CENTURY WIDE DEVELOPMENT LTD v. LAI YEE WAH AND OTHERS

LDCS 11000/2016

[2019] HKLdT 65

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LAND COMPULSORY SALE MAIN APPLICATION NO 11000 OF 2016

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JUDGMENT

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BACKGROUND

1.  This is the applicant’s application for an order for sale, for the purposes of redevelopment under the Land (Compulsory Sale for Redevelopment) Ordinance, Cap 545 (“the Ordinance”), of all the undivided shares of and in Kowloon Inland Lot No 9934 (“the Lot”) together with the building erected thereon known as No 1 Ka Shin Street, No 2 Pok Man Street and Nos 39 – 53 Tai Kok Tsui Road, Kowloon (“the Building”).

2.  The Building comprises 4 connected 6-storey tenement blocks, and each block is served by one common staircase. Occupation permit No K131/57 was issued for the Building on 25 October 1957, granting permission to occupy front portion of ground floor (“G/F”) as shops for non‑domestic purposes, and rear portion of G/F and upper floors for domestic purposes.  According to the approved building plans of the Building, there are 8 shop units and 4 other units planned on G/F, and 14 domestic units planned on each of 1^st Floor (“1/F”) to 5^th Floor (“5/F”).

3.  The Lot together with the Building standing thereon has 84 undivided shares. Each of the G/F units (except for Nos 39 & 41 Tai Kok Tsui Road and Nos 51 & 53 Tai Kok Tsui Road) and each of the 70 domestic units on upper floors are allotted 1 undivided share respectively. Nos 39 & 41 Tai Kok Tsui Road was sub-divided into two units in title and each is allocated 1 undivided share. Nos 51 & 53 Tai Kok Tsui Road is allocated 2 undivided shares.

4.  According to the records of the Land Registry, some units in the Building have been further sub-divided as follows:

1)  G/F of No 45 Tai Kok Tsui Road was sub-divided into 2 sub-divided units [i.e. Portion 1 (278/433 of 1/84) and Portion 2 (155/433 of 1/84)];

2)  G/F of No 47 Tai Kok Tsui Road was sub-divided into 2 sub-divided units [i.e. Portion A (3/10 of 1/84) and Portion B (7/10 of 1/84)];

3)  G/F of Nos 51 & 53 Tai Kok Tsui Road was sub-divided into 2 sub-divided units (i.e. Shop A (16/93 of 2/84) and Shop B (77/93 of 1/84)];

4)  G/F of No 1 Ka Shin Street was sub-divided into 2 sub-divided units [i.e. Flat A (1/2 of 1/84) and Portion B (1/2 of 1/84)];

5)  3^rd Floor (“3/F”) of No 43 Tai Kok Tsui Road was sub-divided into 4 sub-divided units [i.e. Portion No 1 (1/4 of 1/84), Portion No 2 (1/4 of 1/84), Portion No 3 (1/4 of 1/84) and Portion No 4 (1/4 of 1/84)]; and

6)  4^th Floor (“4/F”) of No 47 Tai Kok Tsui Road was sub-divided into 3 sub-divided units [i.e. Flat 1 (1/3 of 1/84), Flat 2 (1/3 of 1/84) and Flat 3 (1/3 of 1/84)].

SECTION 3 OF THE ORDINANCE – OWNERSHIP OF THE APPLICANTS

5.  At the time of filing of the Notice of Application (“NOA”) on 20 December 2016, there were 16 respondents and the applicant owned 83.37% undivided shares in the Lot, more than the threshold of 80% required for building aged 50 years or above.

6.  After the filing of the NOA, the applicant amended, re-amended and re-re-amended the NOA on 4 May 2017, 4 June 2018 and 16 October 2018 respectively pursuant to the Orders of the tribunal. The applicant acquired further undivided shares from 8 respondents, and subsequently discontinued the proceedings against them.

7.  Section 3(1) of the Ordinance prescribes that the minimum percentage of undivided shares that an applicant or applicants should possess before making an application under the Ordinance is 90%. 

8.  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. 

9.  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”

10.  Since the occupation permit of the Building was issued in 1957, i.e. more than 50 years before the date of application (i.e. 20 December 2016; the relevant date under the Notice), the applicable percentage is therefore 80%.

11.  I am satisfied that as at the date of application, the applicant owned more than 80% of the undivided shares in the Lot.  I am therefore satisfied the applicant is entitled to make the present application under section 3 of the Ordinance.

THE REMAINING RESPONDENTS

12.  As at the first day of the trial hearing, the applicant owned 93.25% undivided shares in the Lot. The following 8 respondents (collectively referred to as “the Remaining Respondents”) remain in the present action: -

Respondent		Premises
6th Respondents	(“R6”)	Portion 1 on G/F, No 45 Tai Kok Tsui Road
7th Respondent	(“R7”)	Portion 2 on G/F, No 45 Tai Kok Tsui Road
8th Respondents	(“R8”)	G/F, No 45A Tai Kok Tsui Road
9th Respondent	(“R9”)	3/F, No 45A Tai Kok Tsui Road
11th Respondent	(“R11”)	Flat 1 on 4/F, No 47 Tai Kok Tsui Road
12th Respondent	(“R12”)	Flat 2 on 4/F, No 47 Tai Kok Tsui Road
15th Respondent	(“R15”)	3/F, No 51 Tai Kok Tsui Road
16th Respondents	(“R16”)	3/F, No 53 Tai Kok Tsui Road

13.  R6, R7, R8 and R15 (“the Four Respondents”) were represented by Mr Yuen.  Mr Yuen submits that the Four Respondents primarily dispute the existing use value (“EUV”) of the Building and the redevelopment value (“RDV”) of the Lot as assessed in the application and put the applicant to strict proof in respect of the other statutory requirements under the Ordinance.

14.  R9 is represented by Department of Justice, which informed the tribunal on 17 December 2018 that R9 did not object to the application, no longer relied on its Notice of Opposition dated 14 February 2017 and the valuation report dated 15 October 2018, and would not adduce any further expert evidence.

15.  The applicant submitted that R11 passed away on 3 February 2000, and one Ho Kiu Hon, R11’s step-grandson, was hesitant to be appointed by the tribunal to represent the estate of R11 in the application. Hence, pursuant to the Order of the tribunal dated 29 May 2018, the title of R11 was amended to be the Personal Representative of the Estate of R11.  While Ho Kiu Hon has been kept informed of the present proceedings by the applicant, R11 was absent throughout the proceedings.

16.  R12 is a missing owner and was absent throughout the proceedings.

17.  In DCCJ 4719/2015, one Ip Ying Kung had acquired the possessory title of R16’s Premises, and by an assignment dated 8 February 2017, Ip Ying Kung subsequently assigned to the applicant her possessory title to R16’s Premises, while the 1^st and 2^nd named R16 remain as the paper and registered owners.  The 1^st and 2^nd named R16 have not filed any document in the present proceedings.  The 2^nd named R16 was absent throughout the proceedings, and the 1^st named R16 was also absent until the pre-trial review hearing held on 29 July 2019. Although one Lui Ming Lok claims to be the representative of the 1^st named R16, he confirmed before the trial hearing on 12 August 2019 that the 1^st named R16 does not oppose the application.

ISSUES FOR DETERMINATION BY THE TRIBUNAL

18.  The issues to be decided in this case are as follows:

1)  Whether the redevelopment of the Lot is justified due to age and/or state of repair of the Building in accordance with section 4(2)(a) of the Ordinance?

2)  As at 3 November 2016, what was the respective EUV, as assessed in accordance with Part 1 of Schedule 1 of the Ordinance, of all units in the Building?

3)  Whether the applicant has taken reasonable steps to acquire all the undivided shares in the Lot on terms that are fair and reasonable in accordance with section 4(2)(b) of the Ordinance?

4)  If an order for sale should be granted, what should be the reserve price (i.e. RDV of the Lot for the purpose of auction sale)?

DETERMINATION OF THE EUV OF ALL UNITS IN THE BUILDING

19.  Pursuant to section 4(1)(a)(i) of the Ordinance, if there is a dispute between the parties on the EUV of the units as assessed in the application, the tribunal shall determine the proper value.  Section 4(1)(a)(ii) further provides that, in the case of any minority owner of the lot who cannot be found, the majority owner of the lot is required to satisfy the tribunal that the value of the minority owner’s property as assessed in the application is: -

“(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.”

20.  R12 is a missing owner.  In addition, there are disputes between the Four Respondents and the applicant on both the EUV and the RDV valuations.  The Four Respondents relies on the reports and valuations prepared by Mr Wayne Lee of Wayne Lee & Associates Limited, whilst Ms Dorothy Chow of Jones Lang LaSalle Limited is appointed by the applicant.

21.  After a without prejudice meeting, the two valuation experts agree on effective saleable area and condition of the units in the Building.  They also agree on adoption of the same shop reference unit (i.e. G/F, No 49 Tai Kok Tsui Road) and domestic reference unit (i.e. 3/F, No 45 Tai Kok Tsui Road), and unit rate of the domestic reference unit at $78,600/m².  However, they disagree on selection of a shop comparable, some adjustments to the shop comparables, and some adjustments to both the shop reference unit and the domestic reference unit.

Selection of Shop Comparables

22.  In addition to 14 common comparables, Ms Dorothy Chow proposes to adopt Comparable ES4 (i.e. Shop Nos 10 and 11 on Ground & Mezzanine Floors of Peony House West Block, Foo Kwai Street / Hoi King Street / Pok Man Street) that is disagreed by Mr Wayne Lee.  Given that there are other better comparables, I agree with Mr Wayne Lee not to analyze Comparable ES4, which is larger in size and comprises a substantial cockloft.  I consider that conversion of the cockloft in the analysis may affect valuation of the main unit on G/F.

23.  For the same reason, I am of the view that Comparable ES15 (i.e. Unit No 7 on G/F and Cockloft of Peony House East Block, Pok Man Street / Tai Kok Tsui Road / Foo Kwai Street), which has a cockloft, should also be excluded in the analysis. 

Adjustments to Shop Comparables

24.  The valuation experts agree on the adjustment for time with reference to price indices, the adjustment for headroom at 2% per 1-meter difference, the adjustment for frontage at 2% per 1-meter difference, and the adjustment for return frontage, but disagree on some of the adjustments for location, layout, quantum and age / condition.

25.  Regarding the adjustment for location, the valuation experts agree on the adjustment rates for Comparables ES1, ES6, ES7 and ES13 along Tai Tsun Street and Ivy Street, whilst Mr Wayne Lee proposes greater upward adjustment or lower downward adjustment to the other comparables. With the benefit of site inspection together with the parties, I agree with Ms Dorothy Chow the adjustment rates for Comparables ES2, ES3 and ES14, but the adjustment rates for Comparables ES5, ES8, ES9, ES10, ES11 and ES12 should be the figures between the respective proposals of Ms Dorothy Chow and Mr Wayne Lee.

26.  Regarding the adjustment for layout, I agree with Ms Dorothy Chow making reference to mainly depth of the comparables and the adjustment rates for Comparables ES2, ES3, ES5, ES6, ES7, ES9, ES12 and ES13, in which the adjustment rates for Comparables ES3, ES5, ES7, ES9, ES12 and ES13 are also agreed by Mr Wayne Lee. However, I consider that Comparables ES1 and ES8 that have longer depth should be adjusted at 10%, and Comparables ES10, ES11 and ES14 that have shorter depth should be adjusted at -5%.

27.  Since there is a distinct group of comparables that are smaller in size, I have no objection to adopt the 2-tier adjustment for quantum proposed by the valuation experts. I also agree with Ms Dorothy Chow to make lesser adjustment at the rate of 1% per 5m² to those comparables equal to or greater than 30m², but I consider that the adjustment to those comparables less than 30m² should be 1% per 2m², the lesser adjustment rate proposed by Mr Wayne Lee.

28.  Regarding the adjustment for age / condition, I agree with Ms Dorothy Chow to make greater adjustment at the rate of 1% per 5-year instead of 1% per 10-year proposed by Mr Wayne Lee.

29.  Although the valuation experts agree on the adjustment for return frontage to Comparables ES6 and ES14 at -10%, I consider that greater downward adjustment at -15% should be applied in this instance.  I note in a similar comparison Ms Dorothy Chow has proposed greater upward adjustment at 20% to the corner shops of the Building when they are compared with the shop reference unit.

30.  The valuation of the shop reference unit is listed in Appendix I of the judgment.  The average unit rate of the 13 comparables is about $450,767, whilst the average without the 2 highest and the 2 lowest comparables is about $439,906.  I consider that the shop reference unit should be assessed at $445,000 per square meter.

EUVs of Shop Units

31.  By applying the same principles above, the valuation of all the ground floor shops is listed in Appendix II of the judgment, and the sub-total EUV is determined at $234,500,000.

32.  Regarding the adjustment for location, I agree with Mr Wayne Lee that the units at the rear portion should be adjusted at -65%, whereas I agree with Ms Dorothy Chow to make nil adjustment to No 2 Pok Man Street.   Further, I consider that the 2 shops facing Ka Shin Street are relatively inferior, but they should be adjusted at -5% only instead of -10% proposed by Mr Wayne Lee.

33.  Further, I agree with Ms Dorothy Chow not to make any adjustment for frontage to the units at the rear portion, which faces the service lane only, but the return frontages of the 2 corner shops should be adjusted at 15% instead of 20% proposed by Ms Dorothy Chow and 5 – 10% proposed by Mr Wayne Lee.

EUVs of Domestic Units

34.  The valuation experts agree on the adjustment for floor at 2.5% per floor, the adjustment for top floor at -5%, the adjustment for quantum at 1% per 4m², the adjustment for lighting / ventilation at 5% to the corner units and -5% to the units facing service lane and light well, the adjustment for noise at -5% to the units facing Tai Kok Tsui Road and the adjustment for internal condition at -9% to 3%, but they cannot agree on some of the adjustments for view.  I agree with Ms Dorothy Chow to make nil adjustment for view to the units facing Pok Man Street and Ka Shin Street, but there should have adjustment for view to the units facing the service lane at -2% and the units facing light well at -5%.

35.  The valuation of all the upper floor domestic units is listed in Appendix III of the judgment, and the sub-total EUV is determined at $307,600,000.

EUVs of All Units in the Building

36.  The EUV of the Building is determined at $542,100,00 (i.e. $234,500,000 + $307,600,000), slightly higher than the applicant’s assessment at $542,070,000.  Each of the EUVs of the respondents’ premises as determined is equal to or lower than the respective EUVs as assessed by Ms Dorothy Chow. In comparing with the determination above, the applicant has in fact proposed a higher apportionment factor to each of the respondents.

Premises	EUV as assessed by applicant	Apportionment Factor (applicant's assessment)	EUV as determined	Apportionment Factor (determination)
Total	$542,070,000	-	$542,100,000	-
R6	$12,640,000	2.3318%	$12,600,000	2.3243%
R7	$7,200,000	1.3282%	$7,020,000	1.2950%
R8	$7,780,000	1.4352%	$7,360,000	1.3577%
R9	$3,850,000	0.7102%	$3,780,000	0.6973%
R11	$1,810,000	0.3339%	$1,810,000	0.3339%
R12	$1,480,000	0.2730%	$1,480,000	0.2730%
R15	$4,860,000	0.8966%	$4,860,000	0.8965%

37.  Given that the differences between the applicant’s assessments and the determinations are not substantial, I consider that it is appropriate to adopt the EUVs as proposed by the applicant in these proceedings, which would not prejudice against all the respondents including the missing owner.

38.  The EUVs of all units in the Building as at the relevant date of valuation, i.e. 3 November 2016, and adopted by this tribunal are appended below: -

Address	Floor	Unit	EUV
Nos 39-41 Tai Kok Tsui Rd	G	-	$45,030,000
No 43 Tai Kok Tsui Rd	G	-	$20,310,000
No 45 Tai Kok Tsui Rd	G	Portion 1	$12,600,000
No 45 Tai Kok Tsui Rd	G	Portion 2	$7,020,000
No 47 Tai Kok Tsui Rd	G	Portion A	$6,570,000
No 47 Tai Kok Tsui Rd	G	Portion B	$13,020,000
No 49 Tai Kok Tsui Rd	G	-	$20,310,000
Nos 51-53 Tai Kok Tsui Rd	G	Shop A	$8,130,000
Nos 51-53 Tai Kok Tsui Rd	G	Shop B	$36,260,000
No 2 Pok Man St	G	-	$18,040,000
No 1 Ka Shin St	G	Flat A	$9,050,000
No 1 Ka Shin St	G	Portion B	$9,000,000
No 43A Tai Kok Tsui Rd	G	-	$7,220,000
No 45A Tai Kok Tsui Rd	G	-	$7,360,000
No 47A Tai Kok Tsui Rd	G	-	$7,360,000
No 49A Tai Kok Tsui Rd	G	-	$7,220,000
No 39 Tai Kok Tsui Rd	1	-	$5,900,000
No 41 Tai Kok Tsui Rd	1	-	$4,800,000
No 43 Tai Kok Tsui Rd	1	-	$5,360,000
No 45 Tai Kok Tsui Rd	1	-	$5,080,000
No 47 Tai Kok Tsui Rd	1	-	$5,240,000
No 49 Tai Kok Tsui Rd	1	-	$5,360,000
No 51 Tai Kok Tsui Rd	1	-	$4,800,000
No 53 Tai Kok Tsui Rd	1	-	$6,270,000
No 2 Pok Man St	1	-	$3,970,000
No 43A Tai Kok Tsui Rd	1	-	$3,760,000
No 45A Tai Kok Tsui Rd	1	-	$3,840,000
No 47A Tai Kok Tsui Rd	1	-	$3,730,000
No 49A Tai Kok Tsui Rd	1	-	$3,640,000
No 1 Ka Shin St	1	-	$4,100,000
No 39 Tai Kok Tsui Rd	2	-	$5,750,000
No 41 Tai Kok Tsui Rd	2	-	$4,350,000
No 43 Tai Kok Tsui Rd	2	-	$4,560,000
No 45 Tai Kok Tsui Rd	2	-	$4,600,000
No 47 Tai Kok Tsui Rd	2	-	$4,600,000
No 49 Tai Kok Tsui Rd	2	-	$4,710,000
No 51 Tai Kok Tsui Rd	2	-	$4,210,000
No 53 Tai Kok Tsui Rd	2	-	$5,750,000
No 2 Pok Man St	2	-	$4,000,000
No 43A Tai Kok Tsui Rd	2	-	$3,560,000
No 45A Tai Kok Tsui Rd	2	-	$3,750,000
No 47A Tai Kok Tsui Rd	2	-	$3,750,000
No 49A Tai Kok Tsui Rd	2	-	$3,670,000
No 1 Ka Shin St	2	-	$4,000,000
No 39 Tai Kok Tsui Rd	3	-	$5,790,000
No 41 Tai Kok Tsui Rd	3	-	$4,570,000
No 43 Tai Kok Tsui Rd	3	Portion No 1	$1,340,000
No 43 Tai Kok Tsui Rd	3	Portion No 2	$2,110,000
No 43 Tai Kok Tsui Rd	3	Portion No 3	$890,000
No 43 Tai Kok Tsui Rd	3	Portion No 4	$1,200,000
No 45 Tai Kok Tsui Rd	3	-	$5,140,000
No 47 Tai Kok Tsui Rd	3	-	$4,990,000
No 49 Tai Kok Tsui Rd	3	-	$5,100,000
No 51 Tai Kok Tsui Rd	3	-	$4,860,000
No 53 Tai Kok Tsui Rd	3	-	$5,790,000
No 2 Pok Man St	3	-	$3,780,000
No 43A Tai Kok Tsui Rd	3	-	$3,580,000
No 45A Tai Kok Tsui Rd	3	-	$3,780,000
No 47A Tai Kok Tsui Rd	3	-	$3,660,000
No 49A Tai Kok Tsui Rd	3	-	$3,580,000
No 1 Ka Shin St	3	-	$3,900,000
No 39 Tai Kok Tsui Rd	4	-	$5,470,000
No 41 Tai Kok Tsui Rd	4	-	$4,590,000
No 43 Tai Kok Tsui Rd	4	-	$4,980,000
No 45 Tai Kok Tsui Rd	4	-	$4,870,000
No 47 Tai Kok Tsui Rd	4	Flat 1	$1,810,000
No 47 Tai Kok Tsui Rd	4	Flat 2	$1,480,000
No 47 Tai Kok Tsui Rd	4	Flat 3	$1,630,000
No 49 Tai Kok Tsui Rd	4	-	$4,980,000
No 51 Tai Kok Tsui Rd	4	-	$4,450,000
No 53 Tai Kok Tsui Rd	4	-	$5,470,000
No 2 Pok Man St	4	-	$3,690,000
No 43A Tai Kok Tsui Rd	4	-	$3,490,000
No 45A Tai Kok Tsui Rd	4	-	$3,570,000
No 47A Tai Kok Tsui Rd	4	-	$3,460,000
No 49A Tai Kok Tsui Rd	4	-	$3,490,000
No 1 Ka Shin St	4	-	$3,690,000
No 39 Tai Kok Tsui Rd	5	-	$5,070,000
No 41 Tai Kok Tsui Rd	5	-	$4,120,000
No 43 Tai Kok Tsui Rd	5	-	$4,610,000
No 45 Tai Kok Tsui Rd	5	-	$4,360,000
No 47 Tai Kok Tsui Rd	5	-	$4,360,000
No 49 Tai Kok Tsui Rd	5	-	$4,320,000
No 51 Tai Kok Tsui Rd	5	-	$4,120,000
No 53 Tai Kok Tsui Rd	5	-	$5,070,000
No 2 Pok Man St	5	-	$3,520,000
No 43A Tai Kok Tsui Rd	5	-	$3,130,000
No 45A Tai Kok Tsui Rd	5	-	$3,200,000
No 47A Tai Kok Tsui Rd	5	-	$3,100,000
No 49A Tai Kok Tsui Rd	5	-	$3,030,000
No 1 Ka Shin St	5	-	$3,300,000

39.  I therefore accept the total EUV of the Building is $542,070,000. 

SECTION 4(2) OF THE ORDINANCE - JUSTIFICATION AND REASONABLE STEPS

40.  Section 4(2) of the Ordinance provides as follows: -

“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).”

41.  The applicant must satisfy this tribunal the above statutory requirements are met; otherwise, an order for compulsory sale would not be granted.

Whether development of the Lot is justified due to the age and/or state of repair of the Building

42.  Mr Ng Tim Yeung Sammy (“Mr Sammy Ng”) of AECOM Asia Company Limited, a structural engineer appointed by the applicant, conducted a structural survey of the Building and prepared a Structural Condition Survey Report in October 2018.  Mr Wong Wing Cheung Dennis (“Mr Dennis Wong”) of Prudential Surveyors International Limited, a building surveyor appointed by the applicant, conducted a condition survey of the Building and prepared a Condition Survey Report in October 2018. 

43.  None of the respondents adduced expert evidence to rebut the reports complied by Mr Sammy Ng and Mr Dennis Wong.  

44.  Having considered the reports of Mr Sammy Ng and Mr Dennis Wong, I accept their expert opinion. The Building, being erected more than 61 years ago, is in poor condition and has come to the end of its design life.  The design of the Building has become obsolete over time in many aspects, both physically and functionally, and fails to conform to modern safety standards and statutory requirements.

45.  I am also of the view the Building is in poor state of repair and the costs of repair to bring the Building to tenable condition is disproportionate to the costs of redevelopment.   I accept the experts’ opinion that even if repair works were carried out, such works would bring about a modest improvement only to the existing condition of the Building and the Building would continue remain a sub-standard one. Although regular repair can extend the life of the Building, repair costs will increase with time.

46.  By reason of the matters set out above, I am satisfied the redevelopment of the Building is justified.   

Whether the applicant has taken reasonable steps

47.  In assessing the reasonableness of the offers, I have considered the case of Capital Well Ltd v Bond Star Development Ltd (2005) 8 HKCFAR 578. In particular, I have considered paragraphs 33 and 36 of the judgment in which   Ribeiro PJ stated: -

“33. In making that assessment the Tribunal is not conducting a valuation exercise. It does not need to adjudicate upon any disputes about the correct valuation principles to be applied. It does not itself arrive at any conclusion as to what figure represents the correct valuation. It merely needs to be satisfied that, on the evidence available, the offer falls within the range of what may broadly be regarded as fair and reasonable compensation for the interest in question. It is obviously necessary to recognise that there will often be differences of opinion on that matter……”

“36. ...... We are of course not suggesting that it is necessary for the offer to “beat” the valuation as if it were a payment into court. What the Tribunal must do is to consider whether, in the circumstances of each case, the offer falls within a band of what represents a fair and reasonable assessment of the value of the minority owner’s interest reflecting a proportionate share of the redevelopment value of the whole site……”

48.  The applicant has made an offer to acquire R16’s paper ownership at a price of $1,000 on 22 July 2019.  Given that R16’s title to R16’s Premises has already been extinguished and the applicant has already acquired the possessory title, Ms Ngai, counsel for the applicant, submits that the offer on 22 July 2019 was made with the view to tidying up the paper ownership only.  It is unnecessary for the applicant to negotiate with R16 to purchase anything.  The applicant was not obliged to negotiate with R16 and was not unreasonable in doing so.  I agree.

49.  In addition, the applicant has made 3 batches of offer on 6 December 2016, 12 November 2018 and 22 July 2019 to the Remaining Respondents other than R16. Ms Ngai submits that these offers are fair and reasonable because: -

(1)  All the prices offered by the applicant were higher than the respective EUVs of the units owned by the Remaining Respondents as assessed by Ms Dorothy Chow and Mr Wayne Lee;

(2)  The 2^nd and 3^rd offer prices made by the applicant to R6, R7 and R8 are higher than the respective apportioned RDVs attributable to them calculated in accordance with the EUV as at 3 November 2016 and the RDV of the Lot as at 22 July 2019 assessed by Ms Dorothy Chow;

(3)  The 3^rd offer prices made by the applicant to R9 and R15 are higher than the respective apportioned RDVs attributable to them calculated in accordance with the EUV as at 3 November 2016 and the RDV of the Lot as at 22 July 2019 assessed by Ms Dorothy Chow;

(4)  The 3^rd offer prices made by the applicant to R11 and R12 are very close to the respective apportioned RDVs attributable to them calculated in accordance with the EUV as at 3 November 2016 and the RDV of the Lot as at 22 July 2019 assessed by Ms Dorothy Chow (i.e. the differences are 4.75% and 5.55% only).

50.  I consider that the comparisons between the 2^nd offer prices on 12 November 2018 and the apportioned RDVs on 22 July 2019, which base on different time intervals, are irrelevant.  The comparisons with the EUVs on 3 November 2016 are not useful too because prudent respondents would no doubt be interested in offer prices based on RDV instead of EUV.  Nonetheless, I am of the view that the applicant’s 3^rd offer prices do fall within a range of what may broadly be regarded as fair and reasonable. 

51.  I note that Ms Dorothy Chow has changed her EUV assessments of the sub-divided units after her without prejudice meeting with Mr Wayne Lee, and as a result of the changes the 3^rd offer prices made by the applicant to R11 and R12 are eventually lower than the respective apportioned RDVs attributable to them calculated in accordance with the EUV as at 3 November 2016 and the RDV of the Lot as at 22 July 2019 assessed by Ms Dorothy Chow.  However, both R11 and R12 were absent throughout the proceedings and no opposition had been raised by them for tribunal’s consideration.  In addition, I agree with Ms Ngai that no matter how much the applicant has offered to R12 who is missing, the applicant has no chance of success in acquiring R12’s undivided shares.

52.  By reason of the matters set out above, I am satisfied that the applicant took reasonable steps to acquire all the undivided shares of the Lot.

RESERVE PRICE FOR THE AUCTION

53.  By reason of being satisfied that redevelopment of the Lot is justified and that the applicant has taken reasonable steps to acquire all the undivided shares of the Lot, I am satisfied an order for sale should be granted in favour of the applicant.

54.  The two valuation experts updated their respective RDV assessments as at 22 July 2019.  In addition to the adoption of residual method that is agreed by them, Ms Dorothy Chow has also adopted direct comparison method.  Although they agree on a registered site area of 895.77m² and a plot ratio at 9.0534 if bonus plot ratio for surrender of land along Tai Kok Tsui Road (i.e. 9.57m²) at 0.0534 only is counted in the calculation, Mr Wayne Lee considers that the surrender of service lane (i.e. 9.48m²) can increase the total bonus plot ratio up to 0.1063.

55.  In their respective residual valuations, they have adopted different hypothetical development schemes.  Ms Dorothy Chow proposes a 28-storey composite building with G/F and 1/F planned for shop units, 2/F planned for podium garden, 3/F planned for clubhouse, and 4/F to 27/F planned for domestic units.  Whist, Mr Wayne Lee proposes a 26-storey composite building with more shop units planned on G/F and more domestic units planned on upper floors.  Other than their disagreement on selection of some comparables and some adjustments to the comparables, they also have different opinion on marketing cost and valuation of the shop units on 1/F.  Nevertheless, they agree on finance cost at 3.625% per annum, construction cost at $321,584,712, demolition cost at $13,066,042, demolition period of 0.75 year and construction period of 2.25 years, and developer’s profit at 15%.

Direct Comparison Method

56.  In the valuation by direct comparison method, Ms Dorothy Chow has made reference to 2 site comparables, No 31 Fuk Tsuen Street at an accommodation value of $111,383/m² in May 2019 and Hoi Hing Building at an accommodation value of $100,428/m² in June 2017.  Though Ms Dorothy Chow finally adopts her valuation by residual method instead of direct comparison method, I agree with Mr Wayne Lee that Hoi Hing Building, a site comparable subject to compulsory sale order, is not a good comparable because competition in the sale of such site in public auction would generally be constrained by the background that there was a majority owner in the application. Further, Hoi Hing Building is larger in size and was transacted about 2 years ago. 

57.  Whilst, I consider that No 31 Fuk Tsuen Street, which is smaller in size and relative far away from the Lot, can be compared with the Lot.  I am of the view that the accommodation value of the Lot should be at least not less than $111,383/m².

Bonus Plot Ratio

58.  Mr Wayne Lee suggests that the surrender of service lane can attain an additional bonus plot ratio of 0.0529.  He considers that the surrender of land along Tai Kok Tsui Road and the surrender of service lane are of the same nature, and the Government lease governing the surrenders does not exclude the entitlement to bonus plot ratio in both cases. Mr Yuen submits that bonus plot ratio arising from dedication and surrender of site area for use as passage is governed by Regulation 22 of the Building Planning Regulation (Cap 123F), and there is no distinction between main street or service lane.

59.  On the contrary, Ms Ngai submits that Regulation 22 of the Building Planning Regulation is irrelevant in the present case.  By using the word “may”, it is the legislative intention that the granting of bonus plot ratio and site coverage in this regard is discretionary.  Given that Mr Wayne Lee has also confirmed at trial that he was not aware of any precedent where bonus plot ratio was granted by the Building Authority upon surrender of land abutting on a scavenging lane for the purpose of widening of the scavenging lane, Ms Ngai submits that the opinion of Ms Dorothy Chow whom disregards the surrender of service lane should be preferred.  I agree, and accept the total plot ratio at 9.0534 only.

Hypothetical Development Scheme

60.  Both valuation experts propose to build a high-rise composite building with G/F and 1/F planned for shops, but Mr Wayne Lee’s hypothetical development scheme comprise some small shops on G/F, a domestic lift lobby on G/F off a service lane instead of a street, more and smaller domestic units on upper floor, and larger special domestic units on top floors.

61.  I have doubt on financial viability of building a domestic lift lobby on G/F off a service lane, and have reservation on building larger special domestic units in a building comprising mainly small domestic units, both proposed by Mr Wayne Lee.  Whilst, I disagree with Ms Dorothy Chow whom considers that there is no strong demand for small shop and small shop is not marketable and feasible. Nonetheless, in weighing the two hypothetical development schemes, I prefer to adopt Ms Dorothy Chow’s scheme to that of Mr Wayne Lee.  I consider that building of standard shops only as suggested by Ms Dorothy Chow or some small shops as suggested by Mr Wayne Lee would have no material impact on the valuation result after the associated adjustments for quantum and return frontage, overall design and risks in the two different schemes are factored in the assessment.

GDV – Shops on G/F and 1/F

62.  Ms Dorothy Chow and Mr Wayne Lee propose 6 comparables and 9 comparables respectively, and 4 of them are common (i.e. Comparables RG2, RG5, RG6 and RG7). Given that I agree to adopt Ms Dorothy Chow’s hypothetical development scheme with standard shops only, I also agree with Ms Dorothy Chow not to analyze Comparables RG3 and RG4 proposed by Mr Wayne Lee, which are much smaller in size.  Further, I agree with Ms Dorothy Chow to analyze Comparable RG7 as 1 shop only because both Shop C5E3 and Shop C5E4 of Comparable RG7 were transacted together at the same date. 

63.  Similar to the EUV assessment, the valuation experts agree on the adjustment for time with reference to price indices, the adjustment for headroom at 2% per 1-meter difference and the adjustment for frontage at 2% per 1-meter difference.  In the RDV assessment, they also agree on the adjustment for age / condition at 1% per 5-year difference together with an additional 5% for better condition of the new hypothetical development. However, they disagree on some of the adjustments for location, layout, quantum and return frontage.

64.  In the adjustment for location, I agree with them to adopt an adjustment rate at 30% for Comparable RG6. I also agree to the adjustments at 5%, 20%, 30% and 10% to Comparables RG5, RG7, RG8 and RG9 respectively proposed by Ms Dorothy Chow, and the adjustments at 0% and 20% to Comparables RG1 and RG11 respectively proposed by Mr Wayne Lee. Nevertheless, I consider that Comparables 2 and 10 should be adjusted at -10%.

65.  I agree with the valuation experts to make 10% adjustment for layout to Comparables RG2 and RG6.  Having considered the same principles in the EUV assessment, I also agree to make nil adjustment to Comparables RG5 and RG9 proposed by Ms Dorothy Chow, and adjustments at 0% and 10% to Comparables RG10 and RG11 respectively proposed by Mr Wayne Lee.  Nevertheless, I consider that Comparables RG1, RG7 and RG8 should be adjusted at -2.5%.

66.  Regarding the adjustment for quantum, I have no objection to adopt the same principles in the EUV assessment, but due to the change in size of the shop reference unit, the 2-tier adjustment should be revised to 1% per 5m² to those comparables equal to or greater than 40m² and 1% per 2m² to those comparables less than 40m².

67.  Regarding the adjustment for return frontage, I agree to the adjustment at -10% to Comparable RG9 proposed by Ms Dorothy Chow and Comparable 10 proposed by Mr Wayne Lee.

68.  The valuation of the shop reference unit is listed in Appendix IV of the judgment.  The average unit rate of the 9 comparables is about $519,064, whilst the average without the highest and the lowest comparables (i.e. Comparables RG8 and RG11) is about $518,372, and the average without the 2 highest and the 2 lowest comparables (i.e. Comparables RG8, RG9, RG10 and RG11) is about $515,078.  I consider that the shop reference unit should be assessed at $518,000 per square meter. Comparables RG8, RG9, RG10 and RG11 are not the common comparables agreed by the valuation experts.

69.  In applying the adjustments above to the hypothetical development scheme proposed by Ms Dorothy Chow, the whole hypothetical G/F is assessed at $357,040,000 at the average unit rate of $508,083 per square meter, which is listed in Appendix V of the judgment.  I consider that the location of Shops 1 & 2 facing Ka Shin Street should be adjusted at -5% instead of 0%, the return frontage of Shops 3 and 10 should be adjusted at 15% instead of 20%, and the layout of Shops 3, 7 and 8 should be adjusted at 2.5%, -10% and -10% respectively instead of 0%, -5% and -5% respectively, all proposed by Ms Dorothy Chow.

70.  The two valuation experts have valued the hypothetical 1/F shops with reference to the average unit rate of the hypothetical G/F shops only, but they have different opinion on the conversion rate.  Ms Dorothy Chow adopts 1/3 of the G/F unit rate, whilst Mr Wayne Lee proposes a greater rate at 45%. Having considered that the hypothetical 1/F shops would have exclusive internal staircases from G/F as agreed by the valuation experts, I am of the view that the conversion rate at 1/3 adopted by Ms Dorothy Chow is appropriate in this instance.  I consider that a higher 1/F conversion rate as suggested by Mr Wayne Lee may be applied to those shops in inferior location only. Further, I also agree with Ms Dorothy Chow to convert the 1/F flat roof at the rate of 1/6 of the 1/F unit rate.

GDV – Flats on Upper Floors

71.  The two valuation experts have adopted transactions of flat in 2 nearby developments (i.e. Cetus – Square Mile (“Cetus”) and Eltanin Square Mile (“Eltanin”)) for direct comparison, but they disagree on selection of some comparables thereof.  Ms Dorothy Chow also proposes to compare transactions of flat in Upper West that is disagreed by Mr Wayne Lee, and Mr Wayne Lee also proposes to compare transactions of flat in Enhantee that is disagreed by Ms Dorothy Chow.  Nonetheless, Ms Dorothy Chow withdrew from adopting Cetus in her examination-in-chief, and Ms Ngai submits that Cetus should be excluded because it was under construction and not yet available for immediate occupation as at the valuation date (i.e. 22 July 2019).

72.  Although I consider that pre-sale transactions are generally not good comparables because additional adjustment should be made to reflect the fact that they are generally not available for occupation within a reasonable period, I agree to adopt Cetus in the subject assessment because it is a new development close to the Lot and comparable to the hypothetical development on the Lot, its occupation permit is expected to be issued in 2019, not very far away from the valuation date, and pre-sale condition can roughly be reflected by an adjustment for holding cost, which had once been agreed by the valuation experts.  Nevertheless, I consider that only those transactions without any long transaction period, stage payment and / or financing arrangement offered by the developer can be analyzed.  Further, I prefer to adopt the transactions in or after Sepember 2018 only because there is sufficient number of comparable in the same development.

73.  I agree with Ms Dorothy Chow to analyze transactions of flat in Upper West and not to analyze transactions of flat in Enhantee, but I agree with Mr Wayne Lee not to analyze Comparable RD2-15 in Eltanin and Comparables RD3-6 and RD3-7 in Upper West that are larger in size.  Although Upper West was completed about 3 years earlier, it is a relative new development close to the Lot, whilst Enchantee is smaller in development scale and is located in another locality relative far away from the Lot.

74.  The valuation experts agree on the adjustments for floor at 0.5% per level, headroom at 5% per 1-meter difference, quantum at 1% per 4m² difference and age at 1.5% per 1-year difference, and also agree on the adjustments for location at 0%, noise at -3%, scale / facilities at 0% and holding cost at 0% to 2.1% in the direct comparison with Cetus and Eltanin.  They disagree on some of the adjustments for time, view and quality / condition.

75.  I agree to the adjustments for time and view proposed by Ms Dorothy Chow.  While Mr Wayne Lee has not analyzed transactions of flats in Upper West, I also agree to adopt Ms Dorothy Chow’s adjustments in this regard.  In addition, since I prefer the hypothetical development scheme proposed by Ms Dorothy Chow to that of Mr Wayne Lee, I agree to adopt the domestic reference unit (i.e. unit of 29.07m² on 16^th floor with open view and headroom of 3.15 meters) proposed by Ms Dorothy Chow too.

76.  Since the price indices published by Rating and Valuation Department are yet to cover the period from May to July 2019, I agree with Ms Dorothy Chow to make reference to the market trend as revealed by CCL Index for Kowloon in the period (i.e. -0.62% from May to June 2019 and 0.59% from June to July 2019).  Regarding the adjustment for view, I agree with the analysis of Ms Dorothy Chow and make adjustment at 0% and 5% to the comparables with open and building view respectively.  Nevertheless, I agree with Mr Wayne Lee to make adjustment for quality / condition, but at the rate of 4% only to Eltanin and Upper West that were completed 2 to 3 years ago.  Although the fittings, finishes and appliances of Cetus, Eltanin and Upper West appear to be similar, I consider that purchasers in the market would pay a premium for brand new domestic unit, and such has not been reflected in the adjustment for age agreed by the valuation experts.

77.  Following the agreement of the two valuation experts on some adjustments and the above determinations, I assess the unit rate of the domestic reference unit at $270,000/m², close to the unit rate suggested by Ms Dorothy Chow at $265,000/m². The valuation of the domestic reference unit is listed in Appendix VI of the judgment.

78.  Ms Dorothy Chow has further assessed value of the whole domestic portion with reference to the adjusted unit rate of the domestic reference unit, and derives an average unit rate for the whole domestic portion including the ancillary areas at $262,000/m², about 1.13% lower than her adjusted unit rate of the domestic reference unit.  I have reviewed Ms Dorothy Chow’s calculation in this regard and am of the view that the hypothetical units on the top few floors can have better view and hence higher value, and the hypothetical units on 4/F with flat roof and 27/F with top roof can also achieve higher value. Accordingly, I agree with Mr Wayne Lee to apply the adjusted unit rate of the domestic reference unit directly to be the average unit rate, but this should be average unit rate for the whole domestic portion including the ancillary areas instead of the standard domestic units only as suggested by Mr Wayne Lee.

Marketing Cost

79.  The valuation experts agree on all the other parameters of the residual valuation except the marketing cost only. Ms Dorothy Chow adopts 4% as the marketing cost, but Mr Wayne Lee suggests 3% only.  Having considered that the marketing cost includes at least the agency fee payable by developer only, and the cost for setting up show flats and sales office, preparation and printing of sales brochures, and advertisements, I accept the 4% adopted by Ms Dorothy Chow.

RDV of the Lot as at 22 July 2019

80.  Based on the agreement between the two valuation experts and the above determinations, the residual valuation of the Lot as at 22 July 2019 is listed in Appendix VII of the judgment.  The Lot is assessed at $1,145,000,000, equivalent to an accommodation value of about $141,191 per square meter (i.e. about $13,117 per square foot).

ORDERS

81.  For reasons given in this judgment, I have set out reasons why I am satisfied an order for sale should be granted and I therefore make the following orders: -

1)  All the undivided shares in the Lot, the subject of the application, be sold by way of public auction for the purposes of redevelopment of the Lot;

2)  Ms Anna SH Chow and Mr Anthony WK Chow, nominated by the applicant, be appointed the trustees (“the Trustees”) to discharge the duties imposed on them as trustees by the Ordinance in relation to the sale of the Lot;

3)  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 dated 18 July 2019;

4)  For the purposes of the sale of the Lot by public auction: -

a)  the sale of the Lot be on the particulars and conditions of sale the same or substantially the same as those set out in the draft Particulars and Conditions of Sale to be approved and initialed by the tribunal; and

b)  the reserve price be set at $1,145,000,000;

5)  The applicant do publish notices once in a Chinese language newspaper (and in the Chinese language) and once in an English newspaper (and in the English language) circulating generally in Hong Kong within 21 days from the date of the judgment to be made herein by the tribunal informing the 12^th respondent and all persons claiming to be the owners of the Lot: -

a)  that the tribunal has made an Order for sale of the Lot;

b)  that the Lot 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;

6)  Subject to further extensions that the tribunal may subsequently allow upon the application of the purchaser of the Lot or its successor in title, the redevelopment of the Lot and the Building shall be completed and made fit for occupation within a period of 6 years after the date on which the purchaser of the Lot becomes the owner of the Lot; and

7)  Liberty to the applicant, the respondents, and the Trustees to apply to the tribunal for further directions.

COSTS

82.  Following Good Faith [1], I make a costs order nisi that the applicant do pay costs of these proceedings to the respondents on High Court scale, with certificate for counsel, including any reserved costs, to be taxed if not agreed.  Unless any parties apply by summons to vary, the costs order nisi shall be made absolute upon expiry of 14 days from the date of this judgment.

Appendix I - EUV Shop Reference Unit

Appendix I - EUV Shop Reference Unit (Notes)

Appendix II - EUV G/F Shop

Appendix III - EUV Upper Floor Flat (part 1)

Appendix III - EUV Upper Floor Flat (part 2)

Appendix III - EUV Upper Floor Flat (part 3)

Appendix IV - RDV Shop Reference Unit

Appendix IV - RDV Shop Reference Unit (Notes)

Appendix V - RDV G/F Shop

Appendix VI - RDV Domestic Reference Unit (part 1)

Appendix VI - RDV Domestic Reference Unit (part 2)

Appendix VII - Residual Valuation

[1] Good Faith Properties Ltd and Others v Cibean Development Co Ltd [2014] 5 HKLRD 5340