Case Document

LDCS3000/2014

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LAND COMPULSORY SALE APPLICATION NO. 3000 OF 2014

________________________

BETWEEN
	ULTRA ALPHA LIMITED	1^st Applicant
	DIAMOND HEART LIMITED	2^nd Applicant
	and
	THE PERSONAL REPRESENTATIVES OF CHAN PING CHIU (陳炳超), DECEASED	Respondent

________________________

Coram : Mr Lawrence PANG, Member of Lands Tribunal

Dates of Hearing : 29 September 2014

Date of Judgment : 17 October2014

______________

J U D G M E N T

______________

Background

1.This is an application for compulsory sale of all the undivided shares in Subsection 1 of Section J of Kowloon Inland Lot No. 1171 and the Remaining Portion of Section J of Kowloon Inland Lot No. 1171 (hereinafter collectively referred to as “the Lots”) with a pair of buildings erected thereon known as Nos. 148-148A Austin Road, Kowloon, Hong Kong (“the Buildings”), for the purposes of redevelopment pursuant to Section 3(1) of the Land (Compulsory Sale for Redevelopment) Ordinance, Cap. 545 (“the Ordinance”).

2.The Buildings, situated near the junction of Austin Road and Austin Avenue, consist of two 5-storey blocks each with one unit per floor. The Buildings are served by two common staircases. According to an occupation permit issued on 19 April 1954, the Buildings were permitted for domestic purposes but the two ground floor units are currently/previously occupied for retail purposes. Each of the 5 units of each block is assigned one of five equal and undivided shares of the corresponding lots by their respective Deeds of Covenant.

THE APPLICATION

3.When the applicants commenced the present proceedings on 3 April 2014 (“the Application”), the ownership of the undivided shares in the Lots was:

148 Austin Road 148A Austin Road

Ground/F 1^st applicant 1^st applicant

1^st Floor 2^nd applicant respondent

2^nd Floor 2^nd applicant respondent

3^rd Floor 2^nd applicant 2^nd applicant

4^th Floor 2^nd applicant 2^nd applicant

Percentage of undivided shares owned by the applicants 100.0% 60.0%

Average percentage of undivided shares owned by the applicants 80.0%

4.As manifested from the above table, the applicants are the persons who own, otherwise than a mortgagee, not less than 80% of the undivided shares in the Lots. The only remaining interest was held by the sole respondent, estate of Chan Ping Chiu, deceased who owned the 2 undivided shares allotted to 1^st Floor and 2^nd Floor of No. 148A Austin Road[1].

5.According to a search conducted by Mayer Brown JSM, solicitors for the applicants, at the Probate Registry on 27 March 2014, no record for any application for Letters of Administration or Grant of Probate relating to the respondent could be found. By an order of this Tribunal dated 11 April 2014, service of the Application and all subsequent documents was dispensed with.[2]

6.By an order of this Tribunal dated 6 June 2014, the Application is ordered to proceed in the absence of a person representing the respondent and any judgment or order given or made in these proceedings shall bind the respondent. [3]

7.The applicants contend that they were entitled to make the Application by virtue of the Land (Compulsory Sale for Redevelopment (Specification of Lower Percentage) Notice under section 3(5) of the Ordinance (“the Notice”).

8.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. Mr Mok Yeuk Chi (“Mr Mok”), counsel for the applicants, just called the witnesses to prove the applicants’ case.

Section 3 of the Ordinance – Ownership of the ApplicantS

9.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.

10.Section 3(2) of the Ordinance also states that an application under subsection (1) may cover-

(a) 2 or more lots where the majority owner owns not less than the percentage specified in subsection (1) of the undivided shares in each lot; or

(b) 2 or more lots-

(i) on which one building is connected to another building by a staircase intended for common use by the occupiers of the buildings; and

(ii) where the average of-

(A) the percentage of the undivided shares owned by the majority owner in the lot or lots on which one of the buildings stands; and

(B) the percentage of the undivided shares owned by the majority owner in the lot or lots on which the other of the buildings stands, is not less than the percentage specified in subsection (1).

11.Section 3(5) of the Ordinance 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.

12.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)”. The occupation permit in respect of the Buildings was issued on 19 April 1954, which is more than 50 years as at the date of Application. The Buildings are therefore covered by the Notice and the applicable percentage is 80%.

13.When the applicants commenced the present proceedings on 3 April 2014, it owned on average 80.0% of the undivided shares in the Lots which share two common staircases. The applicants were therefore entitled to make the Application under section 3(2)(b) of the Ordinance.

Determination of the existing use values (“EUV”) of all units in the BuildingS

14.The Application was accompanied by a valuation report dated 3 April 2014 (“Application Report”) prepared by Mr Charles C K Chan of Savills Valuation and Professional Services Limited (“Mr C Chan”), the applicants’ valuation expert witness, containing assessments of the values of all units (which are conveniently termed as the existing use values, the “EUV” of all units) in the Buildings on the Lots as at that date. The Application Report was prepared not earlier than 3 months before the date of the Application, i.e. 3 April 2014 and is therefore, in my view, in compliance with section 3 of the Ordinance.

15.Under section 4(1)(a)(i), if there is a dispute between the parties on the EUV of the units in the Buildings on the Lots, the Tribunal has to determine the values.

16.Section 4(1)(a)(ii) further provides that, in the case of any minority owner of the Lots who cannot be found, the majority owner of the Lots 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.”

17.In the Application Report of 3 April 2014, Mr C Chan explained the method of valuation and the process of his assessment to arrive at the EUV of each unit of the Buildings.

18.In his valuation of the EUV of the domestic units on the upper floors of the Buildings, Mr C Chan adopted the following methodology :

(i) He selected 3/F, No. 148A Austin Road as the reference unit (“the Reference Domestic 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 6 comparable transactions in 3 different buildings in the vicinity of the Tsim Sha Tsui district. After making what he regarded as the necessary adjustments (for time, location & environment, floor level, age, size, view, noise, lighting & ventilation, physical condition & building management and lift service) for all these comparable transactions, he took the average of the adjusted unit rates of the comparables save for the transaction of Unit B5(Remaining Portion) on 2^nd Floor of Pak On Building at 105 Austin Road to arrive at the unit price of the Reference Domestic Unit. Mr C Chan considered that this transaction was dubious and appeared out of line with the others even after adjustments.

(iii) He further considered the floor level, top floor effect, size, lighting & ventilation/privacy, layout, noise and internal conditions of the Reference Domestic Unit and the remaining domestic units within the Buildings and made adjustments to arrive at the EUV of all the domestic units on the upper floors of the Buildings.

19.In assessing the EUV of the ground floor units, Mr C Chan adopted two basis, one assuming all necessary approvals for the change of use from domestic use to retail use have been obtained from the relevant authorities and no conversion cost will be incurred for the conversion works; the other basis just followed the designated domestic use in accordance with the Approved Building Plans.

20.In respect of the first basis, Mr C Chan adopted the following methodology:

(i) He selected Ground Floor, No. 148A Austin Road as the Reference Shop Unit. He then took into account 6 comparable shop transactions in 5 different buildings nearby. After making what he regarded as the necessary adjustments (for time, location, size, age, layout, frontage, return frontage, headroom and split level) for all these comparable transactions, he took the average of the adjusted unit rates of the comparables to come to the unit price of the Reference Shop Unit.

(ii) He further considered the size and frontage/layout, the Reference Shop Unit and the other retail unit at Ground Floor, No. 148 Austin Road and made adjustments to arrive at for the latter.

21.Mr C Chan updated the Application Report by another report dated 11 August 2014 (“Supplemental Report”) in which he revised the EUV of all the units in the Buildings after taking into account the inspection of more units in the Buildings and the updated property index prepared by the Rating and Valuation Department. In this report, Mr C Chan repeated basically the exercise he did in the Application Report.

22.This time, Mr C Chan referred to Many Gain Investment Limited v. Chan Fai Ho and the Others, LDCS 28000 of 2012 dated 18 June 2014 (unreported) (“Many Gain”) and concurred that retail use was the optimum use for the ground floor units of the Buildings. He was advised by the building surveying expert, Mr Benson Wong (“Mr B Wong”), an Authorised Person and a qualified building surveyor, who is another expert appearing on behalf of the applicants that obtaining all necessary approvals for the change of use from domestic to retail use for the ground floor units of the Buildings are highly practical.

23.Mr B Wong says the ground floor units of the Buildings can be legally converted into shop uses relatively easily subject to the submission of necessary plans for alterations and additions building works (commonly known as the A & A plans in the industry) to the Buildings Department. The process would only take a few months subject to a cost of about $1,450,000. Mr B Wong also gave evidence that for his professional practice of about 33 years, he had not been aware of any such enforcement action, if any, taken by the Building Authority.

24.Nevertheless, when Mr C Chan assessed the 2 units on ground floor on the basis of shop uses despite the occupation permit in respect of the Buildings was issued for domestic purposes, he revised his assessment of the EUV of the ground floor units of the Buildings by applying a discount of 3% to reflect the fact that they were designated for domestic use under the occupation permit (“the Modified Basis 1”).

25.In support, Mr Mok also refers to one more recent case I decided, Worldman Development Limited v. The Personal Representatives of Chan Chau Ling, deceased, LDCS 8000 of 2013 dated 21 July 2014 (unreported) (“Worldman”) where similar approach was adopted. Mr Mok argues the approach and legal reasoning adopted in Many Gain and Worldman are preferred to those found in another case Eversound Investments Limited v. Wong Hiu Man and others, LDCS 10000 of 2012 dated 15 August 2013 (also unreported) (“Eversound”).

26.In Eversound, the legal reasoning was that the non-conforming retail use was an illegal use and a title defect where a prudent purchaser would not be willing to pay the price of an illegal use. Mr Mok submits this reasoning was flawed in at least two fundamental aspects:

(1) The unwillingness of the hypothetical purchaser to pay the full price of retail use owing to the title defect can only mean that he is going to pay less than the full price for retail use. It cannot automatically mean that the hypothetical purchaser is only willing to pay at the level as low as that of domestic use. There is an unjustifiable quantum leap.

(2) Part 1 of Schedule 1 to the Ordinance adopts the concept of market value with the 3 assumptions stipulated in (a)-(c) and their link to the concept of title defect with the quantum leap as argued by counsel in Eversound is not self-evident and should be rejected.

27.This is particularly so with the undisputed evidence (a) that, according to Mr B Wong, an A & A plan application to regularise the shop use of the two ground floor units would just take a few months and cost about $1,450,000, (b) that G/F No. 148 Austin Road has a business registration since the 1960s[4] and (c) that there had been many Building Orders as from 1992 onwards involving G/F No. 148 Austin Road and there was no evidence of any complaint by the Building Authority of the change of use of the ground floor units.

28.I agree the approach of Mr C Chan as regards the assessment of EUV of the ground floor units of the Buildings on the Modified Basis 1.

29.I raised however if the same approach could be adopted for the upper floors because the Government lease for the Lots is relatively unrestricted save for the usual offensive trades clause. Mr B Wong replied that this would be very difficult in light of the minimum staircase width of 1050 mm being required under the Code of Practice for Fire Safety in Buildings 2011 as well as the provision of barrier free access facilities required for the disabled under the Building (Planning) Regulations.

30.In the absence of evidence to the contrary, I adopt the reasoning of Mr B Wong.

31.Therefore, the EUV of all units in the Buildings assessed by Mr C Chan on the Modified Basis 1, as at the relevant date of valuation of 3 April 2014, are reproduced below:

Floor No. 148 Austin Road No. 148A Austin Road

Ground Floor $43,870,000 $31,340,000

1^st Floor $13,270,000 $8,940,000

2^nd Floor $13,020,000 $8,770,000

3^rd Floor $13,140,000 $8,600,000

4^th Floor $10,980,000 $7,710,000

Total $159,640,000

32.I am satisfied that the values of the respondent’s units as assessed by Mr C Chan is not less than fair and reasonable; and not less than fair and reasonable when compared with the value of the applicants’ properties:

(i) 1^st Floor, No. 148A Austin Road - assessed at $8,940,000 (representing 5.60% of the total EUV of all units);

(ii) 2^nd Floor, No. 148A Austin Road - assessed at $8,770,000 (representing 5.49% of the total EUV of all units)and

(iii) the total EUV of all units - assessed at $159,640,000.

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

33.Under Section 4(1)(b) of the Ordinance the second determination is whether an order of sale should be made. Section 4(2) of the Ordinance provides that there are basically 2 considerations, namely :-

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

(ii) whether the applicants have taken reasonable steps to acquire all the undivided shares in the Lots where owners’ whereabouts are known.

34.The applicants have to satisfy this Tribunal that the above statutory requirements were met; otherwise, an order for compulsory sale would not be granted.

35.For the age and state of repair requirements, I have taken into consideration the expert evidence of Mr B Wong, an Authorised Person and the building surveyor and Mr So Kin Shing (“Mr KS So”), the structural engineer adduced by the applicants.

36.Mr KS So conducted a structural assessment and prepared a report dated 22 July 2014. He identified the following defects in the Buildings:

(i) Visual inspections showed many defects in the form of cracks and spallings of various degrees in 5 flats/units of the Buildings and in the common parts. 3 of them were accorded the highest severity index of 4 requiring detailed investigation with a view to providing immediate protective measures.[5]

(ii) Two ground beams that acted as the ties to link the adjacent columns to form the necessary structural frames so as to resist the horizontal forces had been removed without obtaining Buildings Department’s approval.[6]

(iii) Covermeter survey revealed that of 15 structural members surveyed[7], at least 4 columns and 4 beams did not have sufficient concrete cover 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.

(iv) Carbonation depth test results revealed that carbonation had penetrated past the concrete cover of all the beam and slab samples. For columns, 4 out of 5 samples failed the test. There was 100% failure recorded for beams and slabs.[8] This means the alkaline environment in many of the concrete covers, at least in all the beams and slabs sampled, which gives protection to the reinforcement steel bars in the structural members against corrosion, have been very extensively destroyed. The steel bars in these structural members have already started to corrode.

(v) Compression tests revealed deficiency in the concrete strength in 3 out of 5 columns,2 out of 5 beams and slabs tested. The structural integrity of the structural frames of the Buildings could have been adversely affected.[9]

(vi) Chloride content tests showed an increased risk of corrosion of the embedded steel reinforcement bars. Of 5 samples each taken of the columns, beams and slabs, 2 of the columns and 3 of the beam and slab samples in each group were found to have failed the test. There is an increased risk of corrosion in the embedded steel reinforcement bars in the reinforced concrete structural members of the Buildings.[10]

(vii) Corrosion survey by opening up of the concrete cover to examine the reinforcement steel bars embedded was carried out. The survey revealed columns, beams and slabs were suffering from various degree of rusting, resulting in reduction in cross-section area of some steel bars, with a corresponding drop in the overall strength to support the Buildings. In the worst sample, the cross section area of the steel bar was reduced by 34.4% due to rusting.[11]

(viii) Based on the above findings, the structural frames of the Buildings are deteriorating and need be repaired. The deterioration will continue steadily due to extensive carbonation of the reinforced concrete structural members. The extent of corrosion of the reinforcement steel bar and the concrete cover being penetrated by carbonation are results of aging and/or lack of repair of the Buildings.

(ix) The design and construction of the structural frames were based on an obsolete design. There were at least 8 structural design and construction aspects of the Buildings falling short of present structural engineering design requirements. Among these 8 aspects, the lack of consideration for robustness is one of utmost importance. As a result, the Buildings may not process adequate robustness to prevent it from damages arising from accidents or misuse. A recent example (in January 2010) 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.

37.Based on the above findings, Mr KS So concluded that the structural frames of the Buildings were in need of repair. While the Buildings were designed and constructed more than 60 years ago, they exhibit signs that its structural frames have deteriorated to the final stages of its designed 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. It is his view that although the costs of repair may be relatively modest, such costs will escalate in future as the extent and seriousness of the deterioration of the structural members increases with age. He recommended that hammer tapping works be carried out to all structural members with a view to finding out the full extent of defects to be repaired as a matter of urgency.

38.Mr B Wong, in his Condition Survey Report dated 9 August 2014 stated that :

(i) The Buildingsare in a poor state of repair due to general wear and tear;

(ii) The external rendering on the external walls has signs of deterioration with not less than 133 hidden hollow spots and is potentially dangerous to public safety if the loosened rendering falls off ;

(iii) The staircases are unsatisfactory means of fire escape for the upper floors because no improvement had ever been made to the fire resisting construction and fire service installation in the Buildings;

(iv) The most common defects noted relating to the flats are unauthorized building works of enclosed balcony structures which also have implications in structural safety;

(v) The other commonly found defects relating to the flats are unauthorized structures in open yards, unauthorised metal gate swinging out onto fire escape routes and non-fire resisting type flat entrance doors;

(vi) The original mild steel windows have generally corroded and are not water resistant;

(vii) Internal electrical installations inside at least 2 flats have been haphazardly altered and are in poor condition;

(viii) Internal inspection of flats reveals that equipotential bonding connections are not provided for exposed and extraneous conductive parts;

(ix) Flushing water supply system for the Buildings have been abandoned from use;

(x) Condensate drainage system with drain inlets provided for all air-conditioning units needs be installed in order to avoid nuisance caused by dripping of condensate water;

(xi) Closed circuit television survey carried out to the underground drainage reveals 2 meters of defective drainpipes and 2 manhole requiring replacements and repairs;

(xiv) Defects in electrical installation require repair and maintenance;

(xv) Fire service systems required to be added in order to bring the Buildings in compliance with the requirements of the Fire Safety (Buildings) Ordinance.

39.Mr B Wong estimated that the total costs of immediate repair works to restore the Buildings to tenantable standard came to $6,197,005 which was about 32.7% of the cost of constructing new similar buildings. He concluded that the Buildings have deteriorated to a state which is beyond reasonable economic repair. As more rapid deterioration would occur in the future, the necessary maintenance and repairs would inevitably be more frequent and extensive making the continued occupation of the Buildings uneconomical and even unsafe, to both occupants and third parties. He recommended the owners to redevelop rather than repair given that the Buildings do not possess any historical value or architectural merit.

40.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 prepared on 11 August 2014.

41.For the repair test, Mr C Chan adopted the findings by Mr. B Wong that the total estimated cost to restore the Buildings to tenantable standard is $6,197,005. If the unauthorized building works related items are excluded[12], the net repair cost for the remedial works is about $5,487,505. His assessment of the EUV of the domestic units as at date of report was $86,330,000 on Modified Basis 1. He took the view that even if the repairs proposed by Mr B Wong were carried out, they were remedial in nature and would not, in his view, enhance the value of the unit substantially. He considered such work would only bring about 3% enhancement to the domestic portion.[13] Only nominal enhancement will be made to the ground floor as retail shops are less sensitive to building conditions as compared to residential flats[14]. The enhancement by the repairs (the difference between the post- and pre-repair EUV) is $2,589,900. He considered obviously, putting good money of $5,487,505 to bring about an increase in value of only $2,589,900 would not make any economical sense at all.

42.For the age test, Mr C. Chan assessed the total existing use value (“EUV”) of $162,760,000 on Modified Basis 1 (as at 11 August 2014) could be enhanced to $165,349,900 if a net repair cost of $5,487,505 were spent. He further assessed the redevelopment value (“RDV”) of the Lot on its own at $286,900,000 as at the same valuation date[15]. Given the RDV is even higher than the enhanced EUV, Mr C Chan was of the view that repair is not economically viable and the redevelopment of the Lot is justified.

43.There is no contrary evidence and I accept the applicants’ evidence in whole. In particular, I am satisfied that based on the evidence of Mr KS So and Mr B Wong, redevelopment of the Lot is justified due to the age and the state of repair of the Buildings :

(i) The Buildingsare over 60 years old, with obsolete designs and has now passed its designed working life.

(ii) The Buildingsare in very poor physical conditions. Huge and disproportionate costs are required to repair and maintain it, yet it remains Buildings with outdated designs. Based on evidence of Mr KS So and Mr B Wong, the repair will recur soon and the quiet enjoyment of the owners of the Buildings will be disturbed during the lengthy period of repair, and repeatedly. The deterioration of the Buildings has reached a state which is beyond economical repair; and

(iii) The Buildings have become obsolete in many respects both physical and functionally, and falling short of present standards in terms of safety and hygiene.

Reasonable Steps to Acquire All the Undivided Shares in the LotS

44.As stated in §5 above, the sole respondent is a deceased registered owner of the only two outstanding units without personal representatives. There is no way that the applicants can attempt to negotiate or acquire the respondent’s interest. Mr Mok for the applicants submits that by managing to acquire all the undivided shares of the Lots except those of the respondent, the applicants should have satisfied the Tribunal that the applicants have taken reasonable steps to acquire all the undivided shares in the Lots.

45.In the circumstances of this particular case, I am satisfied that the applicants have taken reasonable steps to acquire all the undivided shares in the Lots.

Reserve Price for the Auction

46.In the Supplemental Report, Mr C Chan has prepared an assessment of the RDV of the Lots at $286,900,000 (ie an accommodation value of $88,060 / sq m) as at 11 August 2014 The total site area of the Lots as determined by Mr C Chan is 260. 15 sq m.

47.The applicants submit that the reserve price for the auction of the Lots should be fixed at $286,900,000 accordingly.

48.I have considered Mr C Chan’s valuation of the RDV of the Lots which was on the basis of a residual valuation. 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 optimum development.

49.For instance, Mr C Chan opined that the optimal development on the Lots would be a 21-storey hotel with shop units on ground floor. Details of the hypothetical development and residual valuation were set out in Appendix 3.3 of the Supplemental Report (Bundle B1/62). Details of retail and hotel comparables with adjustments were set out in Appendix 3.4 (Bundle B1/70) and Appendix 3.5 (Bundle B1/72) respectively. In respect of the latter, with regret, two of the three comparables are situated on Hong Kong Island and the remaining one, being HD Hotel at 423 Reclamation Street, is also situated at a completely different district in Mong Kok and was sold in June 2012 which is more than two years ago. In any event, Mr C Chan analysed the three transactions and arrived at a unit rate of $167,000/sq m for the hotel portion. Mr C Chan also adopted the Development Cost Pro-forma promulgated by the Hong Kong Institute of Surveyors to facilitate consideration of construction costs in land value assessments (Bundle B1/63-68). The valuation arrived at by Mr C Chan was $286,900,000, representing an overall accommodation value of $88,060/sq m.

50.Mr C Chan also conducted a valuation on basis of direct comparison. He stated he had conducted search on the land sale transactions in Tsim Sha Tsui since 2013 and could find only one transaction which is relevant for direct comparison, namely Nos. 10-12 Kimberley Street, which was also the subject property of another application for compulsory sale under the Ordinance, ie LDCS 32000 / 2011. The sale which took place on 7 May 2013 in pursuant to the Tribunal’s order dated 12 April 2013 achieved the reserve price of $292,000,000 (ie an accommodation value of $93,195 / sq m). I note Mr C Chan had made adjustments for time (-5%), location (-10%) and view (10%) before arriving at his valuation of $285,400,000 (ie an accommodation value of $87,603 / sq m). See Appendix 3.2 (Bundle B1/60).

51.At trial, Mr C Chan explained that the application of -5% for time adjustment was based on his opinion that in view of the optimal development on the Lots being a 21-storey hotel, a slowdown of tourist coming from China as reported in the media would have adverse impact on such a hotel operation.

52.I have gone through Mr C Chan’s valuations. I am minded that the proposed RDV by Mr C Chan was based on a residual valuation which is higher than the result of the direct comparison approach. The latter was however based on a mere single transaction. No statistics or whatsoever was provided by Mr C Chan to support his time adjustment. In the absence of evidence to the contrary, I am satisfied with his residual valuation, including the valuation assumptions he has adopted, the values and the costs parameters he has used in his valuation.

53.Based on Mr C Chan’s valuation, I decide that the reserve price for the auction of the Lots should be HK$286,900,000.

TRUSTEES

54.The applicants propose 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 as the sale trustees. Based on the information on their letter dated 22 September 2014, the proposed trustees also intend to appoint Messrs Michael Cheuk, Wong & Kee to act as the solicitors of the trustees/vendors in the sale of the Lots for handling the sale and discharging the duties imposed on the trustees under the Ordinance. I am satisfied that Mr Ma Ho Fai (馬豪輝) and Ms Tsang May Ping (曾美萍) are proper persons to be appointed. Their proposed remuneration at the rate of $5,500 per hour (exclusive of disbursements and fees payable to consultants) as mentioned in the letter dated 22 September 2014 is also reasonable and hereby allowed.

PARTICULARS AND CONDITIONS OF SALE OF THE LOTS

55.Mr Mok has submitted a set of draft particulars and conditions of sale by public auction for my consideration. While I understand these are the usual terms used for compulsory sale, I approve the draft particulars and conditions of sale accordingly.

CONCLUSION AND ORDERS

56.By reasons of the aforesaid, I am satisfied that the redevelopment of the Lots is justified due to the age and state of repair of the Buildings; and the applicants have taken reasonable steps to acquire the undivided shares of the Lots. This Tribunal is also satisfied that the value of the single minority owner’s unit as assessed in the Application is not less than fair and reasonable, and not less than fair and reasonable when compared with the value of the applicants’ properties as assessed in the Application. This Tribunal now makes the following orders:

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

(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 Lots; and the Trustees be authorized to charge such remuneration for their service in accordance with the terms set out in the letter from Messrs Woo Kwan Lee & Lo dated 22 September 2014;

(iii) For the purposes of the sale of the Lots by public auction,

(a) The sale of the Lots 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 (Appendix 2 of the applicants’ opening submission) initialled and approved by me;

(b) The reserve price of the Lots be set at HK$286,900,000;

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

(iv) There be liberty to the applicants, the respondent and the Trustees to apply for further directions.

COSTS

57.The applicants do not ask for costs. I 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.