BOND STAR DEVELOPMENT LTD v. CAPITAL WELL LTD

LDCS 2000/2001

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

APPLICATION NO. LDCS 2000 OF 2001

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DECISION

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Background

1. This is the sequel of the saga concerning the property known as No. 28 Ming Yuen Western Street (“No. 28”).  On 5 December 2002, we ordered the sale of No. 28 together with the adjacent properties, Nos. 24, 26, 30 and 32 Ming Yuen Western Street.  We also ordered that the matters of reserve price, conditions of sale, appointment of trustees, costs and any other ancillary and consequential matters be adjourned to a date to be fixed.

2. The Respondent appealed against our order for sale and hence the consequential matters concerning the sale were suspended.  On 19 September 2003, the Court of Appeal dismissed the appeal but varied our order to confine the sale to No. 28 only.

3. The Respondent took the matter further to the Court of Final Appeal, but again the appeal was dismissed.  Although the Court of Final Appeal expressed concern on whether the sale should be confined to No. 28 only, the order as varied by the Court of Appeal was not challenged by the parties and hence is binding on us.

4. The parties now come back before us to thrash out the details of the order for sale concerning No. 28.  The Applicant has prepared a draft order for our approval, but the Respondent challenges the proposals made by the Applicant in respect of the trustees, reserve price, conditions of sale, auctioneer, solicitors for the trustees and costs.  Thus, it is necessary for us to decide on these consequential matters.

Trustees

5. The Applicant nominates 3 solicitors to be the trustees for the sale, i.e. Mr. Woo Ka Wai, Henry of Messrs. Tsang, Chan & Woo, Mr. Chui Pak Ming of Messrs. Chui & Lau and Mr. Dominic Lai of Messrs. Iu, Lai & Li.  The Respondent also nominates 3 solicitors to be the trustees, i.e. Mr. Ma Hoi Fai and Ms. Tsang May Ping both of Messrs. Woo Kwan Lee & Lo and Mr. Yung Kar Chark, Michael of Messrs. K.C. Yung & Co.

6. The Applicant, however, argues that the Respondent has no right to nominate any trustee under section 4(1)(c)(i) of the Land (Compulsory Sale for Redevelopment) Ordinance (“the Ordinance”), which stipulates as follows:-

“(1)   Subject to subsection (2), the Tribunal shall determine an application under section 3(1) by –

…

(c)   third, where paragraph (b)(i) is applicable –

(i)   appointing in the order for sale trustees satisfactory to the Tribunal nominated by the majority owner to discharge the duties imposed on trustees under this Ordinance in relation to the lot;”

          (underline added)

7. We agree with the Applicant and accept its submissions in this regard.  It is clear from the wording in section 4(1)(c)(i) that the trustees are to be nominated by the majority owner, not the minority owner.  In fact, by virtue of section 4(11) of the Ordinance, only the majority owner is liable to pay the trustees’ remuneration.  The minority owner is not required to pay such remuneration at all.  The intention of the Ordinance must be that as the majority owner is going to pay the trustees, the majority owner should have the right to nominate the trustees.

8. Thus, as the Respondent is the minority owner, it has no right to make the nominations at all.  We shall therefore consider only the nominations made by the Applicant.

9. On the evidence available, we are satisfied that all 3 nominations made by the Applicant are suitable persons to be the trustees.  They are all experienced solicitors.  There is nothing for us to doubt their competence, professional independence and integrity.  Although Mr. Woo has conducted some litigation for the other companies of the group of which the Applicant is a member, there is nothing to suggest that Mr. Woo would necessarily be biased against the Respondent.

10. We do not find that the trustees must have previous experience as trustees for sale under the Ordinance as suggested by the Respondent.  If that is the case, no new comer will ever be appointed as trustees under the Ordinance.  As long as the nominees are capable of discharging the duties of trustees competently and in a fair manner, they are eligible to be appointed as trustees.

11. However, we do not think that there is a need to have all 3 nominees appointed as trustees.  We think that in the circumstances of this case, two trustees are sufficient to discharge the duties under the Ordinance.  In order to avoid any doubt that the Respondent might have on Mr. Woo’s suitability as trustee, we shall appoint only Mr. Chui and Mr. Lai as joint trustees in this case.  The respective hourly rates of remuneration to be charged by them, i.e. $4,000.00 and $6,000.00, are reasonable in view of their standings.  We will allow them to charge remuneration at the said rates accordingly.

Reserve Price

12. On the question of reserve price, the Applicant proposes that the sale of No. 28 be by public auction with a reserve price set at $15,790,000.00.  The Applicant has filed and served a valuation report dated 2 March 2006 prepared by Ms. Winnie Koo, a registered professional surveyor of DTZ Debenham Tie Leung Limited (pp. 103 to 124 of the Agreed Bundle) to support this valuation.

13. During the hearing, the Applicant did not call Ms. Koo to give oral testimony because the Respondent confirmed that without the benefit of the intended valuation report from Mr. K. T. Liu and in the light of the Tribunal’s earlier refusal to adjourn the hearing, the Respondent was not in a position to obtain the intended report and to cross-examine Ms. Koo.  Thus, the Respondent has not challenged Ms. Koo’s valuation report.

14. We have gone through Ms. Koo’s valuation report.  We are satisfied that the report was prepared in a proper and professional manner with sufficient information to justify the valuation reached by Ms. Koo.  In the report, Ms. Koo assessed the market value of No. 28 as a site reflecting its full redevelopment potential and assuming sale with the benefit of immediate vacant possession as at 2 March 2006. 

15. Ms. Koo adopted the “residual method” of valuation, which we accept is the common method of valuation for development sites, in the absence of suitable direct site sale comparables.  Ms. Koo opined that based on her analysis of the domestic and retail comparables, she adopted saleable unit rates of $4,200 p.s.f. and $4,000 p.s.f. for the domestic and retail portions of the hypothetical development in her residual valuation.  Based on Ms. Koo’s chosen comparables, the unadjusted unit rates of her domestic comparables are in the range of $3,990 and $4,644 per sq. ft. respectively whilst the unadjusted unit rates of her retail comparables are in the range of $2,133 and $3,974 per sq. ft.  Although Ms. Koo did not attempt, as some valuation surveyors did, account for her adjustments and how she arrived at her finally adopted saleable unit rates for domestic and retail portions of the proposed development, her opinion of values appear to us to be within the reasonable range of values that could be adopted by valuation surveyors in view of her chosen comparables.

16. In valuations, including the one undertaken by Ms. Koo, we have to realize that at the end of the day, any individual surveyor may have his or her opinion of values so far as adjustments of comparables are concerned.  In fact, in residual valuation, any surveyor would indeed have to make reasonable assumptions as well as to hold various opinions in terms of (i) choice of comparables, (ii) adjustments of comparables in the computation of gross development values, (iii) estimation of development costs, (iv) estimation of various costs inputs and (v) estimation of discounting rates and period of discounting.  

17. In the absence of any conflicting evidence, we accept the valuation of Ms. Koo as the market value of the site as at the date of her valuation.  In addition, we have considered and agreed with Ms. Koo’s evidence that in view of the short period of time that has elapsed between Ms. Koo’s valuation and the date of this Decision, we could accept her valuation as to be the market value of the site as at the date of this Decision.

18. The Respondent challenges the impartiality of Ms. Koo because she was the Applicant’s expert witness at the trial and suggests an independent valuer should be appointed.  We find this challenge to be totally without merit.  Ms. Koo was the expert witness for the Applicant at the trial.  She was there to give her independent expert evidence.  Likewise, for the reserve price, she is acting as an expert witness giving her independent expert evidence on the valuation.  There is no reason at all to say that because Ms. Koo has acted as an expert for the Applicant at the trial proper, she cannot be an expert again on consequential matters.  It just does not make sense.  There is absolutely no need to appoint another valuer as Ms. Koo is already an independent expert on valuation.

19. We therefore accept the Applicant’s contention that the reserve price for No. 28 should be fixed at $15,790,000.00.

Conditions of Sale

20. The Applicant, by its solicitors Messrs. So, Lung & Associates, has prepared the conditions of sale as per pages 126 to 162 of the Agreed Bundle.  The Respondent objects to the conditions of sale because the Applicant’s solicitors have drafted them.  The Respondent contends that independent solicitors should be appointed to handle the sale and draft the conditions of sale.  However, apart from paragraph 7of the conditions of sale prepared by the Applicant’s solicitors, the Respondent has no challenge to the other clauses in the conditions of sale.

21. Paragraph 7 of the conditions of sale states that:-

              “The Vendor reserves the right:-

(a)   not to accept the highest bid;

(b)   to withdraw the Property at anytime before the same is actually knocked down and either after or without declaring the reserved price.”

22. The Respondent contends that there is no basis or reason to give the trustees such sweeping powers, whereas the Applicant contends that these powers are usual in an auction.  We, however, agree with the Respondent that there is no need to have these powers for the trustees in our present case.   This is a compulsory sale under the Ordinance, not an ordinary auction.  The property in question has to be sold to the highest bidder and should not be withdrawn at all.  We do not think that these powers as stipulated in paragraph 7 of the conditions of sale would be of use to the trustees.  We therefore agree that this clause should be deleted from the conditions of sale.

23. With the deletion of paragraph 7 and there being no challenge to the other clauses, we find that the conditions of sale as drafted by the Applicant’s solicitors are appropriate conditions of sale.  Whether the Applicant’s solicitors should be appointed as the solicitors for the sale is another matter and we shall discuss it later in this Decision., but as the conditions of sale are appropriate, we find no reason not to adopt them for the sale in question.

Auctioneer

24. The Applicant proposes to appoint Jones Lang LaSalle (“JLL”) to be the auctioneer, but the Respondent contends that JLL is not independent because JLL has worked for the Applicant and/or its group of companies before.  The Respondent, on the other hand, proposes to appoint Mr. Liu King-tong or KT Liu Surveyors Limited as auctioneer alone or jointly with JLL.  Alternatively, the Respondent also proposes that the auctioneer be nominated by the General Council or the President of the Hong Kong Institute of Surveyors.

25. We however agree with the Applicant that JLL is more suitable to be appointed as auctioneer for the sale than Mr. Liu or his firm.  JLL is a large and reputable firm.  We do not think that JLL would be biased or show favour to the Applicant just because they have worked for the Applicant or its associated companies before.   After all, an auctioneer is just to conduct the auction in accordance with the rules and procedure of the auction.  It is inconceivable that the Applicant would be able to influence the result of the auction through JLL when appointed as auctioneer.

26. On the other hand, Mr. Liu just operates a small surveying firm and there is no evidence to show that he or his firm has any experience in conducting auction.  Even though he might charge remuneration less than JLL, we have doubts whether he or his firm is capable of carrying out the duties as an auctioneer.  There is also no reason to appoint JLL and Mr. Liu as joint auctioneers, as it would just create more problems when the two auctioneers disagree with each other.

27. We do not agree that we should ask the professional body to nominate the auctioneer, because it will just delay the sale longer.  The sale has already been delayed for a few years because of the appeals and any further delay will be unfair to the Applicant.  The market price might also change when the matter is dragged on for a longer period of time.  As we find JLL being suitable to be the auctioneer, there is absolutely no reason to resort to the professional body for nomination and delay the matter further.

Solicitors

28. The Applicant proposes that either its own solicitors or Messrs. Sit, Fung, Kwong and Shum be appointed as solicitors for the trustees in the sale, whereas the Respondent proposes that its solicitors Messrs. William Sin & So or Messrs. Michael Cheuk Wong & Kee be so appointed.

29. We are of the view that there should be an independent firm of solicitors acting for the trustees in the sale to avoid any potential conflict of interests.  The trustees, and likewise their solicitors, should be acting in the interests of both the Applicant and the Respondent.  It would be very difficult for the Applicant’s solicitors or the Respondent’s solicitors to act in the interests of their respective opponents after all these years of litigation.  Thus, we do not think that either the Applicant’s solicitors or the Respondent’s solicitors should be appointed as solicitors for the trustees.

30. As to the remaining two candidates, we think that they are both equally competent and eligible to be appointed as solicitors for the trustees.  However, as Messrs. Michael Cheuk, Wong & Kee are going to charge at an hourly rate of $2,800.00 whereas Messrs. Sit , Fung , Kwong and Shum is charging a lump sum of $35,000.00, we would prefer to appoint the latter so as to crystallize the costs involved.

Costs

31. During the hearing, the parties have indicated that the costs of the hearing on consequential matters can be reserved and argued separately.  So it is not necessary for us to determine costs at this stage.

32. However, the Applicant proposes that we should direct the trustees be entitled to pay to the Applicant out of the proceeds of sale any costs as may be payable by the Respondent to the Applicant.  We do not agree that we should make such an order, as the trustees should perform the duties under the Ordinance in relation to the sale, rather than to help the Applicant to recover costs in this manner.

Orders

33. By reason of the aforesaid, we grant the following orders:-

(1)   All the undivided shares of and in the Property known as All THAT the Remaining Portion of Sub-section 8 of Section B of Inland Lot No. 897 known as No. 28 Ming Yuen Western Street, Hong Kong (“the Property”) be sold for the purpose of the redevelopment of the Property pursuant to the order herein dated 5 December 2002 as varied by the Court of Appeal in CACV 458 of 2002 and affirmed by the Court of Final Appeal in FACV 4 of 2005.

(2)   Mr. Chui Pak Ming of Messrs. Chui & Lau, Solicitors, and Mr. Dominic Lai of Messrs. Iu, Lai & Li, Solicitors, be appointed as trustees under section 4(1)(c)(i) of the Land (Compulsory Sale for Redevelopment) Ordinance, Cap. 545 (“the Ordinance”) to conduct the sale of the Property and to discharge the duties imposed on them under the Ordinance.

(3)   The said Mr. Chui and Mr. Lai be authorized to charge remuneration for their services as aforesaid at their respective hourly rates of $4,000.00 and $6,000.00.

(4)   The sale of the Property be by public auction with a reserve price of $15,790,000.00.

(5)   The sale of the Property be on the particulars and conditions as per the draft prepared by Messrs. So, Lung & Associates and exhibited in pages 126 to 162 of the Agreed Bundle herein with the deletion of paragraph 7 thereof and subject to such modifications as may be necessary as a result of the orders made herein.

(6)   The sale of the Property be also on the conditions as laid down in Schedule 2 of the Ordinance.

(7)   The trustees appointed herein be authorized to sign and execute the agreement or memorandum for sale and purchase and/or the conveyance or transfer deeds and documents and do all such acts and things as may be necessary or expedient for the purpose of vesting in the purchaser of the Property of all the estate title and interest of the Applicant and of the Respondent of and in the Property.

(8)   Messrs. Jones Lang LaSalle be appointed as the auctioneer for the sale of the Property and be entitled to charge such remuneration as may be approved by the trustees appointed herein.

(9)   Messrs. Sit, Fung, Kwong and Shum be appointed as solicitors for the trustees appointed herein for the sale of the Property and be entitled to charge $35,000.00 excluding disbursements for the services rendered.

(10)  The redevelopment of the Property be carried out within 6 years after the date on which the purchaser of the Property becomes the owner of the Property pursuant to paragraph 1(a) of Schedule 3 of the Ordinance.

(11)   The expenses of the auction by which the Property is sold incurred by the trustees appointed herein be paid by the Applicant and the Respondent between them in the ratio of 91.041% and 8.959% as decided according to Part 3 of Schedule 1 of the Ordinance.

(12)   Subject to section 6 of the Ordinance as to how much shall be paid by the Applicant or the Respondent if the Applicant or the Respondent becomes the purchasers of the Property, the sale proceeds of the sale of the Property be:-

(i)   apportioned between the Applicant and the Respondent in the ratio of 91.041% and 8.959% pursuant to section 10(3) of the Ordinance and paragraph 3 of Schedule 1 of the Ordinance; and

(ii)  paid to the trustees appointed herein after deduction of the expenses and costs as specified in section 11(1) of the Ordinance.

(13)   Costs of the hearing on consequential matters be reserved.