WISH CONCEPT LTD AND OTHERS v. WEN-PAO VAN AND OTHERS

LDCS57000 /2012

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LAND COMPULSORY SALE APPLICATION NO. 57000 OF 2012

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J U D G M E N T

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Background

1.  This is an application for compulsory sale of all the undivided shares in Section A of Subsection 1 of Section B of Quarry Bay Inland Lot No. 15 (“the Lot”), with a single storey building erected thereon known as No. 999 King’s Road and an adjoining 8-storey commercial/residential building erected thereon known as Nos. 1001, 1003, 1005, 1007, 1009, 1011 & 1013 King’s Road (hereinafter referred to as “No. 999”, “No. 1001”, “No. 1003”, “No. 1005”, “No. 1007”, “No. 1009”, “No. 1011” & “No. 1013” respectively), Quarry Bay, Hong Kong, for the purposes of redevelopment pursuant to Section 3(1) of the Land (Compulsory Sale for Redevelopment) Ordinance, Cap. 545 (“the Ordinance”).

2.  Originally the application filed on 20 December 2012 (“the Application”) included the undivided shares in the Remaining Portion of Subsection 1 of Section B of Quarry Bay Inland Lot No. 15 (“the Remaining Portion”). Subsequently the applicants purchased all the undivided shares of the Remaining Portion. Pursuant to the Tribunal’s Order of 8 August 2013, leave was granted to exclude the undivided shares of the Remaining Portion from the Application. The Application was therefore discontinued against the 6^th respondent, the 7^th respondent and the 8^th respondent who were owners of undivided shares of the Remaining Portion.

3.  According to an occupation permit issued on 30 September 1960 for the 8-storey commercial/residential building standing on Nos. 1001, 1003, 1005, 1007, 1009, 1011 & 1013 King’s Road, the building comprises a basement, 4 shops (which correspond to G/F of Nos. 1001, 1005, 1007 and 1013 King’s Road respectively) and 3 domestic units (which correspond to G/F of Nos. 1003, 1009 and 1011 King’s Road respectively) on Ground Floor and 7 residential units on each of the First Floor to Seventh Floor  served by 4 common staircases (but no lift). Each of the shops on Ground Floor of 1001, 1005, 1007 and 1013 King’s Road has been subdivided into two smaller shops.

4.  No. 999 King’s Road was built on a later date. According to an occupation permit issued on 24 October 1979 for the single storey building standing on No. 999 King’s Road, it comprises only one shop on Ground Floor (with cockloft thereof) for non-domestic use.

5.  Notwithstanding the above, the two buildings (hereinafter referred to collectively as “the Building”) are governed by one Deed of Covenant (“DMC”) divided into 59 undivided shares. The corresponding ownership and undivided shares of the respective units of the Building at the time of the Application are shown in the table below:

6.  According to the witness statement of Pan Wai Hung Christopher (“Pan’s Statement”) dated 6 September 2013, the applicants, being wholly owned subsidiaries of Tai Hung Fai Enterprise Company Limited through Best Connect Holdings Limited, are incorporated for the purpose of acquiring the units in the Building as well as those in the Remaining Portion. When the applicants commenced the present proceedings on 20 December 2012, they altogether owned 92.7966% of the undivided shares of the Lot, save as follows:

(i)   The interest owned by the 1^st respondent in respect of the Roofs of Nos. 1009, 1011 and 1013 King’s Road (¼ undivided share) (“R1’s Unit”). The 9^th respondent was the mortgagee of the R1’s Unit;

(ii)   The interest owned by the 2^nd respondent in respect of 5^th Floor , No. 1001 King’s Road (1 undivided share) (“R2’s Unit”);

(iii)   The interest owned by the 3^rd respondent in respect of 7^th Floor , No. 1003 King’s Road (1 undivided share) (“R3’s Unit”);

(iv)   The interest owned by the 4^th respondents in respect of 3^rd Floor, 1005 King’s Road (1 undivided share)  (“R4’s Unit”); and

(v)   The interest owned by the 5^th respondent in respect of 2^nd floor, No. 1011 King’s Road (1 undivided share) (“R5’s Unit”).

7.  By the time of filing the Pan’s Statement, the applicants had purchased the undivided share allotted to the R2’s Unit, increasing the applicants’ undivided shares to 94.4915%.  Since then, the applicants had further purchased the R3’s Unit and R5’s Unit, thus increasing their ownership of the Lot to 97.8814%. The proceedings against the 2^nd, 3^rd and 5^th respondents have  been discontinued.

8.  The applicants’ ownership of all undivided shares in the Lot has all along been not less than 90%. The applicants contend that they are entitled to make the Application by virtue of Section 3(2) of the Ordinance and after the Application was amended to exclude the Remaining Portion, section 3(1) of the same ordinance.

9.  At the beginning of the trial the following undivided shares in 2 units were outstanding:

(i)   R1’s Unit: the owner was the developer of the Building but has now become a missing owner. By an order of the Tribunal dated 7 February 2013, service of the Notice of Application was dispensed with and notices of the proceedings were ordered to be published in newspapers, with the consequence that after expiry of 21 days from the date of notice the 1^st respondent and all persons claiming through it be bound by the proceedings as if they have been duly served.

(ii)   R4’s Unit: the joint registered owners had applied and obtained leave by this Tribunal’s Order of 9 December 2013 to withdraw their Notice of Opposition previously filed. However, the second-named respondent (“Mr Wong”) appeared on the first day of the trial and requested participation at the trial. Leave was granted to him to cross-examine the applicants’ witnesses and made submission. Mr. Wong did participate as directed. This Tribunal was informed on the second day of trial that the 4^th respondents and the applicants had reached a settlement whereby the R4’s Unit would be sold to the applicants with completion to take place on or before 25 April 2014. Mr Wong sought leave from this Tribunal to excuse himself from attending further proceedings of the trial. His application was granted with no order as to costs.

10.  Despite the settlement, the applicants are still required to strictly prove their case.  It is submitted by Mr YC Mok, counsel for the applicants, that all requirements of the Ordinance have been satisfied.  Mr Mok asked on behalf of the applicants for an order for sale in terms of the draft order submitted. 

Section 3 of the Ordinance – Ownership of the Applicants

11.  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. The recently lowered threshold of 80% is inapplicable as one of the buildings erected thereon was issued with an occupation permit less than 50 years before the date of Application, and the other statutory requirements are not met. In any event, when the applicants commenced the present proceedings on 20 December 2012, they altogether owned 92.7966% of the undivided shares of the Lot. They are therefore entitled to make the Application.

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

12.  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 on the Lot as at 27 September 2012. The Application Report was prepared not earlier than 3 months before the date of the Application, i.e. 20^th December 2012 and is therefore, in our view, in compliance with section 3 of the Ordinance.

13.  Under section 4(1)(a)(i), if there is a dispute between the parties on the EUV of the units in the Building on the 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, for instance, the 1^st respondent, the majority owner of the Lot is required to satisfy the Tribunal that the value of the minority owner’s property, i.e. the R1’s Unit as assessed in the application is “(A) not less than fair and reasonable; and (B) not less than fair and reasonable when compared with the value of the majority owner’s property as assessed in the application.”

14.  Although strictly speaking, the 4^th respondents are not missing owners and their contentions on the EUV of the 4^th Unit, if any, had been withdrawn, the Tribunal was prepared to do the same for the R4’s Unit.

15.  In the Application Report of 27 September 2012, Mr C Chan explained the method of valuation and the process of his assessment to arrive at the EUV of each unit of the Building.

16.  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. 1007 King’s 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 8 comparable transactions all in 7 different buildings scattering from North Point to Shau Kei Wan as he explained there were inadequate appropriate comparables in Quarry Bay.  After making what he regarded as the necessary adjustments (for time, location, floor, age and condition, size, view, nuisance and aspect 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, size, lighting & ventilation, view, privacy, noise, aspect 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.

17.  In assessing the EUV of the basement, Mr C Chan considered 2 sale transactions of podium floor commercial premises in North Point. After making what he regarded as the necessary adjustments (for time, location, access, visibility, size, building age & condition) 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 subject basement.

18.  In assessing the EUV of the ground floor retail units, Mr C Chan adopted the following methodology :

(i)   He selected Portion A on Ground Floor, No. 1013 King’s Road as the Reference Shop Unit.  He then took into account 4 comparable transactions in 3 different buildings nearby. After making what he regarded as the necessary adjustments (for time, location, size, building age, frontage, layout and level difference) 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 Reference Shop Unit.

(ii)   He further considered the size, frontage, headroom and level difference among the Reference Domestic Unit and the remaining retail units within the Building and made adjustments to arrive at the EUV of all the ground floor units.

19.  Mr C Chan updated the Application Report by a supplemental report dated 4 September 2013 (“Supplemental Report”). He revised therein the EUV of all units in the Building after inspection of units which were unavailable when he did the first report. He also took into account 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 27 September 2012.

20.  The EUV of all units in the Building, including the R1’s Unit and the R4’s Unit, as at the relevant date of valuation of 27 September 2012, are as shown in paragraph B3.5 of the Supplemental Report: see the tables at Bundle B3/ 1970-1971 which are reproduced below:

21.  Although Mr Wong of the 4^th respondents did raise a concern that Mr C Chan’s assessment of the domestic units took into account transactions outside the Quarry Bay district, we accept Mr C Chan’s explanation that comparable transactions of similar buildings with no lift service and not tainted by acquisitions for redevelopment purposes in the Quarry Bay area were lacking around the relevant date. Mr Mok further submitted that insofar as the EUV assessments of all the units are determined on the same basis to provide the same tone of values for comparison, minor discrepancy because of the adjustment for location would be nominal or irrelevant. We accept his submission.

22.  In the absence of valuation evidence to the contrary, we are satisfied, insofar as it is necessary, that the values of the R1’s Unit and the R4’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:

(i)   R1’s Unit : assessed at $720,000 (representing 0.1773% of the total EUV of all units);

(ii)   R4’s Unit : assessed at $3,950,000 (representing 0.9726% of the total EUV of all units); and

(iii)   the total EUV of all units : assessed at $406,130,000.

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

23.  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 Building; and

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

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

25.  For the age and state of repair requirements, we have taken into consideration the expert evidence of Mr Benson Wong (“Mr B Wong”), the building surveyor and Mr So Kin Shing (“Mr So”), the structural engineer adduced by the applicants. 

26.  Mr So had conducted a structural assessment of the Building and prepared a report dated 2 September 2013. He found the following defects in the Building:

(i)   Visual inspections showed many defects in the form of cracks and spallings of various degrees in 13 flats/units of the Building. 2 of them were accorded the highest severity index of 4 requiring detailed investigation with a view to providing immediate protective measures[1].

(ii)    Covermeter survey revealed that of 18 structural members surveyed[2], at least 1 column, 1 beam and 2 slabs 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.

(iii)   Carbonation depth test results revealed that carbonation had penetrated past the concrete cover of all the beam and slab samples. For columns, 5 out of 6 samples failed the test. There was 100% failure recorded for beams and slabs[3]. 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.

(iv)   Compression tests revealed deficiency in the concrete strength in 1 out of each batch of 6 columns and 6 beams. The structural integrity of the structural frames of the Building could have been adversely affected[4].

(v)   Chloride content tests showed an increased risk of corrosion of the embedded steel reinforcement bars. Of 6 samples each taken of the columns, beams and slabs, 3 samples in each group were found to have failed the test[5].

(vi)   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 Building. In the worst sample, the cross section area of the steel bar was reduced by 21.9%[6] due to rusting.

(vii)   Based on the above findings, 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. 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 Building[7].

(viii)   The design and construction of the structural frames were based on an obsolete design. There were at least 9 structural design and construction aspects of the Building falling short of present structural engineering design requirements. Among these 9 aspects, 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[8].

27.  Based on the above findings, Mr So concluded that the structural frames of the Building were in need of repair. While No. 999 was designed and constructed some  33 years ago, Nos. 1001-1013 were designed and constructed more than 53 years ago exhibiting 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.

28.  Mr B Wong, in his Condition Survey Report dated 2 September 2013 stated that :

(i)   The Building is 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 52 hidden hollow spots and is potentially dangerous to public safety if the loosened rendering falls off ;

(iii)   The envelope of the Building is not external seepage resistant as evidenced by damp penetrations through the external walls, the main roof coverings and the original mild steel windows;

(iv)   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 Building;

(v)   Enclosed front balconies, enclosed kitchen balconies and flat roof structure of the units were unauthorized. They adversely affected the structural safety of the Building;

(vi)   The conditions of the internal doors, finishes, bathrooms and kitchens fitments of units are poor; the most common defects being missing or defective doors of bedroom, bathroom and kitchen, dampness and spallings to the internal floors, walls and ceilings;

(vii)   Sanitary fitments in the bathrooms and cooking facilities in the kitchens in most units inspected are broken or otherwise defective requiring replacement;

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

(ix)   Internal electrical installations inside at least 32 flats have been haphazardly altered and are in poor condition;

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

(xi)   Flushing water supply system for the Building have been abandoned from use;

(xii)   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;

(xiii)   Closed circuit television survey carried out to the underground drainage reveals defective drainpipes and 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 Building in compliance with the requirements of the Fire Safety (Buildings) Ordinance.

29.  Mr B Wong assessed the total cost of repair works at $18,893,603 which amounts to 41% of the construction cost of a new similar superstructure.  He came to the conclusion that the Building (Nos. 1001-1013) has deteriorated to a state which is beyond reasonable economic repair as signified by the high repair cost.  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.  He recommended the owners to redevelop rather than repair given the Building does not possess any historical value or architectural merit. 

30.  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 4 September 2013.

31.  For the repair test, Mr C Chan adopted the findings by Mr. B Wong that the total estimated cost to restore the Building to tenantable standard is $18,893,603. If the unauthorized building works related items are excluded[9], the net repair cost for the remedial works is about $16,056,785. His assessment of the EUV as at date of report (i.e. 4 September 2013) was $418,260,000 comprising $243,420,000 for retail portion and $174,840,000 for the domestic portion[10]. 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. Only nominal enhancement will be made to the ground floor as retail shops are less sensitive to building condition as compared to residential flats[11]. The enhancement by the repairs (the difference between the post- and pre-repair EUV) is $5,245,200[12]. He considered obviously, putting good money of $16,056,785 to bring about an increase in value of only $5,245,200 would not make any economical sense at all.

32.  For the age test, Mr C. Chan assessed the total existing use value (“EUV”) of $418,260,000 (as at 4 September 2013) could be enhanced to $423,505,200[13] if a net repair cost of $16,056,785 were spent. He further assessed the redevelopment value (“RDV”) of the Lot on its own at $678,000,000 as at the same valuation date[14].  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.

33.  Save for the remark by Mr Wong of the 4^th respondents as stated §21 above, all the expert evidence is unchallenged. We accept the applicants’ evidence in whole.  In particular, we are satisfied that based on the evidence of Mr So and Mr B Wong, redevelopment of the Lot is justified due to the age and the state of repair of the Building :

(i)   Except for the ground floor portion of the 999 King’s Road, the Building is generally over 53 years old, with obsolete designs and has now passed its designed working life. No. 999 King’s Road constitutes only a very small part of the Lot and Building erected thereon (¾ of 1/59^th undivided shares) sharing the same DMC with the Building. It definitely cannot possibly stand on its own;

(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. Based on evidence of Mr So and Mr B Wong, the repair will recur soon and the quiet enjoyment of the owners of the Building will be disturbed during the lengthy period of repair, and repeatedly. The deterioration of the Building has reached a state which is beyond economical repair;  and

(iii)   The Building has 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 Lot

34.  The applicants are under an obligation to negotiate on terms that are fair and reasonable in a situation when the whereabouts of a minority owner are known.

35.  This obligation is not a mandatory requirement for the applicants vis-à-vis the 1^st respondent who is a missing owner.  However, before satisfying that the 1^st respondent is a missing owner, the applicants issued to the 1^st respondent a letter of 28 November 2012 offering to purchase his interest at a price higher than that assessed by Mr C Chan in his advice letter of 27 September 2012.

36.  In respect of the R4’s Unit, according to Pan’s Statement, the following offers have been made to the 4^th respondents:

Date of offer	Amount	Remark
24 June 2010 (verbal)	$4,000,000	Based on applicants’ in-house valuation
2 November 2010 (verbal)	$4,800,000	Higher than the amount advised by applicants’ then valuation advisor, Knight Frank
3 February 2012 (verbal)	$5,150,000	More than the amount advised by Knight Frank
28 November 2012	$6,410,000	With Mr C Chan’s advice attached to offer letter
29 July 2013	$6,880,000	Based on applicants’ in-house valuation which was subsequently verified by Mr C Chan
23 August 2013	$7,000,000	Based on applicants’ in-house valuation which was subsequently verified by Mr C Chan
30 January 2014	$7,556,545	Revised after Tribunal’s judgments LDCS46000/2011 of 26 November 2013 and LDCS28000/2012 of 29 November 2013 (but no longer followed in LDCS13000/2012 of 14 March 2014) based on Mr C Chan’s advice letter dated 30 January 2014
11 February 2014	$7,556,600	Slightly higher than Mr C Chan’s advice of 30 January 2014

37.  None of the above offers have been accepted. Nevertheless, the applicants have through their counsel Mr Mok indicated to the Tribunal that their latest offer would be open for acceptance by the 4^th respondents before conclusion of the trial. Although the settlement terms between 4^th respondents and the applicants are not made known to the Tribunal, it will be reasonable to assume that the settlement will be on terms not less favorable than the latest offer set out above. In any event it will be useful to assess whether the applicants have made offers to purchase, at least on monetary terms, that are fair and reasonable.

38.  We have accepted the EUV of the R4’s Unit at $3,950,000, which is 0.9726% of the overall EUV of the Building[15]. Given our decision of the RDV of the Building at $660,000,000 (see §46 below), the pro-rated RDV of the R4’s Unit will be $6,419,160[16]. This provides a ready yard-stick to show the applicants have taken steps to make reasonable monetary offers to acquire the 4^th applicants’ undivided share in the Building.  The calculation suggests that the latest offer is about $1.1 million over and above the EUV of the R4’s Unit, but of course that is on the basis the Lot will be sold at only at the reserve price at the auction to be held.

39.  In the circumstances of this particular case, we are therefore satisfied that the applicants have taken reasonable steps to acquire all the undivided shares in the Lot including both the R1’s Unit and the R4’s Unit. 

Reserve Price for the Auction

40.  Mr C Chan prepared another supplemental report dated 25 February 2014 for the purpose of assessing the RDV of the Lot as at the same date of the report and on the “on its own” basis. The applicants submit that the reserve price for the auction of the Lot should be fixed at $660,000,000[17] according to Mr C Chan’s said supplemental report.

41.  We have considered Mr C Chan’s valuation of the RDV of the Lot.  We note Mr C Chan had considered two land sale transactions in the past years, i.e. the sale of the site at North Point Estate Lane and Shu Kuk Street in North Point in March 2013 and another at 375 King’s Road, North Point in January 2012. We agree with him that these two transactions are not suitable for direct comparison between the Lot and the land sale comparables because, as put by Mr C Chan, “… of the substantial disparity in development potential due to different attributes on location, development scale and development restrictions”. 

42.  We agree with Mr C Chan that as a last resort, the residual method can be employed as the method to assess the Lot’s RDV. This is done by deducting development costs (including construction costs, professional fees, finance costs etc) and developer’s profit from the estimated gross development value of the completed development.

43.  Mr C Chan was of the view that the optimum development on the Lot would be a block of 29-storey hotel with entrance lobby and retail shops on G/F, commercial premises on 1/F, hotel facilities and back of house on 2/F and hotel guest rooms on the upper floors with details of the hypothetical development and residual valuation set out in Appendix 1.3 (Bundle B3/2161-2163), and details of the comparables with adjustments in Appendix 1.5 (for shops at Bundle B3/2172), Appendix 1.6 (for podium floor commercial at Bundle B3/2174) and Appendix 1.7 (for hotels at Bundle B3/2176).  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 1.4 (Bundle B3/2165-2170).  The valuation arrived at was $660,000,000.

44.  At our request, Mr C Chan also produced on the second day of trial a valuation of the Lot on the alternative basis of a hypothetical office development. The valuation arrived at was $609,000,000.

45.  We have gone through both of his valuations.  In the absence of evidence to the contrary, we are satisfied with his valuation on the basis of hotel development being more optimal. We also accept the valuation assumptions he has adopted as well as the values and the costs parameters he has used in his valuation. 

46.  Based on Mr C Chan’s valuation, we come to the view that the reserve price for the auction of the Lot should be HK$660,000,000.

TRUSTEES

47.  The applicants proposed to appoint Mr Ho Chi Kit and Mr Cheung Chi Yu who are partner and solicitor respectively of Messrs Katherine Y W Or & Co, Solicitors, Agents for Trademarks & Patents, as the sale trustees.  Based on the information on their background and experience as set out in the letter dated 7 February 2014 from their firm, we are satisfied that they are proper persons to be appointed.  Their remuneration on an one-off lump sum of HK$60,000 (exclusive of disbursements) as mentioned in the letter dated 7 February 2014 is also reasonable and is hereby allowed.

PARTICULARS AND CONDITIONS OF SALE OF THE LOT

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

CONCLUSION AND ORDERS

49.  By reasons of the aforesaid, 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 of 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 now 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 Ho Chi Kit and Mr Cheung Chi Yu 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 Messrs Katherine Y W Or & Co, dated 7February 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 A2/62/638-684) initialled and approved by us;

(b)   The reserve price of the Lot be set at HK$660,000,000;

(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;

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

Costs

50.  Since neither the applicants, the 1^st nor the 4^th respondents 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.