PACIFIC BASE HOLDINGS LTD AND OTHERS v. LEE HOP BIU AND OTHERS

CACV 426/2020

[2021] HKCA 780

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 426 OF 2020

(ON APPEAL FROM LDCS 14000/2017)

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JUDGMENT

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Hon Lam VP (giving the Judgment of the Court):

1.  This appeal raised an interesting question concerning the application of the Land (Compulsory Sale for Redevelopment) Ordinance Cap 545 (“LCSRO”) in respect of an old building or buildings (depending on how one defines “building”) which was/were constructed over two different lots but connected by two common staircases. The relevant site is at No 73 Granville Road (which is KIL 9549) in respect of which an application was made under the LCSRO. The building (or part of a building) erected on it is connected to the building (or part of a building) erected on No 75 Granville Road (KIL 10162) by two common staircases serving both sides.

2.  Actually, the application under the LCSRO was made in respect of several lots covering Nos 65, 67, 69, 71 and 73 Granville Road. However, no application was made in respect of No 75 due to the lack of an adequate percentage of shares of the majority owners supporting such an application for this lot.

3.  After a trial before the Lands Tribunal, the Tribunal granted the order for compulsory sale on 4 June 2020.  In this appeal, the 4^th Respondent (who owned one unit in No 73 and one unit in No 75) appealed against that order.  Leave to appeal was granted by this Court in CAMP 108/2020 to the 4^th Respondent in her capacity as owner of one unit in No 73.  Leave was refused in CAMP 58/2020 for her to bring an appeal in the capacity as owner of the unit in No 75.  This appeal therefore is brought on account of her interest as owner of one unit in No 73 only.

4.  For present purposes, the relevant background information can be taken from [7(v)], [12] and [13] of the judgment of the Tribunal:

“ 7. …

(v) No 73 Granville Road is a 5-storey commercial/residential composite building, with two common staircases shared with No 75 Granville Road.

…

12.   Nos 73-75 Granville Road have occupation permit issued on 24 March 1955 but the latter is not a subject lot in the Application.

13.  … No 73 Granville Road is governed by its own Deed of Mutual Covenant with each unit being allotted 1/5 undivided shares owned as follows:

Floor	No 73 Granville Road
G/F	14th applicant (“A14”)
1/F	8th applicant (“A8”)
2/F	15th applicant (“A15”)
3/F	4th respondent (“R4”)
4/F	8th applicant (“A8”)

Accordingly, A8, A14 and A15 owned not less than 80% of the undivided shares in KIL 9549 (ie No 73 Granville Road).”

Issues in the appeal

5.  The relevant construction issues as argued below which we have to consider in this appeal were summarized by the Tribunal at [15]:

“ … bearing in mind that Nos 73-75 Granville Road comprise a single building structurally sharing two common staircases, thus necessitating the dissecting the existing building...

i) whether on a proper construction of the Ordinance, the Application was brought properly within Section 3(1) and 3(2) of the Ordinance to allow for the inclusion of No 73 Granville Road (KIL 9549) in the Application when No 75 Granville Road (KIL No 10162) is not a subject lot of the Application;

ii) whether on a proper construction of the Ordinance, the Tribunal has power under Section 4 of the Ordinance to grant an order of compulsory sale of No 73 Granville Road (KIL 9549);

iii)    whether the inclusion of No 73 Granville Road (KIL 9549) in the Application fails to meet the statutory requirement in Section 3(1)(b) of the Ordinance in that approval from the Building Authority would unlikely be granted for demolishing only the existing structure on No 73 Granville Road (ie KIL 9549) when no or no adequate remedial measures have been included in the Application to address the structural stability and safety of the existing structure on No 75 Granville Road (KIL 10162) …”

6.  In addition, if this Court shall come to the conclusion that on proper construction of the Ordinance the Tribunal should consider feasibility of redevelopment of No 73 without redevelopment of No 75, there is an issue in this appeal on whether the Tribunal had discharged its duty to give reasons for its conclusion at [52] of the judgment that it is feasible with suitable strengthening and stabilization works as opined by the applicants’ structural engineering expert.

7.  By the time of the hearing of the appeal, the stances of the parties were as follows:

(a)  Mr Ho SC (with Ms Chow) for the 4^th Respondent submitted that the Tribunal was wrong in making the order for compulsory sale;

(b)  Mr Mok (with Mr Lee) for the Applicants resisted the appeal and submitted that the order was correct;

(c)  Mr Li SC (with Mr But) for the 1^st Respondent resisted the appeal and submitted that the order was correct; and

(d)  Mr Chan for the 2^nd and 3^rd Respondents took a neutral stance in the appeal and advanced arguments on costs only.

8.  The 1^st to 3^rd Respondents had no interest in No 73 and they were necessary parties to the appeal because the Tribunal made one order covering all the lots in the application and the 4^th Respondent sought to have that order set aside.  The 1^st and 2^nd Respondents owned units in No 65 and the 3^rd Respondent owned a unit in No 69.  The 4^th Respondent has no interest in those lots and she did not object to the compulsory sale regarding Lots 65, 67, 69 and 71.  There had been suggestions for a separate order to be made for Lot 73 so that the appeal would not touch upon the compulsory sale orders regarding Nos 65, 67, 69 and 71.  However, the suggestions did not materialize into actual separate orders for different lots.  Hence the continued involvement of the 1^st to 3^rd Respondents in the appeal.

The submission of the 4^th Respondent

9.  On the construction issues, Mr Ho’s primary position was that the LCSRO does not permit the redevelopment of part of a building.  Counsel submitted that since it is common ground that Nos 73 and 75 were designed and constructed as one single building with a single frame structure, the whole structure should be regarded as one building notwithstanding that it straddled two lots.  As there is no provision in the LCSRO which authorizes the redevelopment of one part of a building without redeveloping the other part, the Tribunal has no power to make an order in respect of No 73 without including No 75 in it.

10.  Counsel put his submissions on two bases:

(a)  Under the LCSRO, redevelopment is the justification for the making of a compulsory sale order.  The definition of redevelopment refers to the replacement of a building, not part of a building; or

(b)   Alternatively, Section 3(2)(b) is the only possible route for compulsory sale in respect of buildings on different lots connected by a common staircase.  Under that sub-section, application has to be made in respect of all the lots on which such buildings stand. 

11.  In a nutshell, Mr Ho said that the legislature did not envisage the redevelopment of half a building.

12.  To make good his submissions, Mr Ho placed emphasis on the definition of “redevelopment” under LCSRO and the object and purpose of the ordinance.  Counsel urged this Court to construe Sections 3 and 4 of the LCSRO with a focus on the existing building instead of the lot(s).

The Tribunal’s judgment

13.  The contentions of Mr Ho were rejected by the Tribunal at [37] to [40] of the judgment:

“ 37. With respect, we find that, on proper construction, the provisions in Section 3(1) and 3(2) of the Ordinance allow for the inclusion of No 73 Granville Road (KIL 9549) in the Application even when No 75 Granville Road (KIL No 10162) is not a subject lot of the Application. Section 3(1) enables an application to be made if the applicant holds ‘not less than 90% (or 80% under the Notice) of the undivided shares in a lot.’ The focus is on the undivided share regime of the lot and not the structure erected thereon. Section 3(2)(a) requires the same in the event the applicant owns not less than the required percentage ‘of the undivided share in each lot’. Again the focus is on the undivided share regime of the lot and not the structure thereon.

38. As mentioned above, A8, A14 and A15 owned not less than 80% of the undivided shares in KIL 9549 (ie No 73 Granville Road). It is beyond dispute that the ‘ownership requirement’ over this lot under Section 3(1) has been satisfied. The applicants are not required to satisfy both Section 3(1) and/or Section 3(2)(a) on the one hand and Section 3(2)(b) on the other. The word ‘or’ is used to separate Section 3(2)(a) and Section 3(2)(b). There is nothing to compel the applicants to rely only on Section 3(2)(b) in respect of the Application concerning KIL 9549 (ie No 73 Granville Road). The applicants are entitled to choose Section 3(1) and/or Section 3(2)(a) but not Section 3(2)(b). Since Section 3(2)(b) is not invoked, R4’s reliance on the notions of ‘connected buildings’ or ‘common staircase’ under Section 3(2)(b) is misplaced.

39. Section 3(1)(b) describes the order to be applied for as ‘an order to sell all the undivided shares in the lot for the purposes of the redevelopment of the lot’. It constitutes only a description of the order which is to be applied for and does not impose any other requirement of what the Tribunal has to be satisfied before the order shall be made. Instead, as we shall see, Section 4(2) governs what the Tribunal has to be satisfied before an order is to be made which places no attention to other lot or the building thereon which is not a subject of the Application. What the Tribunal has to be satisfied on the redevelopment of the lot are confined to two items: (a) the ‘age’ and (b) ‘state of repair’ of the existing development on the lot, and nothing else. Such ‘state of repair’ requirement is confined to ‘the existing development on the lot’ (ie part of the structure or building on No 73 Granville Road) instead of the structural safety of its ‘neighboring lot(s)’ (ie remaining part of the structure or building on No 75 Granville Road). As said, the definition of ‘building’ in Section 2 of Cap 123 is wide enough to cover only part but not whole of the building.

40.   In any event, the Tribunal considers that there is no reason why, when a majority owner qualifies under Section 3(1) and/or Section 3(2)(a), Section 3(1) and Section 3(2) should be interpreted in such a way that the majority owner also has to satisfy Section 3(2)(b) by the mere fact that the existing structure standing on the lot shares a common staircase with its neighbouring lot and the two structures are one building from the structural perspective.”

This Court’s analysis

14.  In our judgment, the Tribunal was correct in reaching the above conclusion.

15.  Whilst “redevelopment” is indeed defined under Section 2(1) of the LCSRO as the replacement of a building on the lot, the definition of “building” refers back to the definition under the Buildings Ordinance Cap 123 which, as highlighted by the Tribunal at [33] of the judgment, “includes the whole, or any part, of any domestic or public building…”.  Hence, if there is only part of a building on a lot, redevelopment can mean the replacement of part of a building on the lot.

16.  Mr Ho submitted that the definition for building should be applied with modification as the context requires.  Counsel said in the context of LCSRO, “building” cannot include “part of a building”.   

17.  But we cannot discern any contextual reasons compelling the exclusion of a redevelopment of part of a building (assuming it is one building straddling over two different lots) from the scope of LCSRO if it is structurally possible to do so in light of modern engineering technology.  In the scheme of the LCSRO, the focus is on the lot as it refers to “redevelopment of the lot”:

(a)  The preamble set out the object and purpose of the ordinance: “to enable persons who own a specified majority of the undivided shares in a lot to make an application to the Tribunal for an order for the sale of all of the undivided shares in the lot for the purposes of the redevelopment of the lot …”; (emphasis added)

(b)  Lot is defined under Section 2(1) to refer to any piece or parcel of ground the subject of a Government lease and includes a section and subsection of a lot.  Hence it is by reference to the root of title of the land in question;

(c)  This ties in with the scheme for working out the requisite majority in the ownership of the land on the part of the applicants.  The underlying premise of this is common ownership;

(d)  Thus, the definitions of “majority owner” and “minority owner”, “mortgage” and “purchaser” are all related to “a lot”.  The same can be said regarding mortgagee in possession in Section 2(3) and purchaser and owner under Section 2(1);

(e)  “Redevelopment” refers to replacement of a building (which, as defined, includes part of a building) on “the lot”;

(f)  In Section 3, the application is to be made by those who own not less than 90% of the undivided shares in a lot.  The same formula is applicable in cases where the application is made in respect of 2 or more lots (under Section 3(2)(a)) though there is a special route for cases where “one building is connected to another building by a staircase intended for common use” (under Section 3(2)(b), in respect of which the 90% can be achieved by average across the relevant lots);

(g)  The application is to be registered under the Land Registration Ordinance Cap 128 against the lot (Section 3(3)(b)) and the specified notice(s) under Section 3(3)(c) has/have to be affixed on the lot(s);

(h)  The respondents to an application are the minority owners of the lot(s);

(i)  Subject to the special route under Section 3(2)(b), the calculation of percentage for majority and minority is by reference to ownership of shares in the lot, excluding shares relating solely to common parts, see Section 3(7)(a);

(j)  If the application succeeds, the Tribunal will make an order that all undivided shares in the lot(s) be sold for the purposes of the redevelopment of the lot(s), see Section 4(1)(b);

(k)  The matters that the Tribunal has to be satisfied of under Section 4(2) are that (a) the redevelopment of the lot is justified due to the age or state of repair of the existing development on the lot; and (b) reasonable steps have been taken to acquire all the undivided shares in the lot;

(l)  The sale and purchase under an order of the Tribunal is the sale and purchase of the lot(s), see Section 5;

(m)  The assignment by the trustee appointed under Section 4(1)(c) would be the assignment of interest in the lot(s), see Section 7(1)(i), (4) and (5)(b); and

(n)  The conditions to be incorporated under Schedule 3 were to be incorporated into the Government lease of the lot. 

18.  A lot-based scheme (as opposed to a building-based scheme) is the natural and logical mechanism for compulsory sale by reason of the system of landholding in Hong Kong.  When a building is constructed on a piece of land, the building is regarded as a fixture and becomes part of the land and its ownership is held by way of ownership in the land. There is no separate ownership of the building.  Co-ownership of landed interest is operated by the holding of undivided shares in a lot.  In Hong Kong, the relationship between co-owners is usually regulated by a deed of mutual covenant.  Thus, the sale of the interest in land is effected by the sale of the undivided shares in the lot.  This is the mechanism adopted under the LCSRO.      

19.  When one single structure is built upon two adjoining lots and there is no common ownership of the two lots, the analysis regarding ownership remains the same.  The owners of the undivided shares in one lot would not have any interest over the other lot (assuming that they do not own any undivided shares in that other lot).  Subject to any deed of mutual covenant executed by the owners of both lots and the common law rights stemming from easements (support and other kinds of easements) and the statutory rights in respect of party structures under Schedule 2 of the Buildings Ordinance, the owners of one lot do not have any proprietary rights over the adjoining lot. Under common law, provided the owners of one lot can put in place sufficient measures to safeguard the easements enjoyed by the owners of the adjoining lot, they need not secure the consent of those neighbouring owners for the redevelopment of the structure situated on their own lot.  No doubt the Building Authority would have to ensure the structural safety of the remaining building on the adjoining lot and the preservation of party structures before giving approval for demolition works for such redevelopment.  However, there is no rule of law which prescribes that redevelopment can only take place when it is done with the consent of the owners of all the adjoining lots on which one single building is currently standing.

20.  In short, in the absence of any mutual covenants providing otherwise, the owners of each lot can decide for themselves (as an incident of their ownership of the lot) whether they want to redevelop their lot and whether they want to do so in conjunction with the redevelopment of the neighbouring lot.  In the present case, No 73 and No 75 Granville Road are governed by two separate Deeds of Mutual Covenant[1] and there is no provision in such documents binding the owners of No 73 to redevelop the lot together with No 75.

21.  Since ownership is related to ownership of a lot as opposed to the ownership of “a building” without regard to the ownership of the lot, the mechanism for compulsory sale under the LCSRO likewise refers to the sale and redevelopment of a lot as opposed to a building.  Though it is possible to adopt a building-based approach, the legislation would have to change the common law position set out at [18] to [20] above and bind the owners of different lots to redevelop a building straddling over such lots together.

22.  With respect to Mr Ho, we are unable to agree that the provisions in the LCSRO he relied upon have the effect of revising the common law position discussed above.  As we have seen the definition for “building” is equivocal since it covers part of a building.  Moreover, in the context of buildings connected by common staircase, Section 3(2)(b) indicates that the legislature regarded the same as two buildings.  There is no contextual basis requiring a different construction being given to the word “building” to exclude the operation of LCSRO from the scenario of such buildings straddling over two different lots as in the case of Nos 73 and 75 Granville Road. 

The statutory scheme and different stages of a redevelopment

23.  Further, as submitted by Mr Mok and Mr Li, the process under the LCSRO represents the first stage of the whole redevelopment programme.  An order made by the Tribunal only facilitates the acquisition of ownership of the lots by the developer.  The redevelopment may not actually be undertaken by the majority owners who applied for the compulsory sale order. This is put beyond doubt by the phrase within the parenthesis in Section 4(2)(a) of the LCSRO[2]. 

24.  In the overall scheme of things, the feasibility of redevelopment has to be determined by the market.  The effect of a compulsory sale order does not necessarily result in a sale though it is expected to lead to such result.  Under Section 5(1)(a), the sale would be by public auction.  If the lot(s) are not sold within 3 months (or such extended periods of 3 months each as may be ordered), the order for compulsory sale shall cease to have effect, see Section 5(4).  If the market does not perceive redevelopment to be feasible, bearing in mind the conditions to be incorporated into the Government lease under Section 9[3], there would not be any sale in the auction and the compulsory sale order would cease to be of any effect.

25.  It is envisaged that the actual redevelopment is to be undertaken by the purchaser who successfully acquires all the lot(s) pursuant to the compulsory sale order.  After the acquisition stage, the redevelopment would enter into the next stage.  The purchaser developer would have to submit building plans to the Building Authority for approval under Section 14 of the Buildings Ordinance.  Such approval is required for demolition works[4].  Depending on whether the common staircase constitutes a party structure (on which we have not heard any submissions and thus express no view), there could be implications under Schedule 2 of the Buildings Ordinance for the redevelopment plan.  In respect of all these issues, the respective public authority or arbiter tasked with the function to decide on the same is the Building Authority (in respect of approval for building works) and a panel of architects appointed under Section 114 of Schedule 2 to the Buildings Ordinance (in respect of Schedule 2 disputes) with the right of appeal to a judge in chambers, not the Lands Tribunal.

26.  All these issues have to be dealt with at the building works approval stage by the purchaser, not at the earlier acquisition stage by the majority owners.  By bidding at the auction for the lot(s) in question, the purchaser assumes the risk pertaining to the timely resolution of these issues within the 6-year redevelopment period.

27.  Whilst the Tribunal is directed by Section 4(2)(a) of LCSRO to consider if the redevelopment is justified due to the age or state of repair of the existing development on the lot[5], there is no requirement that the Tribunal has to be satisfied that the building works issues can be resolved before it makes an order for compulsory sale.

28.  The Chinese version of Section 4(2)(a)(i) reads:

“ 除非審裁處…信納—

(a) 基於—

(i) 在該地段上的現有發展的齡期或其維修狀況；…

該地段理應重新發展(而不論多數份數擁有人是否擬或有能力承擔該項重新發展項目) ；

…

否則審裁處不得作出售賣令。”

29.  As a matter of Chinese language, the phrase “該地段理應重新發展” refers to redevelopment of the lot as an abstract notion instead of referring to a specific or a fully worked out concrete redevelopment project.  In essence, the Chinese version requires the Tribunal to consider if the lot is ripe for redevelopment by reason of the age and state of repair of the existing development on the lot.

30.  The English version can and should be read in a consistent manner as the LCSRO was enacted in 1999 in both Chinese and English.  Reading both versions together, the construction of Section 4(2)(a) in the way we did at [27] above is beyond doubt.

31.  This can be contrasted with the statutory provisions for ordering possession for rebuilding in landlord and tenant context under Section 53A of the Landlord and Tenant (Consolidation) Ordinance Cap 7.  A landlord seeking to terminate a tenancy on the ground of rebuilding has to produce specific plans of the new building and the Tribunal has to be satisfied that the specific rebuilding project is in the public interest with the necessary approval obtained.  The expression used in that section is rebuilding (重建).  In such context, Section 53A(2) requires the Tribunal to order the plans of the new building showing the number and size of any dwellings to be lodged with the Tribunal and the new building be erected within a specified time frame. 

32.  In light of the role played by the Tribunal in the acquisition stage when it exercises the power under the LCSRO and the role played by the majority owners (who, as the LCSRO emphasized in Section 4(2)(a) may not be the redeveloper), the reason for adopting a different approach in compulsory sale applications as compared with that under Section 53A(2) of the Landlord and Tenant (Consolidation) Ordinance is readily understandable.

33.  We have also carefully considered the argument that it is implicit in the reference to redevelopment being justified in Section 4(2)(a) that a redevelopment has to be feasible.  A compulsory sale order does interfere with the minority owners’ ownership of their properties.  In order to be proportionate (in light of articles 6 and 105 of the Basic Law, see Good Faith Properties Ltd v Cibean Development Co Ltd [2014] 5 HKLRD 534 at [11] to [18]), so the argument runs, the minority owners should not be compelled to sell their properties when redevelopment is not actually feasible.

34.  We confess to having been initially attracted to that proposition. However, in the end, we are persuaded by Mr Mok’s submission that in light of the overall scheme of things (including the different roles of the parties and the Tribunal at different stages of a redevelopment) the proper construction of Section 4(2)(a) does not carry any implied duty on the part of the Tribunal to consider the feasibility of redevelopment at the acquisition stage and there is no proper ground for disturbing the statutory balance struck by the legislature in such manner.

35.  Though we accept that the making of a compulsory sale order can interfere with the private ownership of the minority owners in respect of their proprietary interests in the lot, the order will not have the effect of disposing of their interests if there is no successful bid at the public auction.  As we have seen, if a sale is not achieved within 3 months (or such time as extended by the Tribunal), the order will lapse.  Thus, whether or not the minority owners’ interests are disposed of depends on the market perception as to the feasibility of redevelopment and the marketability of the lot at the reserve price.

36.  Since the Tribunal has to be satisfied that redevelopment of the lot is justified by reason of the age and state of repair of the development on it, and given the public interest in the facilitation of urban renewal and the interest of the majority owners in the realization of the redevelopment potential of their proprietary interests in the lot, it is plain to us that the scheme under the LCSRO serves legitimate aims.

37.  The issue is whether the scheme under LCSRO by which an order for compulsory sale can be made without investigation into the feasibility of redevelopment can satisfy the other limbs of the proportionality test as discussed in Hysan Development Co Ltd v Town Planning Board (2016) 19 HKCFAR 372, viz whether there is any rational connection between the statutory scheme and the legitimate aims; whether the measure adopted is no more than necessary to accomplish the legitimate aims; whether a fair balance has been struck between the general societal interest and the individual rights of the minority owners.

38.  Though Mr Ho did allude to the constitutionally guaranteed right to private ownership at paragraph 24 of his skeleton submissions, counsel did not advance a systemic challenge to the constitutionality of the LCSRO.  He argued the appeal primarily on the basis of the proper construction of the statutory regime as a whole having regard to its object and context.  The engagement of private property rights is only referred to as part of the context.

39.  We have partly addressed the issue of construction and we shall come back to it in the discussion on Section 3(2)(b)(ii) below.  However, at this juncture, in considering the matter from the angle of proportionality, we are prepared to say, notwithstanding the limited assistance we have in this appeal, that we agree with Mr Mok’s submission that there is no valid basis to upset the conclusion we reached on construction as stated in [27] above on account of constitutional considerations.

40.  Mr Mok quite rightly reminded us that it is a matter for the legislature to strike the balance between different interests amongst the majority owners, the minority owners and the public interest in urban renewal.  In essence, it is a policy judgment.  Whilst the court can entertain judicial review based on constitutional ground in respect of a balance embodied in a statute, given the high policy contents of such judgment in balancing and the competing interests, we firmly believe that the legislature should have a great margin of discretion in devising the scheme under the LCSRO.  Thus, in accordance with the considerations discussed by Ribeiro PJ in Hysan Development Co Ltd v Town Planning Board, supra, at [105] to [107] the standard of review should be that of “manifestly without reasonable foundation”.   

41.  As we said, the statutory scheme leaves it to the market to decide if redevelopment is feasible instead of requiring the Tribunal to reach a conclusion on this matter.  Bearing in mind that the applicant majority owners may not be the redeveloper, and that if the market does not perceive redevelopment to be feasible no sale would be achieved, we do not find the balance struck by the statutory scheme to be manifestly without reasonable foundation.  As it is most unlikely that a purchaser would take the enormous risk of acquiring the lot without taking account of the feasibility of redeveloping the same in light of the implied condition imposed by the Government lease, the legitimate aim of redevelopment is achieved without requiring the Tribunal to rule on the same. There is a rational connection between such aim and the mechanism under the LCSRO which is not manifestly without reasonable foundation in order to achieve the aim.

42.  Further, as Mr Mok submitted, it is difficult to define the scope of the inquiry into feasibility in the proceedings before the Tribunal.  There is no reason in principle to confine the concept of feasibility to structural engineering feasibility.  On the other hand, Section 4(2)(a) makes it clear that financial ability of the majority owners to undertake the redevelopment is not relevant.

43.  From a practical point of view, since there is no requirement on the majority owners to submit a detailed redevelopment plan at this stage, the proposed redevelopment could only be presented to the Tribunal on a conceptual level with a high degree of generality.  In such context, it would not be profitable to engage in a debate on engineering feasibility at this stage.

44.  Take the present case as an example, even assuming that the 4^th Respondent bears the burden of showing that the demolition of the building on No 73 is not feasible if No 75 is not redeveloped at the same time, the applicant’s expert could simply come up with some suggested solutions which had yet to be verified by further investigations and calculations.

45.  If one were to examine the question of feasibility on a theoretical level without regard to practicalities, it is quite possible for someone to devise a bizarre solution such as that put by the member of the Tribunal to the Applicant’s expert at p.51D to G of the transcript[6]. Little purpose would be served by any debate on feasibility on such abstract and theoretical level.

46.  On the other hand, if one were to examine feasibility on a practical and realistic level, the economics of redevelopment and financial viability would inevitably come into the equation.  The whole exercise would be blown out of proportion and an unduly onerous burden would be placed on the majority owner applicant.  There is also a risk of usurpation of the role of the Building Authority by the Tribunal without the requisite expertise.  We can find nothing to suggest that this was the legislative intent.

47.  Viewed thus, we can see the wisdom of leaving the question of feasibility to be determined by the market.

48.  Concerning the fair balance between competing interests, we agree with Mr Mok that as far as the interest of the minority owners are concerned, they are fairly compensated by a share in the sale proceeds which includes the potential redevelopment value of the lot.  Since the Tribunal has to be satisfied with the criteria in Section 4(2), the compulsion in a sale order is justified, see Good Faith Properties Ltd v Cibean Development Co Ltd, supra at [11] to [13].

49.  We therefore conclude that in an application for compulsory sale order in the Tribunal under the LCSRO, the Tribunal should not be concerned with the question of feasibility of the redevelopment.  Section 4(2) does not impose a duty on the part of an applicant to show that redevelopment is feasible and it is not the function of the Tribunal to examine such issue in the context of the application.

Is Section 3(2)(b) mandatory or permissive?

50.  Mr Ho submitted by way of alternative argument that by virtue of Section 3(2)(b) (which is a provision specifically addressing the scenario of an application covering 2 or more lots “on which one building is connected to another building by a staircase intended for common use by the occupiers of the buildings”), an applicant is obliged to proceed under that sub-section instead of making an application in respect of only one lot without making any application in respect of the adjoining lot.

51.  The difficulty with such contention is that Section 3(2)(b) is linked with Section 3(2)(a) by the word “or” and an application under either one of these subsections is regarded by the opening part of Section 3(2) as an application under Section 3(1) which “may” cover more than one lots.

52.  Construing the statutory provision in such context, it would appear that Section 3(2) is a permissible variant of an application under Section 3(1) making it clear that an application can cover more than one lots.

53.  Section 3(2) spells out how the minimum percentage of ownership should be applied in respect of an application covering more than one lot.  Section 3(2)(a) is the provision which applies generally to all such cases other than the situation provided for under Section 3(2)(b).  The general requirement is that 90% ownership has to be satisfied in respect of each lot individually.

54.  Section 3(2)(b) provides for an exception when the application is in respect of 2 or more lots on which one building is connected to another building by a common staircase.  In that particular type of situation, the 90% minimum can be satisfied by way of averaging between the ownership in the lot(s) on which one of the buildings stand and the ownership in the lot(s) on which the other building(s) stand.

55.  The opening part of Section 3(2) states that “an application under subsection (1) may cover” 2 or more lots.  It is therefore drafted in permissive language.  There is nothing in the whole of Section 3(2) prescribing that for a building (or two buildings connected by a common staircase) straddling over two separate lots, an application under the LCSRO must be made by the majority owners of both lots pursuant to either Section 3(2)(a) or 3(2)(b).

56.  Mr Ho tried to persuade us that this is a case where the word “may” should be read as mandatory.  Counsel took us to some of the legislative materials and submitted that there had been specific consideration given to the need for special treatment in respect of building(s) connected by common staircase straddling over two lots.

57.  Having read such materials, though the case of building(s) connected by common staircase straddling over two lots had been specifically addressed, we are unable to discern a legislative intent of imposing a mandatory requirement to make the application under Section 3(2)(b) in such scenario.  The most relevant part of these materials is the PLC Paper No CB(1)1212 at para 9,

“ … As the Bill does not prohibit the majority owners holding 90% of the undivided shares in each of the lots to make one application for a sale order in order to redevelop the lots together, the Bills Committee accepts that the minimum acquisition percentage should apply to a lot per se. However, to address the technical problems in respect of buildings connected to one another by a staircase which is intended for common use by their occupiers, the Administration takes on board members’ suggestion to provide in the Bill that the minimum acquisition level should be an average of 90% of the undivided shares in the lots on which these buildings respective stand.”[7]

58.  Our reading of this passage is that by enacting Section 3(2)(b), a less stringent minimum requirement (by averaging the percentage of the two lots) is provided for those who wish to make an application in respect of the two lots together on which two buildings are connected by a common staircase.  But it does not rule out the possibility of an application in respect of one of the lots only.

59.  Mr Ho referred to the speech of Mr Edward Ho at the second reading of the Bill on 7 April 1998.  Whilst the honourable member of the Provisional Legislative Council did express the view that redevelopment of old buildings which share one common staircase cannot be limited to a single lot, this was said in the context of facilitating applications to be made in respect of more than one lot.  We cannot infer from that discussion a clear legislative intent of imposing a mandatory requirement that applications must be made with respect to all the lots on which the buildings are connected by a common staircase.

60.  In particular, there was no discussion in the legislative materials of the common law position[8] which such mandatory requirement would override.

61.  Had the legislature intended Section 3(2)(b) to be a mandatory route so that the right of the majority owner of a lot to apply on their own without including the other lot in respect of such buildings is curtailed, clearer language would have to be used.

62.  On this issue, we do not find anything in the judgments in Bond Star Development Ltd v Capital Well Ltd [2004] 2 HKLRD 855 (CA) and (2005) 8 HKCFAR 578 (CFA) pointing against our above analysis.  The issue argued in that case was quite different and Mr Ho acknowledged the question of Section 3(2)(b) was not fully argued, see [2004] 2 HKLRD 855 at [35].

63.  We therefore reject Mr Ho’s alternative argument based on Section 3(2)(b).

Other grounds of appeal

64.  In light of our above conclusions on the construction of the relevant sections in the LCSRO and the role of the Tribunal at the acquisition stage, Mr Ho’s other grounds of appeal cannot assist the 4^th Respondent.  We shall only comment briefly on the same.

65.  It follows from our above analysis that the Tribunal was correct at [51] of its judgment declining to give directions concerning the safety of demolition works.

66.  As regards the finding by the Tribunal at [52], we can see the force of Mr Ho’s submissions that the Tribunal did not give adequate reasons in addressing the major disagreement between the experts and explaining the reasons for their finding that it is feasible to redevelop No 73 without No 75 when the Applicant’s expert testified more investigation works need to be done.  However, as the issue of feasibility is not an issue which the Tribunal should be addressed in the context of this application, our view on the finding at [52] cannot be of any avail to the 4^th Respondent.

Disposition

67.  For the above reasons, this appeal is dismissed with a costs order nisi that the 4^th Respondent shall pay the costs of the appeal of the Applicants, the 1^st Respondent, the 2^nd Respondent and the 3^rd Respondent, such costs are to be taxed if not agreed with certificate for 2 counsel.