	1st Respondent	4th Applicant
7th Floor	3rd Applicant	3rd Applicant	2nd Applicant	3rd Applicant
8th Floor	4th Applicant	4th Applicant	1st Applicant	3rd & 4th Respondents
Total	9 shares	9 shares	9 shares	9 shares

60.They were unable to acquire 3 out of the 36 units of the Building. Thus as at the date of the Application, the applicants together owned 91.6667% equal undivided shares in the Lot.  By the time of the filing of the witness statement of Mr Hui Lok Shan (“Hui’s Statement”), the representative of the applicants, dated 12 November 2013, the applicants had further purchased the interest owned by the 2^nd respondent, thus increasing the undivided shares owned by them to 94.4444% that of the Lot. As the applicants owned more than 90% of the Lot, they contend that they are entitled to make the Application by virtue of Section 3(2)(b) of the Ordinance.

61.At the time of the filing of Hui’s Statement,  2 undivided shares allotted to 2 units remain outstanding, particulars of which are as follows:

(1) 6/F, No. 8 (“the R1’s Unit”), which is owned by the 1^st respondent. The 1^st respondent filed a Notice of Opposition on 16February 2012 which averred that the valuation contained in the Application Valuation Report are low and the applicants had no wish to negotiate with the respondents. However, the 1^st respondent entered into provisional agreements with the 2^nd applicant on 12 January 2014 for the sale of his interest in the R1’s Unit with completion to take place on 17 February 2014.

(2) 8/F, No. 10 (“the R3’s Unit”) which is registered in the name of Sze To Ki, deceased:

(a) Szto Pin Lee (“Szto”) is appointed by the Tribunal’s Order of 12 October 2012 to represent the estate of the deceased as the 3^rd respondent.

(b) Indeed on 29 November 2011, Szto had entered into a Provisional Agreement for Sale and Purchase with the 3^rd applicant for the sale of his interest in the R3’s Unit for $2,371,000 when he should obtain the grant of Letters of Administration to administer the estate of the deceased. Nevertheless, the Letters of Administration has not been granted until shortly before trial.

(c) In any event, the 3^rd respondent has not filed any Notice of Opposition.

(d) Letters of Administration was finally granted to Szto Pin Lee on 17January 2014 which was only made known to the applicants after conclusion of the trial herein. By an order of this Tribunal dated 10^th March 2014, the description of the 3^rd respondent was further amended to reflect Szto Pin Lee’s capacity as the Administrator of the estate of Sze To Ki, deceased.

(e) Notwithstanding the above, according to documents submitted to the Land Registry for registration against the R3’s Unit but with registration withheld and to disclosures of Messrs. K.B. Chau & Co acting for Szto in this regard:

(i) Szto was a discharged bankrupt.

(ii) Despite the discharge of the bankruptcy order, the trustee-in-bankruptcy issued an Attachment Notice dated 21 June 2011 giving notice that Szto’s interest of and in any premises affected by the bankruptcy order has become vested in the trustee-in-bankruptcy, which vested interest would not be affected by the discharge of the bankruptcy order.

(iii) Szto is disputing the claim of the trustee-in-bankruptcy.

(f) As a result, the trustee-in-bankruptcy is joined as the 4^th respondent.

(g) 4^th respondent filed a Notice of Opposition to the effect that it does not oppose the sale of the R3’s Unit but avers that the value of the R3’s Unit should be higher than $2,371,000.

62.None of the respondents has filed any evidence or any expert evidence.

63.In view of the above, Mr Mok, counsel for the applicants, simply called the witnesses to prove the applicants’ case.  The applicants contend that all the requirements of the Ordinance have been satisfied and ask for an order for sale in terms of the draft order submitted. 

Section 3 of the Ordinance – The 80% Threshold

64.Section 3(1) of the Ordinance requires the applicants to have not less than 90% of the undivided shares in a lot before it can make an application. 

65.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 subsection (1) in respect of a lot belonging to a class of lots specified in the notice.

66.Pursuant to Section 3(5) of the Ordinance, a 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)”.  The occupation permit[30] in respect of the Building was issued more than 50 years as at the date of application.  The Building is therefore covered by the Notice and the applicable threshold percentage is 80%.

Determination of the Existing Use Values (“EUV”) of all units in the Building

67.Pursuant to section 3 of the Ordinance, the Application was accompanied by a valuation report (“Application Report”) prepared by Mr Charles Chan of Savills Valuation and Professional Services Limited (“Mr C Chan”), the applicants’ 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 as at 28 November 2011.

68.Schedule 1, Part 1 of the Ordinance requires the aforesaid report to be prepared no more than 3 months before the application. As the Application herein was made on 28November 2011, the Application Report satisfies the 3-month requirement.  

69.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 is (i) not less than fair and reasonable; and (ii) not less than fair and reasonable when compared with the value of the majority owner’s property as assessed in the application.

70.In the Application Report of 28 November 2011, Mr C Chan explained his method of valuation and the process of his assessment to arrive at the EUV of each unit of the Building.

71.In his valuation of the EUV of the domestic units of the Building, Mr C Chan adopted the following methodology :

(i) He selected 4/F, No. 209 Tsat Tsz Mui Road (“the Reference Domestic Unit”), which was situated on the middle floor of the domestic portion as the reference unit for the purpose of valuing its unit price. 

(ii) The unit price of the Reference Domestic Unit was first assessed by making reference to market comparables.  He took into account 7 comparable transactions in different buildings nearby. After making what he regarded as the necessary adjustments (for time, location, age, floor, quantum, aspect and noise effect) for all these comparable transactions, he took the average of the adjusted unit rate of the comparables to arrive at the unit price of the Reference Domestic Unit.

(iii) He further considered the floor difference, view, quantum, lighting & ventilation and internal conditions of the Reference Domestic Unit and the remaining domestic units within the Building and made adjustments to arrive at the EUV of all the domestic units.

(iv) In assessing the EUV of all the 4 Ground Floor units, Mr C Chan selected G/F, No. 211 Tsat Tsz Mui Road and G/F, 8 Nation Street respectively as the Reference Shop Units for shops facing Tsat Tsz Mui Road where pedestrian flow is moderate to high (“the 1^st Group”) and for shops facing Nation Street where pedestrian flow is only moderate (“the 2^nd Group”).  He then took into account 7 comparable transactions in 6 different buildings nearby for the 1^st Group and 5 comparable transactions in 3 different buildings nearby for the 2^nd Group. After making what he regarded as the necessary adjustments (for time, location, visibility, quantum, building age, layout and headroom) for all these comparable transactions, he took the average of the adjusted unit rate of the comparables to come to the unit price of the respective Ground Floor Units.

(v) Mr C Chan updated the Application Report by a supplemental report dated 7November 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 C 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 28 November 2011.

(vi) The EUV of all units in the Building, including the R1’s Unit and the R3’s Unit, as at the relevant date of valuation of 28 November 2011, are as shown in paragraph B3.5 of the Supplemental Report: see the table at Bundle B1/ 5-6 which is reproduced below:

	Tsat Tsz Mui Road		Nation Street
Floor	No. 209	No. 211	No. 8	No. 10
Ground Floor	$13,140,000	$14,560,000	$6,840,00	$5,990,000
1st Floor	$2,580,000	$2,650,000	$2,120,000	$2,070,000
2nd Floor	$2,410,000	$2,600,000	$2,080,000	$2,140,000
3rd Floor	$2,610,000	$2,550,000	$2,040,000	$2, 000,000
4th Floor	$2,440,000	$2,500,000	$2,000,000	$2,060,000
5th Floor	$2,390,000	$2,450,000	$2,060,000	$2,020,000
6th Floor	$2,320,000	$2,380,000	$1,900,000 (R1’s Unit)	$1,960,000
7th Floor	$2,220,000	$2,280,000	$1,820,000	$1,970,000
8th Floor	$1,860,000	$1,920,000	$1,630,000	$1,770,000 (R3’s Unit)
Total	$110,330,000

(vii) We are satisfied, insofar as it is necessary, that the values of the R1’s Unit and the R3’s Unit as assessed by Mr C Chan respectively are not less than fair and reasonable; and not less than fair and reasonable when compared with the value of the applicants’ properties:

(a) the R1’s Unit - assessed at $1,900,000  (representing 1.7221% of the total EUV of all units);

(b) the R3’s Unit - assessed at $1,770,000 (representing 1.6043% of the total EUV of all units); and

(c) the total EUV of all units - assessed at $110,330,000.

Section 4(2) of the Ordinance - Justification and Reasonable Steps

72.The second matter falls to be decided is whether an order of sale of the Lot should be made under section 4(1)(b) of the Ordinance.  According to section 4(2)(a), there are two conditions which must be satisfied before the Tribunal can make a compulsory order:-

(i) the redevelopment of the lot is justified due to age or state of repair of the Building; and

(ii) the applicant taken reasonable steps to acquire all the undivided shares in the Lot.

73.Accordingly, failing any of the above the Tribunal shall not make an order for compulsory sale of the Lot.

74.For the requirement under paragraph 72(i) above, we have taken into consideration the expert evidence of Mr Benson Wong (“Mr Wong”), the building surveyor and Mr So, the structural engineer adduced by the applicants. 

75.Mr So had conducted a structural assessment of the Building and prepared a report dated 8 November 2013. He found the following defects in the Building:

(i) Visual inspections showed defects in the form of cracks and spallings of various degrees in some 79 structural members of the Building. 16 of them are accorded the highest severity index 4 which suggests detailed investigation is required in order to provide for immediate protective measures. These spallings and cracks are due to corrosion of the embedded steel reinforcement bars.

(ii) Covermeter survey revealed that the concrete coverage of at least 1 column and 2 slabs are not sufficient to:

(a) protect the embedded steel reinforcement bars against corrosion;

(b) protect the bars against fire; and

(c) provide sufficient depth of concrete for the safe transmission of bond forces.

(iii) Carbonation depth test revealed that carbonation has penetrated through the concrete cover of all the beam and slab samples. This means the alkaline environment in many of the concrete covers, at least in some of the beams and slabs sampled, which give protection to the reinforcement steel bars in the structural members against corrosion have been destroyed. The steel bars in these structural members must have already started to corrode.

(iv) Chloride content tests showed that at least in respect of the columns and slabs, there is an increased risk of corrosion of the embedded steel reinforcement bars. 2 out of 5 sets of the sample columns exceeded the acceptable limit while 1 out of 5 sample slabs is below standard.

(v) Corrosion survey by opening up of the concrete cover to examine the reinforcement steel bars was carried out. The result revealed that columns, beams and slabs were suffering from various degree of rusting resulting in reduction in cross-section of some steel bars, with a corresponding drop in the overall strength to support the Building.

(vi) Although the Building cannot be classified as “unfit for use”, the structural frames of the Building are deteriorating and need be repaired. The deterioration will continue steadily due to extensive carbonation of the reinforced concrete structural members.

(vii) The design and construction of the structural frames were based on an obsolete design. There are at least 9 structural design and construction aspects of the Building which fall short of present structural engineering design requirements. Of the 9 aspects of deficiency, the lack of consideration for robustness is one of utmost importance. As a result, the Building may not process adequate robustness to prevent it from damages arising from accidents or misuse. A recent example is the Ma Tau Wai Road collapse where the accidental damage of a reinforced concrete column caused the collapse of a significant part of the building.

76.Based on the above findings, Mr So concluded that the structural frames of the Building are in need of repair. The Building, completed more than 53 years ago, has exhibited signs that the structural frames have deteriorated to the final stages of its design working life. The deterioration will continue steadily due to extensive carbonation of the concrete.  It is inevitable that new defects will occur and previous defects, though repaired, will recur readily, requiring substantial repairs or even partial demolition and re-construction of some defective structural members in the future.  Repair works need be carried out regularly in future and such repairs will be more and more extensive.  He is of the view that although the repair costs may be relatively modest, they will escalate in future as the extent and seriousness of the deterioration of the structural members increases with age.  He recommends that hammer tapping works be carried out to all structural members of the Building with a view to finding out the full extent of defects to be repaired as a matter of urgency.

77.It is reported by Mr Wong in his Condition Survey Report dated 8 November 2013 that:

(i) The Building is in a poor state of repair due to general wear and tear. The Building Department issued a Building Order in June 2010 requiring all owners to, inter alia, remove loose cracked and defective concrete from the reinforced concrete structure of the building, reinstate and fix additional steel bars, and remove all loose and defective external rendering and internal plastering. No remedial work has been carried out so far.

(ii) Rapid Infrared Thermographic Survey is used to find out the possible delaminations and voids inside the finishing of the external wall of the Building. A scanning revealed there are many hollow spots (22 numbers) on the external walls, posing not only immediate danger when rendering cracks and falls off but also signifying the external walls rendering has reached the end of its service life. For safety reason and long term maintenance benefit, complete replacement of external rendering is more practical to curb further deterioration of the external wall rendering. The rendering on the external walls on the Building elevations and light wells are found generally defective and require substantial repairs. Quite a number of external metal fixtures are abandoned and found dilapidated and should be removed.

(iii) The Building’s envelope is not seepage resistant as evidenced by damp penetrations through the external walls and the main roof coverings. There have been unauthorized rooftop structures which have been demolished, but the debris and remains have not yet been removed. Cracks are found on parapet walls.

(iv) The two staircases are unsatisfactory means of fire escape for the upper floors because no improvement was made to bring the fire resisting construction and fire service installation in the Building up to modern fire safety standards. Doors separating flats and staircase fail to comply with modern standard of fire resistance. Uncovered electrical installations are fixed on walls of staircase which is the only fire escape route as a matter of original design.

(v) All the original front balconies facing Tsat Tsz Mui Road were enclosed with different types of windows. These are all unauthorized building works which will adversely affect the structural safety of the Building.

(vi) The interior conditions of the units are poor. The most common defects in the flats include missing or defective bedroom, bathroom and kitchen doors, dampness and spallings on internal floors, walls and ceilings and spallings, crazing, blistering, staining and peeling of paints on ceiling and beams.

(vii) For accessible units, the sanitary fitments and fittings in the bathrooms are generally soiled and some of them not working. Cooking facilities such as sinks and cabinets in the kitchens are broken or otherwise defective requiring replacement.

(viii) The refuse collection system is outdated and unhygienic - household refuse is packed in packs, put in refuse bins placed in staircase and to be collected manually. Collected bags will be placed on pavement waiting to be loaded onto refuse truck for disposal.

(ix) There is no lightning protection system installed for protection of the Building against lightning strikes.

(x) Internal electrical installations inside 18 flats have been haphazardly altered and in poor condition.

(xi) Though equipotential bonding system is installed in the Building, only windows in the front staircases are connected to the system. Other metal fixtures such as flat entrance gates, water pipes inside flats are not provided with such system, posing electrical shock threats to people who may come into physical contact with these metal fixtures which may accidentally be charged with electric current. All the 27 inspected units were not provided with equipotential bonding.

(xii) The flushing water supply system for the Building has been abandoned from use. The flush water tank is suffering from spallings, crazing and staining and needed be reconstructed, substantially repaired or replaced by a pre-fabricated one before flush water supply to the Building can be restored.

(xiii) Window type air-conditioning units of various types are installed to units but there is no system installed to drain away condensate, resulting in it dripping down onto the pavement, causing nuisance, and breach of relevant public health laws. An air conditioning drainage system with drain inlets provided for each unit needs be installed in order to stop the dripping nuisance.

(xiv) Closed Circuit Television survey carried out to the underground drainage system revealed defective drainpipes and manholes. Some 20 metres of underground drainpipes and 2 manhole covers require replacement and the underground drainage system require cleaning.

(xv) The main electricity supply installation and the supply cables installed in the front staircase are found haphazardly and disorderly mounted on wall with conduit not protected by fireproof enclosures. They require repair and upgrading.

(xvi) The Building is not provided with any fire services installation at all because it is not required at the time of its construction. Fire services system is required to be added to bring the Building in compliance with the relevant fire safety legislations.

78.Mr Wong assessed the total cost of repair works at $10,751,265 which amounts to 47% of the construction cost of a new similar superstructure[31].  He was of the view the substantial costs of repair indicated that the superstructure of the Building has deteriorated to a state which is beyond reasonable economic repair.  As more rapid deterioration will occur in the future, the necessary maintenance and repairs will inevitably be more frequent and extensive, making the continued occupation of the Building not economical and even unsafe to both occupants and third party.  Not only does the repair and maintenance cause disturbance to the enjoyment by owners of the Building, the reality is that even after the repair, the Building remains an old building with outdated and below-market-expectations design. He recommended the owners to redevelop rather than repair given the Building does not possess any historical value or architectural merit. 

79.The applicants also rely upon two economic tests, i.e. the age test and the repair test, conducted by Mr C Chan in his Supplemental Report to justify the redevelopment of the Building. 

80.In respect of the repair test, Mr C Chan adopted the findings by Mr Wong that the total estimated cost to restore the Building to tenantable standard is $10,751,265. If the identified unauthorized building works and reinstatement works[32] are excluded, the net repair cost for the remedial works is about $9,410,310[33]. He is of the view that there will be about 3% enhancement to the value of the domestic portion of the Building. As shop units are less sensitive to building condition comparing with residential units, he considers there will only be nominal enhancement to the value of that portion. The enhancement by the proposed repair works is only $2,789,400[34]. Mr C Chan considers it not economically justified to carry out the proposed repair works. 

81.As regards the age test, Mr C Chan has this to say. The total existing use value (“EUV”) of the Building as at the date of his Supplemental Report[35] is $152,090,000[36]. After the repair there will be a 3% increase on the value of the residential units[37]. The enhanced EUV will be $154,879,400[38] after a net repair cost of $9,410,310 has been spent. His assessment of the redevelopment value (“RDV”) of the Lot on its own also as at the date of the supplemental report is $160,000,000[39].  Given the RDV is higher than the enhanced EUV[40]even after the repair, Mr C Chan opined that the redevelopment of the Lot is warranted.

82.The above expert evidence is unchallenged. We accept it in its entirety.  In particular, we are satisfied that based on the evidence of Mr So and Mr Wong, redevelopment of the Lot is justified due to the age and the state of repair of the Building :

(i) the Building is over 53 years old, with obsolete designs and has now passed its designed working life;

(ii) the Building is in very poor physical conditions. Huge and disproportionate costs are required to repair and maintain it, yet it remains a Building with outdated designs. Coupled with the inevitable substantial disturbance to the occupiers during the lengthy repair period, the deterioration of the Building has reached a state which is beyond economical repair;

(iii) the Building has become obsolete in many respects both physically and functionally, and falling short of present standards in terms of safety and hygiene.

Reasonable Steps to Acquire All the Undivided Shares in the Lot

83.The applicants are under an obligation to negotiate terms that are fair and reasonable to acquire the undivided shares of the minority owners when their whereabouts are known.

84.The applicants submitted that they have taken reasonable steps, including making four offers to purchase the R1’s Unit since the action started on 1 February 2012 each enclosing an advice letter of Mr C Chan. The latest 4^th offer in the sum of $4,020,000 was made in light of the decisions in Supergoal and Many Gain. The applicants submit that this offer was formulated at a level higher than the formula stipulated in paragraph 141 of Supergoal even if it were rightly decided. In any event, the 1^st respondent entered into provisional agreements on 14 January 2014 with the 2^nd applicant for the sale of his interest in the R1’s Unit and completion was to take place on 17 February 2014.

85.As for the R3’s Unit, the applicants submit that Szto of the 3^rd respondent entered into the Provisional Agreement for Sale and Purchase with the 3^rd applicant on 29 November 2011 for the sale of his interest in R3’s Unit at HK$2,371,000 when he should obtain the grant of the Letters of Administration to administer the estate of the deceased registered owner. Had Szto obtained the grant in good time before trial, the sale and purchase of the R3’s Unit would have been completed and the unit would have become the 3^rd applicant’s.

86.The applicants submit that reasonable steps have also been taken to acquire the R3’s Unit. Alternatively, when the registered owner died without anyone being granted probate or letters of administration, it is legally not possible to purchase that unit and accordingly there is no legal obligation on the applicants’ part to take steps to acquire the deceased’s unit as if it is owned by a missing owner.

87.By reasons of our views on the reserve price above, and the actual reserve price for the auction of the Lot below[41], we are satisfied that in the circumstances, the applicants have taken reasonable steps to acquire all the undivided shares in the Lot including both the R1’s Unit and the R3’s Unit[42]. In any event R1 and R3 have accepted the offer of the applicants. As regards R4, it is not necessary for the applicants, in order to satisfy section 4(2)(b) to make offer at or above the pro-rated RDV of the relevant unit finally determined by the Tribunal. It will be too onerous a burden on any applicant. According to the CFA decision of Capital Well, the Tribunal is only required to satisfy that the offers fall within the range of what may broadly be regarded as fair and reasonable compensation for the outstanding units in question. We consider section 4(2)(b) has been satisfied.

88.We consider all the conditions set out in section 4(2) of the Ordinance are met. We hereby make an order under section 4(1)(b)(i) of the Ordinance for sale of all the undivided shares in the Lot by way of auction for  the purposes of redevelopment of the Lot.

Reserve Price for the Auction

89.The applicants submit that the reserve price for the auction of the Lot should be fixed at HK$157,000,000, based on the assessment by Mr C Chan of the RDV of the Lot as at 10December 2013 in his further valuation report of 31 December 2013. The said RDV is assessed using the “on its/their own” formula without reference to the redevelopment potential of the adjoining lots on which Kut Cheong Mansion stands.

90.By reasons of our decisions on the construction of section 3(2) of the Ordinance and the reserve price above, it is not necessary for us to consider the merged site valuations, which are also set out in the said report of Mr C Chan.

91.We have considered Mr C Chan’s valuation of the RDV of the Lot on the on its own basis.  We note Mr C Chan had considered two land sale transactions in the past years, i.e. the sale of a site at North Point Estate Lane and Shu Kuk Street in North Point in March  2013 and another at 5-9 Hing Wan Street, Wan Chai in April 2012. We agree with him that they are not suitable for direct comparison purpose because of, as he stated in his report “the substantial disparity in development potential due to different attributes on location, development scale and development restrictions[43]” between the Lot and the two comparables. 

92.We agree with Mr C Chan that the residual valuation method has to be employed as the method of assessing the RDV of the Lot as a last resort. This is done by deducting development costs (including construction costs, professional fees, finance costs etc) and developer’s profitfrom the estimated gross development value (potential sales revenue) of the completed development.

93.Mr C Chan formed the view that the optimum development on the Lot comprised a block of 26-storey hotel with entrance lobby and retail shops on G/F, back of house on 1/F and hotel guest rooms on upper floors with details of the hypothetical development and residual valuation set out in Appendix 1.4 (Bundle B2/49-51), and details of the comparables with adjustments in Appendix 1.6 (for shops at Bundle B2/60) and Appendix 1.7 (for hotels at Bundle B2/62). Mr C Chan also 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 in Appendix 1.5 (Bundle B2/53-54). We have gone through his valuation. We accept his valuation and are satisfied with the valuation assumptions, the values and the costs parameters used in his valuation. 

94.Based on Mr C Chan’s valuation, we agree that the reserve price for the auction of the Lot should be HK$157,000,000. That is arrived at by the “on its/their own” formula without reference to other adjourning lots which we consider to be the correct approach.

Trustees

95.The applicants proposed to appoint Mr Ma Ho Fai (馬豪輝) and Ms Tsang May Ping (曾美萍) who are respectively senior partner and partner of Messrs Woo Kwan Lee & Lo, Solicitors, Notaries, Agents for Trademarks & Patents, as the sale trustees.  Based on the information on their background and experience as set out in the letter dated 8 January 2014 from their firm, we are satisfied that they are proper persons to be appointed.  Their remuneration at the rate of $5,500 per hour(exclusive of disbursements) as mentioned in the letter dated 8 January 2014 is considered reasonable and acceptable.

Particulars and conditions of sale of the Lot

96.On behalf of the applicants Mr Mok has submitted a set of draft particulars and conditions of sale (Document Bundle A6/144/1101-1127) by public auction for our consideration.  We understand these are the usual terms used for compulsory sale, and we approve the said draft accordingly.

Conclusion and Orders

97.By the forgoing discussion, we are satisfied that the redevelopment of the Lot is justified due to the age and state of repair of the Building; and the applicants have taken reasonable steps to acquire the undivided shares in the Lot. This Tribunal is also satisfied that the values of the minority owners’ units as assessed in the Application are not less than fair and reasonable, and not less than fair and reasonable when compared with the value of the applicants’ property as assessed in the Application.  This Tribunal makes the following orders:

(i) All the undivided shares in the Lot, the subject of the Application, be sold by way of public auction for the purposes of redevelopment of the Lot;

(ii) Mr Ma Ho Fai (馬豪輝) and Ms Tsang May Ping (曾美萍) nominated by the applicants be appointed trustees (“the Trustees”) to discharge the duties imposed on trustees under the Ordinance in relation to the Lot; and the Trustee be authorized to charge such remuneration for their service in accordance with the terms set out in the letter from Woo Kwan Lee & Lo, dated 8 January 2014;

(iii) For the purpose of the sale of the Lot by public auction,

(a) The sale of the Lot be on particulars and conditions of sale the same or substantially the same as the set of draft particulars and conditions of sale submitted to the Tribunal (Document Bundle A6/144/1101-1127) initialled and approved by us;

(b) The reserve price of the Lot be set at HK$157,000,000;

(c) Subject to further extension that the Tribunal may subsequently allow upon the application of the purchaser of the Lot or its successor in title, the redevelopment of the Lot be completed and made fit for occupation within a period of six (6) years after the date on which the purchaser of the Lot becomes the owner of the Lot;

(d) There be liberty to the applicants, the respondents and the Trustees to apply to the Tribunal for further directions.

Costs

98.Since both the applicants, the 3^rd and 4^th respondents do not ask for costs, we make a costs order nisi that there be no order as to costs between the parties, such order be made absolute after 14 days if no application is made to vary the said costs order.

99.We would like to express our gratitude to Mr Y.C. Mok, counsel for the applicants for his thorough legal submissions and able assistance rendered throughout the trial.

Mr Y C Mok, instructed by Mayer Brown JSM, for the applicants

Attendance of Lui & Law, for the 1^st respondent, was excused

Mr Tsui Wai-hay of K B Chau, for the 3^rd respondent

Attendance of Lee & Chow, for the 4^th respondent, was excused