CHAN SHIU CHONG v. DIRECTOR OF LANDS

LDLR 1 - 3/2012 (Heard Together)

[2019] HKLdT 19

LDLR 1/2012

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LANDS RESUMPTION APPLICATION NO 1 OF 2012

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LDLR 2/2012

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LANDS RESUMPTION APPLICATION NO 2 OF 2012

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LDLR 3/2012

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LANDS RESUMPTION APPLICATION NO 3 OF 2012

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D E C I S I O N
(Leave to Appeal)

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Introduction and Background

1.  These are applications taken out by the applicants by summonses filed on 14 December 2018 for leave to appeal against the Tribunal’s Judgment handed down on 19 November 2018 (“the Judgment”).  By consent of the parties, the Tribunal shall dispose of this application on paper without oral hearing.

2.  The applicant in LDLR 1/2012 was the former owner of 1/5^th equal and undivided share of and in New Kowloon Inland Lot No 1024 Section A Subsection 1 Section B with the right to exclusive use and occupation of Ground Floor including Cockloft of a 5-storey building erected thereon which is situated at No 187A Hai Tan Street, Kowloon (“Property 1”).  The building was completed in 1955 and was physically connected with its adjacent building erected thereon at No 187B Hai Tan Street, Kowloon by a common staircase.

3.  The applicant in LDLR 2/2012 was the former owner of 1/5^th equal and undivided share of and in New Kowloon Inland Lot No 1024 Section A Subsection 2 with the right to exclusive use and occupation of Ground Floor of a 5-storey building erected thereon which is situated at No 248 Tung Chau Street, Kowloon (“Property 2”). The building was completed in 1956 and was physically connected with its adjacent building erected thereon at No 250 Tung Chau Street, Kowloon by a common staircase.

4.  The applicant in LDLR 3/2012 was the former owner of 1/5^th equal and undivided share of and in New Kowloon Inland Lot No 179 Section A Subsection 7 with the right to exclusive use and occupation of Ground Floor including the Mezzanine Floor of a 5-storey building erected thereon which is situated at No 220 Hai Tan Street, Kowloon (“Property 3”).  The building was completed in 1956 and was physically connected with its adjacent building erected thereon at No 222 Hai Tan Street, Kowloon by a common staircase.

5.  Their properties (collectively “the Subject Properties”) together with many others in the area including but not limited to the properties under consideration in Cheermark Investment Limited v Director of Lands, LDLR 2/2013 (unreported, 3 November 2015) and Happy Enough Limited v Director of Lands, LDLR 5/2012 (unreported, 17 March 2016) were compulsorily resumed under the Lands Resumption Ordinance (“LRO”) by Gazette Notice No 7187 dated 1 November 2010 for the implementation of the Development Scheme SSP/1/003, 004 and 005 Sham Shui Po (“the Development Scheme”) by the Urban Renewal Authority (“URA”).  These properties subsequently reverted to the Government at midnight of 19 February 2011 (“the Resumption Date”).

6.  The corresponding Notices of Application were filed on 13 June 2012 asking for determination on compensation for lands resumed under the LRO in relation to the Subject Properties.

7.  The Subject Properties and all other properties resumed under the Development Scheme were situated at a parade of old tenement buildings along Hai Tan Street and Tung Chau Street which run parallel to each other, near their junctions with Kweilin Street and Pei Ho Street in the Sham Shui Po district.  It is not disputed that developments in the immediate vicinity of the Subject Properties were dominated by out-moded low-rise commercial/ residential buildings with ground floor shops devoted mainly to car repairing workshops, engineering workshops and retailing of engineering accessories.

Legal Principles

8.  Section 11AA (6) of the Lands Tribunal Ordinance provides that:

“Leave to appeal shall not be granted unless the Tribunal, the Court of Appeal or the registrar hearing the application for leave is satisfied that –

(a) the appeal has a reasonable prospect of success; or

(b) there is some other reason in the interests of justice why the appeal should be heard.”

9.  In this regard, a “reasonable prospect of success” means more than just an arguable or fanciful case without having to show the appeal will probably succeed[1].

Issues Under Appeal

10.  The main dispute between the parties which has become the issue of the intended appeal is that: the applicants suggest that the Subject Properties should be assessed by residual analysis to take into account their redevelopment value (“RDV”) whereas the respondent maintains that the Subject Properties did not have redevelopment potential so that only direct comparison method should be adopted to assess their existing use value (“EUV”).

Redevelopment Potential

11.  The parties have no dispute that the leading case on redevelopment potential in resumption of land is the Court of Appeal judgment of Siu Sau Kuen v Director of Lands [2013] 6 HKC 557, on appeal from the Tribunal’s judgment in LDLR 1/2010 (unreported, 9 March 2012).  The starting point is that in determining the compensation for resumption of a property, the claimant is entitled to include the redevelopment value if so justified.

12.  The Tribunal adopted a two-stage approach.  Stage one is concerned with whether an element of redevelopment value should be included in the compensation to be paid on the resumption of land.  This test was re-fined by Fok JA (as he then was) in the Court of Appeal as follows:

“… whether, on a balance of probabilities, the evidence disclosed that redevelopment of the property resumed was likely as at the date of resumption. Such likelihood may be demonstrated by:

(i) actual proposals by the applicant to redevelop the property (or unlikelihood demonstrated by the absence of such proposals), whether on its own or by merger with other properties, or

(ii)evidence of redevelopment in the vicinity of the resumed property (whether accompanied by evidence of redevelopment plans for the resumed property or not), so long as such evidence of redevelopment in the vicinity supported a finding that redevelopment on its own or merger of the resumed property with other properties giving rise to a viable redevelopment scheme was likely within a reasonably foreseeable time scale.”

13.  The Stage Two approach is concerned with valuation and was not altered on appeal.  It is as follows:

“If Stage One is determined in favour of a claimant, the Court/Tribunal would then proceed to conduct a valuation of the redevelopment potential.”

14.  It is the case of the applicants that there was redevelopment potential as at the Resumption Date and that market value of the Subject Properties can be assessed on that basis.

15.  Insofar as the Stage One approach is concerned, the applicants solely rely on the second limb of the test, namely there is evidence of redevelopment in the vicinity of the Subject Properties which supports, on a balance of probabilities, a finding that redevelopment on its own or merger of the Subject Properties with other properties giving rise to a viable redevelopment scheme was likely within a reasonably foreseeable time scale as at the Resumption Date.

16.  With regret, the Tribunal found in the Judgment that, on a balance of probabilities, the Subject Properties should not have enjoyed the RDV at the Resumption Date. The Tribunal assessed their EUV as the market values.

Grounds of Appeal

17.  The applicants complain that the Tribunal had erred on four grounds as set out below:

Ground (1)   Unspecified Buildings with the Same Attributes as the Subject Properties not Redeveloped and Wrongly Adopted the Criminal Standard of Proof

18.  Mr Ross M Y Yuen and Ms Evelyn L C Cheng (“Messrs Yuen & Cheng”), counsel for the applicants, submit that the Tribunal, in rejecting the redevelopment potential of the Subject Properties, erred in law in relying on the observation that some unspecified buildings in the vicinity that appeared in poor condition have not been redeveloped, and effectively heightened the burden of proof to a higher threshold of beyond reasonable doubt.

19.  The Tribunal in para. 21 of the Judgment had the following observation:

“We agree that The Prominence, Harbour Park and Park One are new redevelopments of former old buildings in the vicinity of the Subject Properties. During the site inspection on 28 August 2018, however, we observed that there are still parades of 5 or 6-storey building at Hai Tan Street or Yee Kuk Street not being redeveloped in 2018 even though they all appear in poor building condition. In our opinion, it cannot be true that any building with the same physical attributes of, and sharing the same town planning considerations as the Subject Properties shall all have redevelopment potential as at the Resumption Date…”

20.  Messrs Yuen & Cheng suggest that the Tribunal was in fact saying that the absence of redevelopment potential of the Subject Properties can be shown by the fact that even in 2018 some buildings in the vicinity are still not redeveloped despite appearing to be in poor building condition and/or having the same physical attributes as the Subject Properties. Effectively, the Tribunal was asking the applicants to justify as to why some other buildings in the vicinity have not been redeveloped. It is a wrong application of the Siu Sau Kuen test.  With respect, we disagree.

21.  We consider that the applicants’ entire case rests on the proposition that the Subject Properties share similar physical attributes and town planning considerations as the former old buildings which later became The Prominence, Harbour Park and Park One, and therefore the Subject Properties must all have redevelopment potential. We agree with the submission of Mr Stanley Ng (“Mr Ng”), Counsel for the respondent, that the applicants had the burden to prove such a proposition was correct. Save from making such proposition, the applicants had come up with nothing at all to sustain making such proposition. Mr Ng submits and we accept that the applicants’ expert, Mr Lee[2], had accepted under cross-examination that there was no evidence that any private developers were interested in redeveloping the Subject Properties.

22.  While the applicants heavily relied on the presence of The Prominence, Harbour Park and Park One to prove that the Subject Properties must all have redevelopment potential, we do not agree its truism of this proposition as there were still many old buildings sharing the same attributes as the Subject Properties but were not developed.

23.  The applicants complain that the question of such buildings not being redeveloped in 2018 was not canvassed in the trial at all:

 (1) It was not a ground of opposition of the respondent;

 (2) It was not raised as a matter of evidence either in the expert reports or oral evidence;

 (3) It was unknown as to which buildings were referred to;

 (4) It was unknown as to whether such buildings have indeed the same physical attributes as the Subject Properties;

 (5) It was unknown as to whether they are indeed in poor condition when no internal visit had been made to any properties during the joint site inspection.

24.  In Checkpoint Limited v. Strathclyde Pension Fund [2003] 14 EG 124, [2003] EWCA Civ 84, an arbitrator on rent review applied his own experience of area in vicinity of demised premises. The English Court of Appeal affirmed that the arbitrator had not acted unfairly. The arbitrator had been required to determine whether Winnersh and Bracknell were in the same market and subject to the same demands, and in relying upon his own experience to confirm that the Winnersh units were comparable.  The English Court of Appeal said in para. 41 of the judgment:

“… he was engaged in the proper process of evaluating the evidence before him and properly using his own knowledge to that end.”

25.  And in Myers v. South Lakeland District Council [2005] EWCA Civ 498, [2005] RVR 300, the English Court of Appeal emphasised that the Lands Tribunal is not bound to accept the contentions of either party. The whole point of having an expert tribunal such as the Lands Tribunal, is that the tribunal should bring its own expertise to bear on the facts and form a view itself of the monetary value of the amount claimed.   The English Court of Appeal said in para. 24 of the judgment:

“… the member was fully entitled, on the evidence he heard, to reach the factual and judgmental considerations which he did.”

26.  In the present case, the Tribunal consisting of a district judge and a member was arranged a joint site inspection by the parties spending about 2.5 hours in the morning of the 2^nd day trial.  There were not only one, two or three old buildings sharing the same attributes as the Subject Properties but were not developed; there were quite a number being observed during the joint site inspection. This evidence obtained during the joint site inspection shows that the proposition by the applicant is logically incorrect. As we remarked at para. 22 of the Judgment:

“We also consider that the increase in plot ratio of the hypothetical redevelopment model proposed by Mr Lee and the registration of the building orders are neither here or there. Otherwise all similar premises in the entire Sham Shui Po area shall have redevelopment potential forthcoming within a reasonably foreseeable time scale.”

27.  There is no merit in Ground (1) as we were entitled to make a finding of facts that as at the Resumption Date, redevelopment of the Subject Properties was not likely within a reasonably foreseeable time scale on a balance of probabilities.

Ground (2) Wrongly Required Actual Evidence or Evidence of Interest of Private Developers

28.  The applicants submit that the Tribunal erred in law in requiring them to adduce evidence to show that there was private developer(s) interested in acquiring the Subject Properties either before or after February 2006 when the URA announced the Development Scheme.

29.  According to the submission of Messrs Yuen & Cheng, the Siu Sau Kuen test expressly distinguishes two scenarios in which an applicant may demonstrate the resumed property had redevelopment potential. The first one is a situation where there were actual proposals by the applicant to redevelop the resumed property. The second one is a matter of inference to be drawn from the evidence of redevelopment in the vicinity of the resumed property, irrespective of “whether accompanied by evidence of redevelopment plans for the resumed property or not.”

30.  We trust that their submission is misplaced. In formulating the Siu Sau Kuen test, Fok JA (as he then was) stated as follows:

“30. … Instead, I would accept Mr Lam’s submission in this court that the test the Tribunal actually applied is to be found in §§37 and 41 of the Judgment, namely: whether the Tribunal was satisfied on the evidence that, at the date of resumption, there were people ready to buy up properties in the subject lot with a view to collecting a site worth developing.

31. … the Tribunal focused on the question of whether there was evidence to establish that there was this redevelopment potential, i.e. existing in the future, at that date. This is made clear in §13 of the Reasons for Decision where the Tribunal said:

‘So, it is not the case that we did not take into account any redevelopment potential that could have been in the future, but it is entirely a matter of where there are [sic] evidence establishing that there was this possibility at the date of this resumption. And, in our case, we found there was no such evidence.’

32. … the reality is that the Stage One test actually applied by the Tribunal was capable of reflecting the development value for potential redevelopment as at the date of valuation.” (emphasis added)

31.  In the present case, like the Tribunal in Siu Sau Kuen, we found there was no such evidence, actual or otherwise, capable of establishing that there was redevelopment potential at the Resumption Date. The applicants had provided no evidence of “people ready to buy up properties in the subject lot with a view to collecting a site worth developing.” Certainly, evidence of people includes but does not limited to private developers.

32.  A further or alternative complaint of the applicants under this Ground (2) is that this Tribunal erred by drawing the cutting line to five years before the Resumption Date.

33.  This complaint is however flawed. Para. 23 of the Judgment reads:

“In any event, the Applicants or Mr Lee simply had no evidence to show that there was any interest from any private developer acquiring the Subject Properties either before February 2006, the month when URA announced the Development Scheme, or after that but before the Resumption Date. There was no sale and purchase transaction in any of the Subject Properties or their adjoining ones for over a long period of time.” (emphasis added)

34.  As can be seen, the cutting line remains as the Resumption Date, which is the date of valuation dictated by section 10(2)(a) of the LRO.

35.  There is no merit in Ground (2).

Ground (3) Wrongly Required the Redevelopment Scheme to be the Most Realistic

36.  Here, the applicants suggest the Tribunal erred in law in requiring the redevelopment scheme put forward by the applicants to be the most realistic when the second limb test of Siu Sau Kuen only requires a viable scheme. The applicants point to para. 20 of the Judgment where the Tribunal observed that:

“On the other hand, we agree that for redevelopment to be viable, the site on which the Subject Properties are situated should be acquired with their respective adjoining sites. For instance, the site for redevelopment for either Nos 187A or 187B Hai Tan Street is merely 92.13 sq m and the combined site area is 184.26 sq m which is still too small for a development like The Prominence, Harbor Park or Park One. Even Mr Lee was of the view that a merger of 4 to 6 adjoining lots would be more realistic…”

37.  From the above cited paragraph, it is clear that the Tribunal had already been satisfied that the proposed redevelopment models for the Subject Properties were not viable before making further observation that even Mr Lee under cross-examination agreed a merger of 4 to 6 adjoining lots would be more realistic.

38.  In any event, the viability of any proposed redevelopment model has to be examined in a realistic sense. If it is not realistic, particularly not realistic from the developer’s point of view, which the applicants’ expert agreed at trial, it could not be viable.

39.  There is no merit in Ground 3 by seeking to substitute the word “realistic” with “viable”.

Ground (4) Wrongly ignored relevant factors and considered irrelevant factors

40.  The applicants further submit that the Tribunal erred in law by failing to appreciate that the finding of the likelihood of the Subject Properties’ redevelopment is a matter of inference founded on similarities between the Subject Property and the redevelopment in the vicinity.

41.  We are of the view that the applicants are repeating Ground (1) by saying that so long as the Subject Properties share similar physical attributes and town planning considerations as the former old buildings which later became The Prominence, Harbour Park and Park One, therefore the Subject Properties must all have redevelopment potential.

42.  We have already rejected this proposition made by the applicants in the above.  Further, in para. 21 of the Judgment[3], we found as a fact that the site on which the Subject Properties were formerly situated was different from The Prominence and Park One.

43.  As submitted by Mr Ng, the Tribunal had considered the similarities in physical attributes, same town planning consideration and plot ratio in paras. 21 and 22 of the Judgment[4] but did not find that such inference should be drawn on a balance of probabilities.

44.  There is no merit in Ground (4).

Conclusion

45.  Having carefully consider all grounds of intending appeal submitted by the applicants, we do not think that the appeal has a reasonable prospect of success or there is some other reason why the appeal should be heard, and hence, we refuse to grant leave to the appeal.

Costs

46.  Since costs shall follow event, the applicants should pay costs of this application, which are to be taxed on the High Court scale if not agreed.

[1] First Kind Ltd & Another v Liu Keng Chor, The Administrator of the Estate of Li Fung Man deceased & Others, LDCS 12000, 13000, 14000, 15000, 20000 and 21000/2014 (unreported, 13 January 2017) at para. 36

[2] Mr Lee was also the expert in Cheermark’s case and Happy Enough’s case.

[3] “…The Prominence and Park One occupy more prominent corner locations.”

[4] “Otherwise all similar premises in the entire Sham Shui Po area shall have redevelopment potential forthcoming within a reasonably foreseeable time scale.”