SINO ACCORD INVESTMENT LTD v. The Personal Representative of the Estate of SHUM KAR FUN (岑玠芬), Deceased AND OTHERS

LDCS 10000/2017

[2020] HKLdT 44

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LAND COMPULSORY SALE MAIN APPLICATION NO 10000 OF 2017

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J U D G M E N T

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Introduction

1.  This is an application for a compulsory sale order under the Land (Compulsory Sale for Redevelopment) Ordinance, Cap 545 (“the Ordinance”) (hereinafter referred to as “the Application”) to sell all the undivided shares of the following 4 contiguous lots with the buildings thereon:

Lot	Address	Date of Occupation Permit for the Buildings
Subsection 8 of Section A of Hung Hom Marine Lot 1 (“Lot 1”)	83-85 Baker Street and 26-28 Whampoa Street, Kowloon (“Building 1”)	23 February 1957
Remaining Portion of Subsection 6 of Section A of Hung Hom Marine Lot 1 (“Lot 2”)	30, 30A, 32 & 32A Whampoa Street, Kowloon (“Building 2”)	13 March 1957
Section B of Subsection 6 of Section A of Hung Hom Marine Lot 1 (“Lot 3”)	34, 34A, 36 & 36A Whampoa Street, Kowloon (“Building 3”)
Section A of Subsection 6 of Section A of Hung Hom Marine Lot 1 (“Lot 4”)	38, 38A, 40 & 40A Whampoa Street, Kowloon (“Building 4”)

The 4 lots shall be collectively referred to as “the Lots” when they are referred to as a whole and the 4 buildings erected thereon will be collectively referred to as “the Buildings” when they are referred to as a whole. The occupation permits of the Buildings, each with 8 storeys, granted permission for domestic purpose on the upper floors and for non-domestic purpose on ground floor (“G/F”).

2.  There were 11 respondents originally at the time of commencement of the Application on 7 September 2017. The applicant then owned the following equal and undivided shares of the Lots:

Lot	Number of Undivided Shares	Percentage Share
1	22/25	88.000%
2	28/32	87.500%
3	29/32	90.625%
4	29.5/32	92.1875%

3.  However, at the date of the applicant’s opening submission on 9 September 2020, the applicant had acquired more units (their undivided shares in the Lots) formerly owned by 6 respondents, ie R2, R4, R6, R7, R8 and R11, rendering the percentages to become 92.00%, 90.625%, 100% and 95.3125% respectively. The applicant has already withdrawn or discontinued the proceedings against them.

4.  The 6 live respondents remaining on record are as follows:

Respondents	Unit Owned	Undivided Shares
R1	G/F, 83 Baker Street	1/25 of Lot 1
R3	4/F, 28 Whampoa Street	1/25 of Lot 1
R5	1/F, 32 Whampoa Street	1/32 of Lot 2
R9	½ of 7/F, 38A Whampoa Street	½ of 1/32 of Lot 4
R12	5/F, 30 Whampoa Street	1/32 of Lot 2

R1, R3, R9 and R12 are Missing Owners

5.  By reference to the witness statement filed by Ms Lui Wing Yan, the Assistant General Manager of the holding company of the applicant dated 20 January 2020, R1, who used to own G/F, 83 Baker Street, passed away on 21 April 1998. No grant of probate/administrations of the estate of the deceased has been granted. Pursuant to the Order of Deputy District Judge M Soong on 27 August 2019, service of the Notice of Application on R1 was dispensed with, the applicant was directed “to cause notices of these proceedings to be published once in English in “The Standard” and once in Chinese in “Sing Tao Daily”, calling upon all persons claiming to be minority owners of the lots concerned in these proceedings and who have not been served with a copy of the Form 32 (or Amended Form 32 or Re-Amended Form 32) herein to establish their claims before the Lands Tribunal within 21 days from the publication of the notices” and after the expiration of 21 days from the publication of the said advertisement, all persons claiming to be minority owners of the lots concerned in these proceedings shall be bound by the proceedings as if they had been served in accordance with section 3(3)(a) of the Ordinance. Advertisements were placed in the specified newspaper pursuant to the said order.

6.  R3 were appointed on 20 August 1981 as the administrators of the estate of the registered owner of 4/F, 28 Whampoa Street who passed away on 17 August 1976. Service of the Notice of Application was effected by advertisement pursuant to the Order of His Honour Judge S Lo on 6 September 2018.

7.  R9 is and was at all material times the registered owner of half share of 7/F, 38A Whampoa Street. Service of the Notice of Application was effected by advertisement pursuant to the Order of Her Honour Judge Kot on 9 August 2018.

8.  R12, ie Chu Hugh Tung, the registered owner of 5/F, 30 Whampoa Street and 5/F, 30A Whampoa Street since 18 September 1957, was however subsequently joined. Indeed, on 16 January 2013, one Chu Jak Kuen obtained a declaration of his possessory title to the aforesaid 2 properties in the proceedings of HCA 1062/2011. By 2 assignments both dated 15 March 2013, Chu Jak Kuen assigned his possessory title to the aforesaid 2 properties to the applicant. 

9.  When the applicant commenced the Application in 2017, the applicant mistakenly believed that, by virtue of the above-mentioned assignments, it had acquired the undivided shares attached to the aforesaid 2 properties. Subsequently, the applicant understood that R12 was (and still is) the owner of the paper title to the undivided shares attached to the aforesaid 2 properties. Since R12 is a “minority owner” within the meaning of the expression under section 2 of the Ordinance, R12 was joined as a respondent in the present proceedings pursuant to the Order made by Deputy District Judge Michelle Soong dated 18 June 2019.

R5 is a Paper Title Owner

10.  Insofar as R5 is concerned, Sidney Ming Fai Chow Tan (“Sidney”) is the grandson of the registered owner of 1/F, 32 Whampoa Street who passed away intestate on 19 January 1978 in Vancouver, Canada. Sidney was appointed to represent the estate pursuant to an order made by the Tribunal on 18 June 2019. In fact, by an order in DCMP 22/2012 on 28 February 2013, the possessory title of the owner had been extinguished under section 17 of the Limitation Ordinance. On 15 July 2013, the successful plaintiff in that action assigned her possessory title to Joymax Investment Limited who, on 30 June 2017, in turn assigned the possessory title to the applicant. Sidney, in response to a letter sent by email by Messrs Lo & Lo, Solicitors & Notaries Public on 1 September 2020, acting on behalf of the applicant, stated in his email dated 9 September 2020 that “obtaining a grant of probate is out of the question for me at this time and for the foreseeable future”. Ms Nancy Ngai (Ms Ngai), counsel for the applicant, had produced a copy of the corresponding emails to the Tribunal at the beginning of the trial.

R10’s Interest Settled

11.  R10 was the only respondent who filed a Notice of Opposition. At the beginning of the trial, Ms Ngai informed the Tribunal that R10 had come to a settlement with the applicant whereby assignment of his interest in G/F, 40A Whampoa Street was due for completion on 15 October 2020. R10, who had been legally represented, had excused from attendance of the trial proceedings against him were discontinued on 16 October 2020.

Whether the Applicant is entitled to make the Application

12.  Section 3(1) of the Ordinance requires an applicant to have not less than 90% of the undivided shares in a lot before he can make an application.

13.  Section 3(5) of the Ordinance provides that the Chief Executive in Council may, by notice in the Gazette, specify a percentage lower than the percentage mentioned in section 3(1) in respect of a lot belonging to a class of lots specified in the notice.

14.  The Land (Compulsory Sale for Redevelopment (Specification of Lower Percentage) Notice was gazetted on 22 January 2010 and came into operation on 1 April 2010 (“the Notice”).  Section 3 of the Notice lowered the threshold for compulsory sale in respect of the classes of lots specified in the Notice from 90% to 80%.  Those classes of lots include “a lot with each of the building erected on the lot issued with an occupation permit at least 50 years before the relevant date (ie the date of the application under the Ordinance)”. 

15.  As the occupation permits for the Buildings were issued February and March 1957, ie not less than 50 years before the date of the Application, the Notice is applicable and the threshold percentage should be 80%.

16.  The applicant, then owning more than 80% of the undivided shares of the Lots, was entitled to file the Application under section 3(1) and 3(2)(a) of the Ordinance.

EUV as at 21 July 2017

17.  The applicant has relied on the following reports prepared by Mr Wong Chi Wai (“Mr Wong”):

(1)     Valuation Report dated 31 August 2017; and

(2)     Supplemental Report dated 29 January 2020

both assessing the market value of each property on the Lots (or existing use values (“EUV”) as coined by the valuation profession just for the purpose of distinguishing from the market value derivable from taking into account the redevelopment potential of the Lots) as at 21 July 2017 pursuant to Part 1 of Schedule 1 to the Ordinance.

18.  For the ground floor shops, Mr Wong adopted the shop on G/F, 32 Whampoa Street as the “Reference Ground Floor Shop” in assessing the EUV of the ground floor shops of the Building.

19.  While Mr Wong set the valuation date as 21 July 2017, he had adopted 8 ground floor shop comparables found in the same locality with similar characteristics which were transacted between November 2016 and March 2018.

20.  Having made adjustments for factors such as location, layout, size, frontage, headroom, time and building age etc, Mr Wong arrived at $440,000 per sq m for the Reference Ground Floor Shop.

21.  For the upper floor domestic units, Mr Wong adopted the unit on 4/F, 38 Whampoa Street as “Reference Upper Floor Domestic Unit” is assessing the EUV of the domestic units of the Buildings.

22.  Again, Mr Wong adopted 10 aged domestic comparables found in the same locality with similar characteristics which were transacted between November 2016 and January 2018.

23.  Having made adjustments for factors such as location, floor, time, building age, view, size and lighting & ventilation etc, Mr Wong arrived at $78,000 per sq m for the Reference Upper Floor Domestic Unit.

24.  Mr Wong’s assessments for the respective units of the Buildings are copied from his Supplemental Report dated 29 January 2020 at Appendix 1 of this judgment[1]. The total EUV of the Buildings is $683,727,000 as at 21 July 2017. The corresponding EUV of the live respondents’ unit are shown as follows:

Respondent	Unit	EUV as at 21 July 2017
R1	G/F, 83 Baker Street	$23,620,000
R3	4/F, 28 Whampoa Street	$5,336,000
R5	1/F, 32 Whampoa Street	$4,571,000
R9	½ of 7/F, 38A Whampoa Street	½ of $2,840,000
R12	5/F, 30 Whampoa Street	$4,015,000

25.  Pursuant to section 4(1)(a)(ii) of the Ordinance, I have perused Mr Wong’s assessments. I am satisfied that the values of the minority owners’ properties as assessed in the Application are—

(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.

Whether Redevelopment of the Lots is Justified

26.  Section 4(2) of the Ordinance provides that the Tribunal shall not make an order for sale unless it is satisfied that the "age or state of repair" of the Buildings is justified and that the applicant has taken "reasonable steps" to acquire all undivided shares of the Lot.

27.  The applicant adduced the expert evidence of two experts namely, Mr Benson Wong who is an Authorised Person and a registered building surveyor, and Mr Wong Chi Ming who is an Authorised Person and a registered structural engineer. Their expertise was not disputed and their evidence is not contested.

28.  By an Order from His Honour Judge M Wong dated 1 April 2020, the attendance of Mr Benson Wong and Mr Wong Chi Ming at trial was dispensed with.

Section 4(2)(b) – Whether Applicant has taken reasonable steps

29.  The applicant is under an obligation to take reasonable steps to negotiate on terms that are fair and reasonable for the purchase of the interests of the respondents under Section 4(2)(b) of the Ordinance.

30.  Ms Ngai submitted that since the commencement of the Application, the applicant has continued to negotiate with the available respondents and successfully acquired the undivided shares formerly owned by 6 of the 12 respondents. The applicant has also obtained settlement in acquiring the interest of R10 prior to trial and the assignment of the latter’s undivided share is due to take place on 15 October 2020.

31.  The applicant cannot acquire the undivided shares from R1, R3, R9 and R12 only because they cannot be found at all.

32.  Insofar as R5 is concerned, after the appointment of Sidney to represent the estate of Norman Tan alias Chow Gim Tan for the purpose of the present proceedings, the applicant wrote to Sidney on 6 January 2020 offering to purchase R5’s paper title to 1/F, 32 Whampoa Street. Unfortunately, the parties failed to proceed with the intended assignment because Sidney decided not to apply for the grant of probate in respect of the estate of the late Norman Tan alias Chow Gim Tan.

33.  By a letter dated 1 September 2020 from Messrs Lo & Lo as afore-stated at §10 above, the applicant made a repeated offer to purchase R5’s paper title based on the same terms made on 6 January 2020 on the condition that Sidney should succeed in obtaining a grant of probate in respect of the estate of the late Norman Tan alias Chow Gim Tan. As stated in §10 above, Sidney replied in his email dated 9 September 2020 that “obtaining a grant of probate is out of the question for me at this time and for the foreseeable future”.

34.  On the evidence available, I am satisfied that the applicant has taken reasonable steps to acquire all the undivided shares in the Lot.

The RDV of the Lot

Optimum Hypothetical Development Model

35.  Mr Wong had prepared a Supplemental Report dated 27 August 2020 in assessing the redevelopment value (“RDV”) of the Lots.

36.  Mr Wong found no reliable site comparables for direct comparison. He resorted to the residual valuation method in determining the RDV.  This can be done by deducting development cost (including construction costs, professional fees, finance costs etc) and developer’s profit from the estimated gross development value (“GDV”) of the completed optimum development.

37.  The Lots comprise a “Class B” site pursuant to the Building (Planning) Regulations and Mr Wong assumed a hypothetical redevelopment as a 24-storey commercial/residential composite building with retail shops on ground floor and first floor, recreational facilities on second floor and landscape garden on third floor. Residential units will be on the remaining upper floors. Mr Wong summarized the particulars of the hypothetical development as follows:[2]

Site Area	:	1,224 sq m (or thereabout)
G/F	:	Retail area, domestic entrance lobby, access leading to 1/F, pump room, refuse storage, fire services control & facilities access etc.
1/F	:	Retail shops
2/F	:	Recreational facilities & plant room
3/F	:	Landscape garden
4/F & flat roof	:	Residential flats
5/F-22/F	:	Residential flats
23/F & Roof	:	Residential flats
Average Flat Size	:	33.69 sq m (saleable area)
Total GFA	:	11,016 sq m

38.  In arriving at the GDV of the hypothetical development, Mr Wong gathered the relevant sales comparables in the vicinity and made various adjustments to reflect the different characteristics between the comparables and the hypothetical development.

39.  I have scrutinized Mr Wong’s residual valuation and accepted it in full save that I consider his assumption of 17.5% developer’s profit excessive. Mr Wong explained that the 17.5% was chosen owing to the prevailing coronavirus outbreak and the US-China tensions that had caused uncertainties in the future economic outlook. However, the figures on infliction have dropped significantly since 27 August 2020 and the sentiment of the property market has improved. I consider a developer’s profit of 15% more appropriate.

Finding on RDV and the Reserve Price

40.  Subject to the change of developer’s profit, I shall follow Mr Wong’s residual valuation model as contained at Enclosure 13 of his Supplemental Report dated 27 August 2020[3] which is reproduced at Appendix 2 of this judgment. I determine the land value of the Lots at $1,306,500,000 (ie accommodation value of $118,600/m²).

41.  I adopt the estimated RDV of $1,306,500,000 as the Reserve Price for the auction of the Lots.

Other Incidental Matters

42.  The applicant proposed to appoint Ms Chow Suk Han Anna (周淑嫻) and Mr Chow Wing Kin Anthony (周永健), being consultants of Messrs Guantao & Chow, Solicitors & Notaries, as the sale trustees.  Based on the information on their background and experience as set out in their letter dated 26 August 2020, I am satisfied that they are proper persons to be appointed as trustees to discharge the duties imposed on trustees under the Ordinance.  The remuneration package proposed in the said letter appears reasonable.

43.  The applicant has prepared a set of draft Particulars and Conditions of Sale of the Lot[4].  Subject to any amendment that may become necessary as a result of my ruling on the arrangement of auction above, the particulars and conditions of sale of the Lot by public auction submitted by the applicant are also reasonable.

Order

44.  This Tribunal make the following orders:

(1)     This Tribunal is satisfied that the redevelopment of the Lots is justified due to the “age” and “state of repair” of the Buildings and that the applicant has taken reasonable steps to acquire all the undivided shares in the Lots;

(2)     All the undivided shares in the Lots, the subject of the Application herein, be sold by way of a public auction for the purposes of the redevelopment of the Lots under s.4(1)(b) of the Land (Compulsory Sale for Redevelopment) Ordinance (“the Ordinance”);

(3)     Ms Chow Suk Han Anna (周淑嫻) and Mr Chow Wing Kin Anthony (周永健) of Messrs Guantao & Chow, Solicitors & Notaries, nominated by the applicant, be appointed trustees (“the Trustees”) to discharge the duties imposed on trustees under the Ordinance in relation to sale of the Lots and the Trustees be authorized to charge such remuneration for their services in accordance with the terms set out in the letter of Messrs Guantao & Chow, Solicitors & Notaries dated 26 August 2020.

(4)     For the purpose of the sale of the Lot by public auction under section 5(1)(a) of the Ordinance:

(i)     The sale of the Lots be on the particulars and conditions of sale substantially the same as those in the draft Particulars and Conditions of Sale to be initialed and approved by the Tribunal.

(ii)     The reserve price be set at $1,306,500,000.

(iii)    Subject to further extensions 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 and the Buildings shall be completed and made fit for occupation within a period of 6 years after the date on which the purchaser of the Lots shall become the owner of the Lots.

(iv)    The applicant do publish notices once in a Chinese language newspaper (and in Chinese language) and once in an English newspaper (and in English language) circulating generally in Hong Kong within 7 days from the date of the sealed judgment to be made herein by the Tribunal informing R1, R3, R9, R12 and all persons claiming to be owners of the Lots:

(a)    that the Tribunal has made an Order for sale of the Lots;

(b)    that the Lots be sold by public auction; and

(c)    where and the times during which a copy of the Order for sale to be made herein be obtained.

(v)     Liberty to the applicant, the 1^st, 3^rd, 5^th, 9^th and 12^th respondents and the Trustees to apply to the Tribunal for further direction(s) under the Ordinance.

Costs

45.  Since R1, R3, R9 and R12 are missing and R5 is not represented, I make no order as to costs.

Appendix 1