MAX WIN DEVELOPMENT (HK) LTD v. GAIN EXCEL LTD AND ANOTHER

LDCS 37000/2019

[2022] HKLdT 51

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LAND COMPULSORY SALE MAIN APPLICATION NO 37000 OF 2019

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JUDGMENT

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Background

1.  This is the applicant’s application for an order for sale, for the purpose of redevelopment under the Land (Compulsory Sale for Redevelopment) Ordinance, Cap 545 (“the Ordinance”), of all the undivided shares of 6 lots, namely: (1) The Remaining Portion of Section B of New Kowloon Inland Lot No 2811 (“the 1^st Lot”); (2) Sub-Section 1 of Section C of New Kowloon Inland Lot No 2811 (“the 2^nd Lot”); (3) The Remaining Portion of Section C of New Kowloon Inland Lot No 2811 (“the 3^rd Lot”); (4) The Remaining Portion of New Kowloon Inland Lot No 2811 (“the 4^th Lot”); (5) Section E of New Kowloon Inland Lot No 2811 (“the 5^th Lot”); and (6) Section D of New Kowloon Lot No 2811 (“the 6^th Lot”). The 1^st to the 6^th Lots are collectively referred to as “the Lots”.

2.  The 1^st and the 2^nd Lots together are known as No 300 Castle Peak Road, Kowloon. The 3^rd and the 4^th Lots together are known as No 302 Castle Peak Road, Kowloon. There is a building erected on the 1^st to the 4^th Lots (“the 1^st Building”). The 5^th Lot is known as No 304 Castle Peak Road, Kowloon and the 6^th Lot is known as No 306 Castle Peak Road, Kowloon. There is another building erected on the 5^th and 6^th Lots (“the 2^nd Building”). The 1^st Building and the 2^nd Building are collectively referred to as “the Buildings”.

3.  Each of the Buildings comprises a 5-storey tenement block (not counting the cockloft level), but the Buildings are not connected by a common staircase. The 1^st Building, however, has 2 staircases serving 2 parts of the 1^st Building, one part of which is on the 1^st and 2^nd Lots (ie No 300 Castle Peak Road) and the other part is on the 3^rd and 4^th Lots (ie No 302 Castle Peak Road).

4.  Domestic Permit No K446 was issued for the 1^st Building on 25 November 1954 and Domestic Permit No 591 was issued for the 2^nd Building on 19 December 1955, granting permission to occupy and use the respective buildings for domestic purposes.

5.  The part of the 1^st Building on the 1^st and the 2^nd Lots (ie No 300 Castle Peak Road) is wholly owned by the applicant without any sub-division. The other part of the 1^st Building on the 3^rd and the 4^th Lots (ie No 302 Castle Peak Road) is allocated with 6 undivided shares. Its ground floor (with cockloft) has 2 undivided shares and each of its 1^st floor, 2^nd floor, 3^rd floor, and 4^th floor (with roof) has 1 undivided share. The applicant owns 4 out of these 6 undivided shares. The 2^nd respondent (“R2”) owns 1 undivided share in respect of the 2^nd floor of No 302 Castle Peak Road; whereas the 3^rd respondent (“R3”) owns another undivided share in respect of the 3^rd floor of No 302 Castle Peak Road.

6.  The 5^th Lot together with part of the 2^nd Building erected thereon (ie No 304 Castle Peak Road) is wholly owned by the applicant without any sub-division. The 6^th Lot together with the other part of the 2^nd Building erected thereon (ie No 306 Castle Peak Road) is allocated with 5 undivided shares. Each of its ground floor (with cockloft), 1^st floor, 2^nd floor, 3^rd floor, and 4^th floor has 1 undivided share. At the commencement of the present application, the applicant owned 4 out of these 5 undivided shares; whereas the 1^st respondents (“R1”) owned 1 undivided share in respect of the ground floor (with cockloft) of No 306 Castle Peak Road.

7.  After the present application had commenced, the applicant acquired R1’s undivided share on 3 July 2020 and became the sole owner of the 5^th and the 6^th Lots together with the 2^nd Building erected thereon. The case against R1 was then discontinued. Thus, only R2 and R3 are involved in these proceedings.

8.  At the pre-trial review hearing and commencement of the trial, Mr Bosco Cheng (“Mr Cheng”) was the counsel for R3, and the case was heard by the Member of this Tribunal sitting alone. Other than the legal issues that will be discussed below, Mr Cheng on behalf of R3 primarily disputed the redevelopment value (“RDV”) of the Lots and put the applicant to strict proof in respect of the other statutory requirements under the Ordinance.

9.  The applicant, represented by Mr Benjamin Chain (“Mr Chain”), adduced the opinion of its valuation expert, Mr Alnwick Chan (“Mr Chan”) of Knight Frank Petty Limited. However, before the trial, the applicant accepted the respective existing use value (“EUV”) of all the units in the Buildings as assessed by R2 and R3’s valuation expert, Ms Sat Wei Ling (“Ms Sat”) of Memfus Wong Surveyors Limited.

10.  In respect of RDV, both sides assessed the value on the basis that the Lots were to be redeveloped together as a single site. There is no evidence on the RDV if the Buildings were separately redeveloped, ie the 1^st to the 4^th Lots were to be redeveloped as a single site; and the 5^th and the 6^th Lots were to be redeveloped as another site. Mr Chain suggests that if the 1^st to the 4^th Lots were ordered to be redeveloped as a single site without the 5^th and the 6^th Lots, then the RDV for the 1^st to the 4^th Lots can be taken as half of the RDV for the Lots.

11.  Since Mr Cheng was not free to follow up with the legal issues in this case after filing his written closing submissions dated 27 August 2021, R3 has since then been represented by Mr Ambrose Ho SC (“Mr Ho”) leading Ms Joyce Leung. R3 re-amended the Notice of Opposition on 23 September 2021 pursuant to the Order of this Tribunal made on 15 September 2021 to reflect the legal issues raised by R3, which were subsequently heard by both the Presiding Officer and the Member of this tribunal.

12.  The legal issues raised by Mr Ho on behalf of R3 are as follows:-

(1)  Issue 1: Whether the application and the reliefs sought herein are properly constituted and/or permissible under section 3(1) and/or section 3(2) of the Ordinance in light of

(a)  (i) the application and the reliefs sought herein encompass not just a single lot or individual lot (as section 3(1) of the Ordinance permits application in respect of a single lot only unless the requirements in section 3(2) are satisfied); and/or

  (ii) the minimum percentage requirement is not satisfied in respect of each of the Lots (ie the requirement under section 3(2)(a) of the Ordinance is not satisfied), and/or

(b)  the 1st Building erected on the 1st to the 4th Lots is not connected to the 2nd Building erected on the 5th and the 6th Lots by a staircase intended for common use by the occupiers of the Buildings (ie the requirement under section 3(2)(b) of the Ordinance is not satisfied);

(2)  Issue 2: Since the applicant has acquired all the undivided shares of the 5^th and the 6^th Lots, whether or not the applicant is entitled to an order for sale of all the undivided shares of the Lots under the Ordinance; and

(3)  Issue 3: Alternative to 2) above, if the applicant is entitled to an order for sale under the Ordinance, whether the applicant is entitled to an order for sale of all the undivided shares of the Lots or of the 1^st to the 4^th Lots only.

13.  R2 is not legally represented. Although R2 has filed the Notice of Opposition on 6 January 2020 and has also appointed Ms Sat together with R3, R2 has not filed any other evidence and has not made any substantive submissions. While R2 did not participate in the subsequent hearings of the legal issues raised by R3, R2’s case is that R2 does not object to the grant of compulsory sale order of the Lots and is dissatisfied with the acquisition price only.

Section 3 of the Ordinance

14.  As mentioned above, at the time of filing of the Notice of Application on 13 December 2019, there were 3 respondents. The applicant owned 100% of the 1^st and the 2^nd Lots, and 4 out of the total 6 undivided shares (ie 66.67%) of the 3^rd and the 4^th Lots. On average, the applicant owned 83.33% of the 1^st Building. The applicant also owned 100% of the 5^th Lot, and 4 out of the total 5 undivided shares (ie 80%) of the 6^th Lot. On average, the applicant owned 90% of the 2^nd Building. If all the 6 Lots are considered together, then on average, the applicant owned 86.67% of the Lots where the Buildings were erected.

15.  After the Notice of Application was filed, the applicant acquired the unit owned by R1 in the 6^th Lot on 3 July 2020, and subsequently discontinued the proceedings against R1 on 8 July 2020. From then onwards, the applicant owns 100% of the undivided shares of the 5^th and the 6^th Lots together with the 2^nd Building erected thereon.

16.  Section 3(1) of the Ordinance stipulates that the minimum percentage of undivided shares in a lot that an applicant or applicants should possess before making an application under the Ordinance is 90%. Section 3(2) of the Ordinance stipulates that an application under section 3(1) may cover: (a) 2 or more lots where the majority owner owns not less than the percentage specified in subsection (1) of the undivided shares in each lot; or (b) 2 or more lots (i) on which one building is connected to another building by a staircase intended for common use by the occupiers of the buildings, and (ii) where the average of (A) the percentage of the undivided shares owned by the majority owner in the lot or lots on which one of the buildings stands and (B) the percentage of the undivided shares owned by the majority owner in the lot or lots on which the other of the buildings stands is not less than the percentage specified in section 3(1).

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

18.  The Land (Compulsory Sale for Redevelopment) (Specification of Lower Percentage) Notice, made under section 3(5) of the Ordinance (“the Notice”), was gazetted on 22 January 2010 and came into operation on 1 April 2010. Section 3 of the Notice lowered the threshold for compulsory sale of specified classes of lots from 90% to 80%. Those classes of lots include:

“a lot with each of the buildings erected on the lot issued with an occupation permit at least 50 years before the relevant date”

19.  Since the occupation permits of the Buildings were issued in 1954 and 1955, ie more than 50 years before the date of application on 13 December 2019 (the relevant date under the Notice), the applicable percentage is therefore 80%.

20.  As submitted by Mr Ho, in order to arrive at a purposive construction of sections 3(1) and 3(2) of the Ordinance, one needs to look at the legislative history of the Ordinance, followed by the court's interpretation of the respective provisions in recent cases.

Legislative History of the Ordinance

21.  On 21 January 1998, the Land (Compulsory Sale for Redevelopment) Bill (“the Bill”) was proposed by the Secretary for Planning, Environment and Lands (“SPEL”) and laid before the Provisional Legislative Council for its first reading. The preamble of the Bill and the original section 3 provided for "the person or persons who owns or own ... ... not less than 90% of the undivided shares in a lot may make an application to the Tribunal for an order to sell all the undivided shares in the lot for the purposes of the redevelopment of the lot". (emphasis added)

22.  The debate of the Bill was then adjourned to the Bills Committee for further discussion between 10 February and 24 March 1998, during which various interested parties were invited to make submissions. A common question raised concerned the scope of the Bill, in particular, whether multiple or contiguous lots would be covered thereby. In particular: -

(1)  The representatives of the Real Estate Developers Association (“REDA”) were particularly concerned about the restrictive definition of “lot” and opined that redevelopment should be considered on a project basis rather than on a “lot” basis and suggested that the Bill should allow majority owners holding an average of 90% aggregate undivided shares in contiguous lots to apply for an order for sale;

(2)  Representatives of the Hong Kong Institute of Surveyors (“HKIS”) proposed to widen the scope of the Bill to cover schemes comprising several contiguous lots as it was more cost-effective and economical to redevelop a larger site than a single lot.

23.  In view of the concerns raised, Members of the Bills Committee agreed to discuss the scope of the Bill as to whether its application should apply to a single lot or contiguous lots. As recorded in paragraphs 12-13 of the Minutes for the Bills Committee on 12 March 1998, the members noted in relation to "Buildings connected by common staircase" that it was necessary to have clearer provisions to specify how the minimum threshold would apply in cases where buildings were connected by a common staircase. The Administration agreed to introduce Committee Stage Amendments to the effect that “the minimum acquisition level of buildings connected by a common staircase should be an average of 90% of the undivided shares in the lots on which these buildings respectively stood”.

24.  In the Paper for the House Committee meeting on 27 March 1998 - Report of the Bills Committee on Land (Compulsory Sale for Redevelopment) Bill, it summarized the concerns of some members and deputations that thriving "pencil" developments would result if the 90% threshold were to be applied to a single lot:-

“Whilst supporting the concept of comprehensive redevelopment, the majority members of the Bills Committee are concerned that should such approach be adopted, there may be situations in which the applicants have not acquired any undivided shares in one of the lots notwithstanding the holding of 90% of the aggregate undivided shares. In these circumstances, they consider it not justifiable on the sole ground of comprehensive redevelopment to compel all the owners of that lot to dispose of their properties against their will. 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 respectively stand (clause 3).” (emphasis added)

25.  The corresponding proposed amendments were set out in Appendix III of that Paper and it was this Clause 3 amendment that introduced the current version of section 3(2) of the Ordinance.

26.  On 7 April 1998, the Provisional Legislative Council resumed Second Reading debate of the Bill. On the scope of the Bill, the Chairman of the Bills Committee, Mr. Ronald Arculli said that: -

“Another focal point of discussion in the Bills Committee was whether owners holding an average of 90% of aggregate undivided shares in contiguous lots should be allowed to make an application to redevelop the lots as a package. Whilst we fully support the concept of comprehensive redevelopment, our concern was that should such approach be adopted, there may be situations where an applicant did not own any undivided shares in one of the lots whilst holding 90% of the aggregate undivided shares. The Bills Committee considered that it could not be justified on the sole ground of comprehensive redevelopment to compel all the owners of such a lot to sell their properties against their will. We, therefore, agreed that the ownership percentage should apply to each lot except where two buildings served by a common staircase in which case it would be the average of the undivided shares of the lots on which the buildings stand.” (emphasis added)

27.  In respect of the proposed amendments to clause 3 of the Bill (ie current version of section 3(2)(a) and (b) of the Ordinance), SPEL said that: -

“Subclause (1A) [i.e. current section 3(2)(a) and (b)] specifies that if the majority owner makes an application covering two or more lots, he must own not less than 90% of the undivided shares in each lot. It also provides for the average to be taken for the purpose of calculating the percentage of the undivided shares of two or more lots on which there are two buildings joined by a common staircase.”

28.  On the same day, the Committee passed the Bill with the amendments as proposed. The Bill was read a third time and passed by the Provisional Legislative Council.

Construction of the Ordinance

29.  As revealed by the legislative history of the Ordinance mentioned above, we accept Mr Ho’s submissions that the focus of the scheme of compulsory sale is "lot-based" as opposed to “building-based” or “redevelopment area/site-based”. At its inception, the Bill was drafted to apply only to a “single lot”. Despite deputations from interested bodies, such as REDA and HKIS, to expand the scope of the Bill to enable the minimum percentage threshold to be applied by average to multiple or contiguous lots, such calls for expansion were not accepted save and except where there is a common staircase connecting two buildings straddling 2 or more lots. Apart from the common-staircase exception, the Ordinance maintains the adoption of a lot-based approach and the requirement of applying the minimum threshold to each of the lot(s).

30.  The lot-based approach is reflected clearly in various provisions of the Ordinance as follows:-

“2. Interpretation

…

lot (地段) —

(a) means—

(i) any piece or parcel of ground the subject of a Government lease;

(ii) a section which by virtue of section 8(3) or 27(2) of the Government Rent and Premium (Apportionment) Ordinance (Cap. 125) is deemed to be a lot for the purposes of that Ordinance; (Amended 14 of 2002 s. 3)

(b) includes a section and subsection of a lot

majority owner (多數份數擁有人), in relation to a lot—

(a) means the person or persons who has or have made an application under section 3(1) in respect of the lot: and

(b) includes any person who becomes a successor in title to any such person or persons at any time before a purchaser of the lot becomes the owner of the lot where the lot is the subject of an order for sale;

minority owner (少數份數擁有人), in relation to a lot which is the subject of an application under section 3(1)—

(a) means the person or persons who –

(i) owns or own undivided shares in the lot otherwise than as a mortgagee; but

(ii) is or are not the person or persons who has or have made the application; and

(b) includes any person who becomes a successor in title to any such person or persons at any time before a purchaser of the lot becomes the owner of the lot where the lot is the subject of an order for sale.

…

3. Application to Tribunal for compulsory sale of lot

(1) Subject to subsection (5), the person or persons who owns or own, otherwise than as a mortgagee, not less than 90% of the undivided shares in a lot may make an application—

(a) accompanied by a valuation report as specified in Part 1 of Schedule l; and

(b) to the Tribunal for an order to sell all the undivided shares in the lot for the purposes of the redevelopment of the lot.

(2) Without prejudice to the operation of subsection (5), an application under subsection (1) may cover—

(a) 2 or more lots where the majority owner owns not less than the percentage specified in subsection (1) of the undivided shares in each lot; or

(b) 2 or more lots—

(i) on which one building is connected to another building by a staircase intended for common use by the occupiers of the buildings; and

(ii) where the average of—

(A) the percentage the undivided shares owned by the majority owner in the lot or lots on which one of the building stands; and

(B) the percentage of the undivided shares owned by the majority owner in the lot or lots on which other of the building stands,

is not less than the percentage specified in subsection (1).

(3) The majority owner of a lot who has made an application under subsection (1) shall—

(a) subject to subsection (4), serve a copy of the application on each minority owner of the lot;

(b) cause a copy of the application to be registered under the Land Registration Ordinance (Cap. 128) against the lot.

…

4. Determination of application

…

(2) The Tribunal shall not make an order for sale unless, after hearing the objections, if any, of the minority owners of the lot the subject of the application under section 3(1) concerned, the Tribunal is satisfied that—

(a) the redevelopment of the lot is justified (and whether or not the majority owner proposes to or is capable of undertaking the redevelopment) —

(i) due to the age or state of repair of the existing development on the lot; or

(ii) on 1 or more grounds, if any, specified in regulations made under section 12; and

(b) the majority owner has taken reasonable steps to acquire all the undivided shares in the lot (including, in the case of a minority owner whose whereabouts are known, negotiating for the purchase of such of those shares as are owned by that minority owner on terms that are fair and reasonable.

…

5. Lot to be sold by auction or other means and default on payment by the purchaser of the lot

(1) Where an order for sale is granted and the trustees under the order have complied with section 7(1) in respect of the lot the subject of the order—

(a) subject to paragraph (b), the lot shall be sold by public auction in accordance with the conditions specified in Schedule 2;

…

Schedule 2

Conditions in Accordance with which Lot shall be Sold by Auction

…

2. The lot the subject of the auction shall be sold subject to a reserve price—

(a) which takes into account the redevelopment potential of the lot on its own (or, where 2 or more lots are the subject of the auction. on their own); and

(b) approved by the Tribunal.”

(emphasis added)

31.  Section 3(1) is the enabling provision for person or persons who owns or own not less than 90% (80% in the present case) of undivided shares in a lot to make an application to the Tribunal for an order to sell all the undivided shares in the lot for the purposes of redevelopment of the lot. It is plain from the wordings that section 3(1) covers an application that relates only to a single lot; and that “the lot” - the subject of the order for sale - must be referable to that very same lot to which the subject undivided shares relates.

32.  On the other hand, where 2 or more lots are involved, section 3(2) provides 2 separate scenarios in which an application may be made to the Tribunal: -

(1)  Where the majority owner owns not less than 90% (80% in the present case) of the undivided shares in each lot (section 3(2)(a));

(2)  Where there is a common staircase connecting the two buildings, and the average of the undivided shares held by the applicant(s) for those 2 or more lots is not less than 90% (80% for the present case) (section 3(2)(b)).

33.  It is clear from the wordings in section 3(2) that, whilst an application may include multiple or contiguous lots, such application is permissible if, and only if, the conditions in sub-section (2)(a) or (2)(b) are satisfied. There is no other basis to permit an application to encompass multiple or contiguous lots. It must follow that non-fulfilment of the conditions in either limb of section 3(2) will result in the multiple-lots application being invalid.

34.  The other sections of the Ordinance further provide for the procedural requirements of a contested application between the majority owner and minority owner (section 3(3)); the criteria to be considered by the Tribunal in determining the application (section 4(2)); and where an order is made for the sale for all the undivided shares of the lot (the subject of the application), the setting of the reserved price to reflect the redevelopment potential of the lot on its own (or on their own where 2 or more lots are the subject of the sale) (Schedule 2(2)).

35.  The recurrent and consistent theme throughout the Ordinance is that it provides the pathway for the dispute to be adjudicated between majority and minority owners of the undivided shares in a lot or lots (in the latter case, within the limited scenarios in section 3(2)). Where there is only one single owner of undivided shares in a lot, no dispute could have arisen that warrants the application of the Ordinance.

36.  Such construction of the Ordinance is consistent with the legislative history and intent as set out above. We therefore accept that the Ordinance only caters for disputes between majority and minority owners of the undivided shares in a lot; or insofar as the application encompasses multiple lots, the requirements under section 3(2) must be met.

The Court of Appeal’s interpretation of the Ordinance

37.  In the recent case of Pacific Base Holdings Limited & Ors v Lee Hop Biu & Ors [2021] HKCA 780, the Court of Appeal also favours the lot-based approach as the mechanism adopted under the Ordinance: -

“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.

…

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.”

38.  Further, as to the construction of section 3(2) of the Ordinance, the Court of Appeal (as stated in paragraphs 52-54 of its Judgment) is of the view that section 3(2) “is a permissible variant of an application under section 3(1)”, and held that “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. 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.” (emphasis added)

39.  Moreover, the cases of Group Leader Ltd v Hui Sun Fat [2016] 2 HKLRD 625, Good Faith Properties Ltd v Cibean Development Ltd [2014] 5 HKLRD 534 and Bond Star Development Ltd v Capital Well Ltd [2003] 4 HKC 22 make it clear that the Ordinance’s focus or object is to resolve disputes between majority and minority owners. Specifically, the Ordinance is not intended to permit an application where there is no minority owner when the applicant already owns 100% of the lot. It would serve no useful purpose to seek an order for sale from the Tribunal in such circumstances.

40.  With regard to the comments made by the Court of Final Appeal in Capital Well Ltd v Bond Star Development Ltd (2005) 8 HKCFAR 578 concerning the Court of Appeal’s decision in Bond Star on the application of the Ordinance to wholly-owned lot or lots, we accept that the Court of Final Appeal’s comments merely highlighted the probable undesirable practical result that may flow from the Court of Appeal's construction of section 3(2)(a) of the Ordinance. Nothing said in paragraphs 39-42 of the Court of Final Appeal’s decision in Capital Well has directly undermined or impliedly overruled the reasoning or the process by which the Court of Appeal arrived at its decision in Bond Star. Further, the Court of Final Appeal expressly left open this question for future arguments.

41.  In the premises, Bond Star’s decision remains binding upon this Tribunal (see also other Lands Tribunal’s decision following Bond Star in Day Bright Development Ltd & Ors v Choi Pak Ling & Ors, LDCS 13000/2012 and First Kind Ltd v Liu Keng Chor [2016] 3 HKLRD 39).

Our Decision

42.  According to Section C of the Amended Notice of Application, the description and number of all the undivided shares of the Lots sought to be sold are: -

(1)  The whole of the 1^st Lot and the 2^nd Lot;

(2)  All 6 equal and undivided shares in the 3^rd Lot and the 4^th Lot;

(3)  The whole of the 5^th Lot; and

(4)  All 5 equal and undivided shares in the 6^th Lot.

43.  In paragraph 9 of the Amended Notice of Application, the applicant asks for an order that “all the undivided shares in the Lots be sold by public auction for the purposes of redevelopment of the Lots pursuant to s.3(1), s.3(2)(a), s.3(2)(b), s.4(1)(a) and s.4(6)(a)(i) of the Ordinance in such manner pursuant to the Ordinance as the Tribunal considers just and appropriate.”

44.  Given that the application covers multiple lots, the applicant must bring itself within either limb of section 3(2), ie the applicant holds 80% or more of the undivided shares in each lot under section 3(2)(a) or the applicant fulfils the common staircase exception in section 3(2)(b).

45.  First of all, the lots on which the 1^st Building and the 2^nd Building are erected clearly cannot be regarded as one lot. They do not share ownership of undivided shares and there is no DMC to regulate the relationship (if any) between the two buildings. Being on different lots, and the 1^st Building and the 2^nd Building are not connected by a common staircase, section 3(2)(b) does not apply.

46.  Although the 1^st Building is erected across the 1^st to the 4^th Lots, ownership was only subdivided in respect of the 3^rd and the 4^th Lots. The ownership of the 1^st Lot and the 2^nd Lot has never been divided. Thus, there is no minority owner in respect of the 1^st and the 2^nd Lots - the applicant is the 100% owner even before the commencement of the present application. Applying Bond Star, the 1^st and the 2^nd Lots are not within the scope of the Ordinance.

47.  It is undisputed that the applicant only owns 66.67% of the undivided shares of the 3^rd and the 4^th Lots and falls short of the minimum percentage requirement as stipulated in section 3(2)(a) of the Ordinance. Thus, the applicant cannot apply for the compulsory sale order in respect of the 3^rd and the 4^th Lots on their own (or even with the 1^st and the 2^nd Lots) under section 3(2)(a).

48.  Although the 1^st Building is a single building, the applicant may be able to argue that the definition of “building” in section 3(2)(b) of the Ordinance is equivocal and covers part of a building (as pointed out in Pacific Base). Thus, it may be possible for the applicant to rely on section 3(2)(b) of the Ordinance to make the application in respect of the 1^st Building by saying that the part of the 1^st Building erected on the 1^st and the 2^nd Lots is one building and the other part of the 1^st Building on the 3^rd and the 4^th Lots is another building, and these 2 “buildings” are connected by common staircases.

49.  However, when we interpret the 1^st Building in this way, then the applicant is the 100% owner of the “building” on the 1^st and the 2^nd Lots. By the same rationale of Bond Star, the 1^st and the 2^nd Lots cannot be made the subject lots of the present application.

50.  We are aware of the difficulties that it can create if an applicant cannot redevelop a single building straddled on two adjoining lots with a common staircase in between by the mere fact that the applicant owns 100% of the undivided shares of one of the lots. This may affect many similar buildings in Hong Kong. In fact, as pointed out by the applicant, the Lands Tribunal had granted compulsory sale order in many compulsory sale cases in the past which had similar situations, ie one of the lots was 100% owned by the applicant.

51.  However, we are obliged to follow the decision in Bond Star, which has not been overturned by Capital Well. In fact, the case of Pacific Base has also made it clear that compulsory sale order can be granted in respect of half of such a building and the Tribunal should not be concerned with the question of feasibility of the redevelopment. The effect of compulsory sale order does not necessarily result in a sale, and it is up to the market to perceive whether redevelopment is feasible.

52.  Similarly, in respect of the 2^nd Building erected on the 5^th and the 6^th Lots, the common staircase exception may be applicable if part of the 2^nd Building can be regarded as a “building”. However, just like the 1^st Building, the applicant is already the sole owner of the 5^th Lot when the application was made. This will take the 5^th Lot out of scope of the Ordinance as well.

53.  In sum, only the 6^th Lot (in which the applicant holds 80% of the undivided shares at the time of the application) would satisfy the statutory requirements of section 3(1) of the Ordinance. The 1^st Lot, the 2^nd Lot and the 5^th Lot are all out of scope as there was no minority interests therein. As for the 3^rd and the 4^th Lots, the applicant did not have the requisite percentage of shares prescribed under the Ordinance (ie 80%).

54.  In the premises, the application is simply invalid and not being in conformity with the requirements of section 3(1), nor sections 3(2)(a) and (b).

55.  Moreover, since the applicant now owns 100% of the 6^th Lot and becomes the sole owner of the 2^nd Building, applying Bond Star, the Ordinance does not permit an application to be made (or continued) in respect of a number of lots where the applicant is already the full owner of one or more of those lots. Thus, the 6^th Lot can no longer form the proper subject of the application (even though it was so at the commencement of the application).

56.  The applicant was in fact asked by R3 to amend its Notice of Application to exclude the 5^th and the 6^th Lots as the applicant has become the 100% owner of these 2 lots. The applicant refused to make such an amendment and contends that it has no duty to amend. Mr Chain on behalf of the applicant submits that it is up to a respondent who wants the order for sale (if one is made) to exclude certain lot or lots (on the basis the applicant has become the 100% owner) to raise the point, and it is a matter for the Tribunal to decide whether the order for sale (if made) should cover all or just some of the lots. This is at most a matter of discretion, not jurisdiction.

57.  We cannot agree with Mr Chain in this regard. If the application is not amended, it is still an application for the compulsory sale of all the 6 lots. In fact, Mr Chain still submits that the application is for all the 6 lots to be redeveloped together. Thus, the evidence concerning RDV is for the 6 lots to be redeveloped together, and no alternative evidence is adduced. It is for the applicant to decide whether it would change its application to confine the compulsory sale order to just the 1^st to the 4^th Lots. It is not for R2 and R3 to deal with any alternative case that the applicant does not want to raise by amending the application.

58.  Likewise, it is not for this Tribunal to decide on any alternative case if the applicant does not wish to raise, even though we have jurisdiction to order sale in respect of lesser number of lots than all those under the application. In fact, it is impossible for the Tribunal to decide on the alternative case of redeveloping the 1^st to the 4^th Lots only when there was not even evidence on RDV of these 4 lots. Mr Chain’s suggestion to half the RDV for the 6 lots is not acceptable at all, as it is clear that the marriage value of adjoining sites would be higher than the individual value of each site. Mr Chain submits that it would in fact be more generous to R2 and R3 if half of the RDV for the Lots is used for the 1^st to the 4^th Lots. We cannot accept that submission either. If R2 or R3 had the intention to bid at the public auction later, then they would be forced to bid at a much higher price. We cannot assume that they will never take part in the public auction. Even for outsiders, there is no reason for this Tribunal to fix a reserve price that does not reflect the true value of the lots in question. Thus, we will not exercise our discretion to consider a compulsory sale order in respect of the 1^st to the 4^th Lots.

59.  Mr Chain also submits that if an application is liable to be struck out when the applicant settles (and buys) the last unit in any individual lot, the applicant would in affect be “penalized” for acting reasonably in negotiating with the respondents to come to a settlement (which is one of the statutory requirement under the Ordinance: section 4(2)(b)).

60.  This submission is a red herring. When the applicant has acquired 100% of the undivided shares in a lot, there is no need to have any compulsory sale order for that lot at all. Without a compulsory sale order, the applicant can in fact deal with that lot in whatever way it deems fit. If the applicant wishes to develop that lot with the adjourning lot which is subject to a compulsory sale order, it is still free to do so. Of course, the minority owners may argue that the RDV of the adjourning lot would be higher if that 100% owned lot is included in the redevelopment. However, this argument would only be relevant to the RDV of the adjourning lot and could be dealt with in the fixing of the reserve price for the adjourning lot. There is no need to have a compulsory sale order in respect of the 100% owned lot. In fact, without a compulsory sale order, the applicant is not obliged to redevelop the 100% owned lot with the adjourning lot. We fail to see how this could be a “penalty” to the applicant.

61.  In the circumstances, our decision on the legal issues are as follows: -

(1)  Issue 1: The application and the reliefs sought herein are not properly constituted or permissible under section 3(1) or section 3(2) of the Ordinance;

(2)  Issue 2: The applicant is not entitled to an order for sale of all the undivided shares of the Lots under the Ordinance; and

(3)  Issue 3: The applicant is not entitled to any order for sale, whether it is for sale of all the undivided shares of the Lots or of the 1^st to the 4^th Lots only.

62.  Thus, the application must be dismissed accordingly.

Costs

63.  Given the application is fundamentally misconceived and improperly constituted, costs should follow the event and both R2 and R3 be awarded costs of the application.

64.  As for the costs of the Interlocutory Application (ie the Summons filed by R3 on 17 August 2021), which has already been withdrawn on 15 September 2021, there were two aspects of the Interlocutory Application: -

(1)  The 100% ownership question - arising from the applicant acquiring the last minority unit of the 2^nd Building;

(2)  The marriage value question - as supported by news reports found by R3 suggesting that the applicant (or its affiliated parent holding company) has acquired adjacent lots.

65.  After the scheduled trial hearing, the applicant has filed the Affirmation of Wan Tak Fai Danny dated 26 August 2021 contending that it has not acquired the necessary threshold of the adjacent lots. The marriage value question has since been abandoned by R3. In the premises, the costs incurred with respect to this aspect of the Interlocutory Application is wasted. R3 should bear this part of the costs.

66.  The 100% ownership question has been included in the aforesaid legal issues as stipulated in paragraph 1(2) of the Order dated 15 September 2021. It is and was part and parcel of the question of law on the overall construction of section 3(1) and 3(2) of the Ordinance. Thus, this part of the costs should form part of the costs of the whole application herein. As aforesaid, the applicant should bear costs of the application and it should include this part of the costs.

Orders

67.  We therefore order as follows: -

(1)  The application herein be dismissed;

(2)  The applicant do pay R2 and R3 costs of the application including part of the costs of the Summons dated 17 August 2021 which are related to the legal issues raised at the trial to be taxed on High Court Scale including certificate for two counsel if not agreed;

(3)  R3 do pay the applicant part of the costs of the Summons dated 17 August 2021 which are related to the alleged merged site development with Nos 296-298 Castle Peak Road, Kowloon to be taxed on High Court Scale including certificate for one counsel if not agreed; and

(4)  If there is no application in relation to costs within the next 14 days, the aforesaid costs orders shall become absolute.