Group Leader Ltd and Others v. The Personal Representative of the Estate of Leung Yin Mei, Deceased and Others
Read the full judgment text of LDCS 27000/2011 on BabelCite. This LDCS judgment was delivered on 2 March 2015.
1. This is the application of the 17 th respondent (“R17”) for leave to appeal against the judgment handed down by this Tribunal on 8 October 2014 (“the Judgment”).
Cited by 5 cases · Cites 4 cases
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LDCS 27000/ 2011 IN THE LANDS TRIBUNAL OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION LAND COMPULSORY SALE APPLICATION NO 27000 OF 2011 _________________
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_________________ D E C I S I O N 1.This is the application of the 17th respondent (“R17”) for leave to appeal against the judgment handed down by this Tribunal on 8 October 2014 (“the Judgment”). 2.The facts of this case, in particular about the issues involving R17, had been stated at §§15-57 of the Judgment. We shall adopt the same abbreviations used in the Judgment in this Decision. Leave to Appeal 3.Section 11(2) of the Lands Tribunal Ordinance (“LTO”) provides that :
4.Section 11AA(6) of the LTO provides that :
R17’s Case 5.It is the contention of R17 that leave to appeal should be granted against the findings by this Tribunal because the Tribunal erred in law in the Judgment in 2 respects :
6.Consequently, the 2 questions of law that require determination by the Court of Appeal are :
Jurisdiction Ground 7.The main argument of R17 is that the jurisdiction of the Tribunal to deal with the proceeds of sale between R16 and R17 is conferred by Section 8(1)(a) and (6) of Cap 545 which provides that :
8.Mr Mok for R17 submits that R17 is a prior owner of the Lot and the rights of R17 to withhold consent to remove the Restrictive Covenants and to demand and receive a premium are rights that affect the Lot. As such, the Tribunal clearly has the jurisdiction to consider whether to preserve such rights of R17 in the order for sale, failing which, it would allow such rights to be removed without any compensation to R17. It could not be the intention of the legislature that the effect of an order for sale made under Cap 545 would deprive R17 of such rights without the consideration by a court of law. 9.Ms Ngai for the applicants submits in reply that R17’s rights under the Restrictive Covenants are not rights “in or over the lot or any part thereof” and “do not affect the lot” since it is just a personal right and contractual in nature, hence does not fall within the ambit of Section 8 of Cap 545 which is wholly irrelevant. 10.If R17 claims to have a right over the proceeds of the sale, it is provided under Section 11(7)(c) of Cap 545 that R17 is entitled to take out any proceedings to claim for the same. Section 11(7)(c) reads as follows:
11.It is also the applicants’ contention that since the Tribunal found that none of the proceeds of sale of the Lot is attributable to the Roofs and Exterior Walls and R17 will receive nothing in any event, it is superfluous or wholly academic for the Court of Appeal to consider the jurisdiction issue. 12.The argument on jurisdiction based on Section 8 of Cap 545 had never been raised at trial. Having said so, we accept that, on appeal, “a point as to jurisdiction may be taken at any stage if all the facts are before the court” (Hong Kong Civil Procedure 2015 Vol 1 at §59/10/7). 13.We do not agree that Section 8(1)(a) confers the jurisdiction to determine who should receive the portion of the proceeds of sale of the Lot that is attributable to the Roofs and Exterior Walls. 14.R17’s entitlement under the Restrictive Covenants is not a right “exercisable by virtue of the prior owner’s ownership of an undivided share in the lot”, but rather a contractual right exercisable under the Assignment. And as rightly pointed out by Ms Ngai, Section 11(7)(c) did preserve the right of any interested party to claim against the proceeds of sale. If Section 8(1)(a) is the legal provisions to confer jurisdiction over the claim on the proceeds of sale which renders such claim to be dealt with at the hearing of the application for compulsory sale, Section 11(7)(c) will be otiose. 15.We maintain our findings in the Judgment that the jurisdiction of this Tribunal in compulsory sale application is specifically spelled out in Section 4 of Cap 545. The only provision about the distribution of proceeds of sale which is relevant is Section 4(6)(a)(iii) which reads :
16.This echoes with Section 11(7)(c) that the lis pendens can be a claim by the interested party affecting the lot, concerning the ownership over the lot or as in this case, the entitlement of any person towards the proceeds of sale . And “rights of any prior owner … except to the extent, if any, specified in the order” mentioned in Section 8(1)(a) must be referring to the right to the proceeds preserved under Section 4(6)(a)(iii). 17.Having said so, we do accept that the ruling on this jurisdiction issue turns solely on the interpretation of the ordinance and is a question of law. 18.It is stated in Hong Kong Civil Procedure 2015 Vol 1 that “the Court of Appeal may grant leave if the question is one of general principle, decided for the first time; or a question of importance upon which further argument and a decision of the Court of Appeal would be to the public advantage” (at 59/2A/4). We are satisfied that the argument on jurisdiction raised by R17 in this case falls squarely within the ambit where leave to appeal should be granted since justice required the appeal should be heard so that the matter can be dealt with by the Court of Appeal for the advantage of future cases. EUV Ground 19.R17 submits that if the question posed at §6(b) above is being answered in the affirmative, the Roofs and Exterior Walls under such assumptions would have a willing buyer and thus a EUV of $9,100,000 as found in §95 of the Judgment to which R17 is entitled to adopt as the pro rata portion of the proceeds of sale under the captioned application. 20.Yes, we agree that the assumption of the lot not being made the subject of an application for an order for sale in paragraph (b) and/or the assumption of not taking into account the redevelopment potential of the property or the lot in paragraph (c) should apply equally to “the willing buyer” which is usually an important ingredient in the definition of “market value”. However, the hypothetical assumption of “the willing buyer” itself is subject to a caveat as we stated at §83 of the Judgment, ie “a ‘willing buyer’ is the buyer who purchases in accordance with the realities of the current market and with current market expectations, rather than on an imaginary or hypothetical market which cannot be demonstrated or anticipated to exist …”. Such caveat can be found in most valuation literatures including, for instance, International Valuation Standards 2011, The HKIS Valuation Standards on Properties, 1st Ed, 2005 or RICS Valuation - Professional Standards (Red Book) 2011[1]. 21.Further, and more importantly, such caveat is supported by legal precedents or text that we stated at §§84-88 including the remark by Lord Millett NPJ in Director of Lands v Yin Shuen Enterprises Ltd and Nam Chun Investment Co Ltd (2003) 6 HKCFAR 1 at §17. 22.In this case, R17 has all along conceded that the restrictions on alienation of the Roofs and Exterior Walls in the Restrictive Covenants are restrictive covenants in kind though consent would be given for a premium representing its value receivable for its sale. As Mr Mok put it during the hearing, the Restrictive Covenants not only affect the intended use of the Roofs and Exterior Walls, but also affect the possibility of a future sale. More particularly, Mr Mok submits that the Government retains a ransom right to bar any development if there were no application of Cap 545: “If the Government refuses to give consent to sell, no one can redevelop the Building at all”. 23.Ignoring the captioned application for compulsory sale for development in the meanwhile, R17’s expert, Mr Thomas Po, confirmed that if the type and nature of the proposed sale were a sale of the Roofs to the top floor owners to use the Roofs as permitted under the Deed of Mutual Covenant, the value of the Roofs (and hence the premium for the consent to sell) would have been its EUV which we have determined at $9,100,000 on the basis as if there were no such restrictions on alienation. We cannot however agree with Mr Po’s evidence at trial that a prospective purchaser for the Roofs would pay $9,100,000 whether or not the Roofs are subject to the Restrictive Covenants (see §92 of the Judgment). 24.Mr Mok initially tries to argue this by comparing with situations where properties concerned in a compulsory sale application are under trust where the trustee has no power to sell or properties that are suffering from title problem that cannot be sold. Mr Mok submits the value to the beneficiaries of the trust or the owner of property interest subject to title problem cannot be zero. However, we consider such situations can be resolved by applying the willing seller assumption with which we have no problem (see §82 of the Judgment). 25.But going to the application of the concept of hypothetical assumption of willing buyer, we are of the view that it should be subject to restrictions which affect market value as enunciated by Lord Millett NPJ in Director of Lands v Yin Shuen Enterprises Ltd and Nam Chun Investment Co Ltd, supra. Indeed, as can be discerned from the numerous Prospectus for Initial Public Offering of shares on the website of Hong Kong Exchanges and Clearing Limited, there are all examples where the valuers assign “no commercial value” to those property interests subject to “prohibitions against assignment or sub-letting or otherwise due to the lack of substantial profit rent”. 26.In real life, there are similar restrictions on alienation of property interests in the open market, one being buildings under the Civil Servants Co-operative Building Society Scheme where eligible civil servants were granted land by the Government at a concessionary premium, usually at one-third of the full market value, to enable them to build residential buildings through co-operative societies. And the other is in respect of the flat units built under the Home Ownership Scheme whereby the sale or alienation (including by creation of a mortgage or charge) of such a unit requires the prior written consent of the Director of Housing and payment of a premium. In respect of both, if no premium is paid, the property interest concerned can only be sold in the secondary market to restricted parties identified or recognized by the Government. 27.If the valuation of such property interests is required on the assumption that the premium has been paid, such special assumption has to be explicitly stated. In, for instance, Re: Cheung Chan Hong, the bankrupt, HCB 4827/2007 (unreported, dated 3 September 2014), according to a valuation report dated 27 March 2014, the market value of the property with vacant possession was HK$3.1 million, assuming premium has been paid to the Hong Kong Housing Authority to remove the restrictions on alienation. The Home Ownership Scheme secondary market value of the Property was only HK$2 million. 28.In 張雲卿訴房屋署署長, LDHA 4/2002 (unreported, dated 13 December 2002), upon review of its decision, Member Lam (as he then was) of the Lands Tribunal was satisfied with the submission by the Director of Housing that sales prices achievable in the Home Ownership Scheme secondary market which is subject to the resale restrictions should be distinguished from those where such restrictions were removed or more particularly premium had been paid. 29.Returning to the captioned application, it has been R17’s position that it would not give its consent to sell the Roofs and Exterior Walls except on the basis that all the purchase money for them would be paid to the Government. It was also the evidence of Mr Charles Chan, the expert for the applicants, that because the Government would demand a premium equivalent to 100% of the proceeds of sale of the Roofs and Exterior Walls for giving the consent to assign under the Restrictive Covenants, there would be no willing buyer as at 9 June 2011. We agree, in such a case, there existed even no secondary market for such willing buyer comparable to units under the Home Ownership Scheme. We also agree with Ms Ngai’s submission that even in a hypothetical world, so long as the premium to Government has not been paid and the Restrictive Covenants remain, there would not be any hypothetical willing buyer (subject to the caveat mentioned above) for the Roofs and Exterior Walls and hence, the EUV remains as zero. 30.When we draw to the attention of Mr Mok the analogy of units built under the Home Ownership Scheme which is subject to the non-alienation restriction without paying the premium, Mr Mok responds that so long as the policy of how the premium to be paid is clear and the consent for assignment be forthcoming, there would be a ready market and willing buyer. 31.In the subject case, Mr Mok refers to the skeleton submission of the applicants which acknowledges Mr Po’s evidence that “should there be a prospective purchaser interested in purchasing the Roofs as at 9.6.2011 with the intention of keeping the Roofs for use as roofs in their then existing state and not for the purposes of redevelopment of the Lot, the Government should be entitled to charge a premium in the sum of HK$9,100,000 for giving its consent to the IO to assign the Roofs under Clause 2 of the Assignment.” This should not deter any willing buyer to buy; whether it was the R16 or R17 who would receive the payment should not be the concern of the willing buyer. Mr Mok submits that the Tribunal, in relying on the first sentence of §90 of the Judgment to lead to its conclusion that the EUV of the Roofs should be nil had taken into consideration irrelevant factors. 32.Mr Mok concedes however that, as at the relevant date of 9 June 2011, the Restrictive Covenants were there and no application for consent for assignment has been made. However, Mr Mok points again to Court of Final Appeal decision in Capital Well Ltd v Bond Star Development Ltd (2005) 8 HKCFAR 578 as regards the guiding objectives of Cap 545 “to ensure that the minority owner receives fair and reasonable compensation for his interest in the lot”. He submits that Part 1 Schedule 1 of Cap 545 is designed to ensure the minority owner would receive fair share of the development value. 33.Thus, Mr Mok appears to argue that with a hypothetical sale and purchase between a hypothetical seller and buyer in a hypothetical transaction under the purview of Cap 545, the market value of the Roofs should reflect the value of the non‑encumbered Roofs with the premium fully paid. Otherwise, Mr Mok submits, R17 would be deprived of its fair share of its right reserved in the Restrictive Covenants. 34.Though persuasive that it may appear, we consider that such submission by Mr Mok is at odds with standard valuation practice which requires the market value of a property interest to be determined subject to prevailing restrictive covenants or restriction on assignment unless it is stated expressly otherwise. 35.We maintain that the market value or more particularly the EUV of the Roofs and Exterior Walls should be nil subject to the existence of the Restrictive Covenants. 36.We found this ground of appeal raised by R17 had no reasonable prospect of success and neither is there any other reason in the interests of justice that the appeal based on this ground should be heard. Order 37.According to Section 11AA(5) of the LTO, “leave to appeal may be granted in respect of a particular issue arising out of the judgment, order or decision”. Hence, we made the following orders :
Ms Nancy Ngai, instructed by Lo & Lo, for the 1st to 9th applicants Mr Y C Mok SC and Mr Anthony Chan, instructed by Department of Justice, for the 17th respondent [1] The relevant date for assessing the EUV is 9 June 2011. |
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