LIU CHUN KUI AND OTHERS v. LIU WING FAT

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

-----------------

-----------------

-----------------

JUDGMENT

-----------------

1. This assessment of damages follows judgment for the plaintiffs for the vacant possession of property in the Sheung Shui area, which the defendant held over and continued to license for use as a commercial car park on the expiry of his tenancy. It was ordered that damages be assessed at the rate of double the yearly value of the property from the 1st February 1995 to the date of delivery of vacant possession. Vacant possession was in fact delivered on 1st May 1997.

2. Each party called a Chartered Surveyor to support their respective valuations. Each expert produced a valuation report and gave further oral evidence. Mr. Chung Mei Kong, the plaintiffs' expert witness, initially revised his valuation (Page 25 of the bundle) to reflect a decrease in the number of parking spaces, as he had overlooked in his report the Government resumption of part of the subject property. The reduced number of parking spaces (17) has now been accepted by the parties as correct for the purposes of this hearing.

3. Mr. Chung described the property as a typical open site car park with a rough surface, conveniently situated close to Sheung Shui's main shopping area and also near the station. It opened onto Lung Sum Avenue, which he descibed as one of the high streets of Sheung Shui. All these are apparently positive factors in the valuation.

4. In reaching his valuation, Mr. Chung has adopted four comparables which are referred to in his report as items 1 - 4 at pages 24 and 25 of the bundle. He obtained his figures for monthly rentals for each comparable from management and staff in each case, adjusted these for location and security, and finally deducted a discount for bulk of 15% to reach his valuation for the subject property. I gather that the bulk discount reflects the usual practice of licensing the entire car park to an operator, rather than leasing individual parking spaces. Mr. Chung produced as exhibit P.1 a map of the area marked with the names of the comparables, as well as the subject property and neighbouring points. He also produced a schedule of the calculations used in reaching his conclusions.

5. Mr. Chung agreed in cross-examination that he had not specifically made allowance for the licensee/operator's profit and overheads in reaching his estimate of rental value. He said that it was not necessary to do so in valuing a car park; it was sufficient to assess the market rent and apply a discount for quantity. The licensor of the property was not, on Mr. Chung's reasoning, concerned with the licensee's operating costs and these should not therefore bear on the valuation.

6. This area of the licensee's profit and operating costs and its relevance to the valuation reflected a major point of dispute between the parties. Ms. Sat Wei Ling, the defendant's expert, argued that the use of the property for car parking meant that the property should be valued as a business and not simply as premises. In such circumstances she found that the use of comparables was inappropriate, and said in evidence that she had adopted the "profit method" for valuation purposes, rather than the alternative of direct comparison with comparables. In doing this she had applied a reduction of $3,500 per month to her own valuation (Page 24 of the bundle), which she said in evidence, although not in her report, included an element of income from management fees of $1,800. In her evidence Ms. Sat agreed that the deduction of $3,500 represented her own opinion and admitted that she lacked supporting figures.

7. Mr. Chung accepted the two alternative methods of assessing rental value, but found the profit method suspect as necessarily reliant on subjective information supplied by an occupier. Profit figures could therefore be manipulated and were inherently unreliable as a basis for valuation. He always used the direct comparison method, and said that the allowance for profit and expenses was effectively built into the 15% bulk discount applied to his figures derived from the comparables. He had not however made any further allowance for operating expenses.

8. Without at this point addressing the acceptability of Mr. Chung's valuation figures in themselves, I find nothing wrong in principle in his valuation method. The use of comparables is widely accepted in valuation, and I cannot find it invalidated here merely because the tenant's licensee would use the property to run a business. There is after all no value without relating the premises to their potential use. I also note that Ms. Sat herself uses comparables in her report, three of which have been used by Mr. Chung. Moreover, at page 43 of her report, under "Comments", Ms. Sat refers to using the "direct comparison" approach and relying on three comparables to assess the monthly rent or licence fee in the subject property.

9. I therefore find that Mr. Chung's valuation method is acceptable in establishing the value of the subject property, and that the 15% bulk discount is an appropriate reflection of the margin allowable to the licensee for his profit and overheads.

10. In applying a retrospective value to the subject property we are essentially seeking the figure which a potential licensee would be willing to pay the defendant with a view to making a reasonable profit. By reference to the short judgment of Baron Parke in the old case of Robinson v. Learovd 7 M&W 48, at page 675, Mr. Lo for the plaintiffs has emphasised that "value" is not neceassarily the same as rental value. The distinction is however otiose in our present circumstances, as the only way to find the value of the property is to calculate, in Baron Parke's words -

"what an occupier would give, and the landlord would otherwise have received, for the use of the freehold and everything connected with it, during the time that the possession is withheld."

11. This is precisely the amount which the licensee would have paid the defendant for the right to let out car parking spaces at a reasonable profit.

12. In placing ourselves in the position of the licensee bargaining at arms length with profit in mind, it is inevitable that likely occupancy rates of the parking spaces would have been considered. In his calculations Mr. Chung has applied 100% occupancy and based this on both his personal observations and his professional opinion, bearing in mind the convenient location of the property in relation to the town centre and the KCR station. Mr. Chung disagreed that occupancy rates would have been adversely affected by the more attractive covered parking in the shopping complex of Landmark North opposite. The subject property offered monthly parking, which was, he said, unlikely to be affected by the hourly parking facilities offered at Landmark North.

13. Ms. Sat considered a 60% occupancy rate likely, and based her opinion on personal observation of an adjacent site as well as on the adverse impact of free kerbside parking in the cul de sac of San Lok Street, immediately behind the subject property. Personal observation is of course unreliable when applied to parking space rented for monthly parking. The individual renter is purchasing the facility for a month and lack of use on a particular occasion is not necessarily significant. To have evidential weight in our present circumstances, personal observation should be repeated on several occasions, be carried out at different times of the day, and be more than a fleeting visit on each occasion. Nothing in the evidence of either witness indicated that their observation had any of these qualities.

14. Photographs of the kerbside parking in San Lok Street appear in photocopy at page 57 of the bundle. They appear in original in Ms. Sat's original valuation report, which was also handed in. I accept from these photographs the liklihood that kerbside parking in San Lok Street was relatively heavy. Without more I cannot however accept that this would have adversely affected the demand for the monthly parking facilities offered at the subject site. The kerbside parking is likely to be more casual and short term, and its popularity could equally be argued to demonstrate the heavy demand for parking in an area immediately adjacent.

15. Weighing the evidence with the convenient location of the subject property, I find a probability that the licensee completing his deal with the defendant would have contemplated a relatively high occupancy rate. It would however be a brave businessman who would seal the bargain on the assumption of an occupancy rate of 100%, and I find Mr. Chung's assumption to that effect to be optimistic. Bearing all the factors in mind, I accept a likely occupancy rate of 80% in assessing the value received by the defendant holding over. The multiplier of parking spaces to be applied is therefore 17 x 80% = 13.6.

16. Turning to the valuation of individual spaces, I note that Ms. Sat has used three of the four comparables adopted by Mr. Chung. Mr. Chung's item 3 comparable (HKS - see page 25 of the bundle) had apparently ceased operating by the time of Ms. Sat's report. The range of the valuation covers 11 months of 1995, all of 1996, and 1997 up to and including April. Mr. Chung has therefore divided his valuation into three, covering each of the three years. Ms. Sat has made two valuations, at 1st February 1995, and 1st February 1997.

17. The only comparable available to either expert for the 1995 valuation was the one styled "unnamed carpark", - Mr. Chung's item 1. Of all the comparables used, this seems to be most similar to the subject property, save that the location of the subject property appears superior on convenience. Ms. Sat testified that this was the closest comparable, and her 1995 valuation of the subject property based on this was only slightly below that of Mr. Chung - $700 per space per month as against Mr. Chung's $750. This may anyway be explained by the apparent discrepancy in the 1995 figures given for the comparable, in that Mr. Chung was advised $800, and Ms. Sat $700. I do not find it necessary to resolve this discrepancy as I find that the superior location of the subject property to an otherwise similar comparable would warrant an upgrade even on Ms. Sat's figure of $700. For the February period I therefore accept Mr. Chung's valuation at $750 per space per month.

18. For his 1996 and 1997 valuations Mr. Chung used all three comparables and Ms. Sat used Mr. Chung's items 2 and 4 for her remaining valuation in February 1997. For 1996 Mr. Chung produced a valuation of $950 per space per month, whilst the median of Ms. Sat's 1995 and 1997 valuations of $700 and $1100 respectively would - produce a 1996 figure of $900. This discrepancy of $50 I resolve in favour of Mr. Chung's figure as he has awarded a 1996 valuation at the same level as the unnamed carpark. This is obviously a conservative result bearing in mind the superior location of the subejct property. For the year 1996 a valuation of $950 per space per month is therefore applied.

19. For the final period of the first four months of 1997, Mr. Chung reached a valuation of $1,400 per space per month, whilst Ms. Sat's figure was $1,100. I should note here that Ms. Sat's figures for her two valuations sought a monthly reduction by $3,500 per month for overheads. However, I have already disallowed this reduction in accepting Mr. Chung's calculation method, and Ms. Sat's gross valuation figures are therefore compared directly to those of Mr. Chung.

20. Mr. Chung's valuation for 1997 at the figure of $1,400 per space per month represents a massive increase on his figure of $950 for the previous year. Although the extent of this upgrade was not discussed in oral evidence, I assume that Mr. Chung is relying on an even larger percentage increase in the monthly fees for his item 4 comparable - West Coast International. However it is apparent from the evidence that, with the exception of location, the facilities and security at this carpark are considerably superior to those of the subject property.

21. Mr. Chung's item 2 comparable (Mack Carpark), which is also superior in important respects, imposed an increase for 1997 from $1,300 to $1,500 per month. The item 3 comparable (HKS) was no longer operating at the time of Ms. Sat's report, and according to Mr. Chung it had only been in business since 1996 and had not applied any increase. Its value as a comparable for our present purposes is therefore nil.

22. According to Mr. Chung's report, the unnamed carpark (his item 1 comparable) imposed an increase for 1997 from $950 to $1,300. I am satisfied that this is the closest comparable, and it is the one from which Mr. Chung appears to have derived most guidance in his earlier valuations. Ms. Sat also accepts that this comparable bears the closest similarity to the subject property, but notes that the 1997 increase for an uncovered parking space was only to $1,000. The increase to $1,300 per month was, according to Ms Sat's report, confined to those parking spaces which provide a nylon awning as cover from the elements.

23. There is no evidence that the operator of the subject property offered a car parking service with protective awnings as an optional extra. In the circumstances I accept that this service was not provided, and I accept Ms. Sat's evidence in her report that the increase in the unnamed carpark for uncovered parking spaces was to $1,000 per space per month. I do however find this to be an unusually low increase from $950 in 1996, particularly considering the large increases in the other two comparables. Balancing these various factors, and again giving weight to the advantageous location of the subject property, I place the correct valuation for 1997 at $1,200 per space per month.

24. The value of the property may therefore be summarised in the following figures, which will be multiplied by two to reflect the award of double value for the whole period:

25. The total value for the period as a whole is therefore $332,520. This figure is multiplied by two, giving the award at double value in the sum of $665,040. Interest will run on the award at the judgment rate from writ to payment, and costs are awarded to the plaintiffs with a certificate for counsel.