WAH HA PROPERTY DEVELOPMENT LTD AND OTHERS v. ROSEHAWK GROUP LTD AND OTHERS

LDCS 25000/2018

[2021] HKLdT 27

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LAND COMPULSORY SALE MAIN APPLICATION NO 25000 OF 2018

__________________________

BETWEEN

__________________________

__________________

J U D G M E N T

__________________

BACKGROUND

1.  This is the applicants’ 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 Rural Building Lot No 299, Rural Building Lot No 300, Rural Building Lot No 301, Rural Building Lot No 302, Rural Building Lot No 303, Rural Building Lot No 304, Rural Building Lot No 305 and Rural Building Lot No 306 (“the Lots”), together with a development erected thereon known as Stewart Terrace, Nos 81-95 Peak Road, Hong Kong (“the Development”).

2.  Two domestic permits were issued for the Development on 9 February 1949 (i.e. No 68) and 28 March 1949 (i.e. No 118), granting permission to occupy the building on Rural Building Lot No 299 as one European type house and the buildings on Rural Building Lot Nos 300-306 as seven European type houses.

3.  According to the general building plans approved in late 1940s and the alteration and additions plans approved in 1988 of the Development, there are 20 residential flats and 30 basement car parking spaces in 5 adjoining residential buildings (i.e. No 81 Peak Road, Nos 83 and 85 Peak Road, Nos 87 and 89 Peak Road, Nos 91 and 93 Peak Road, and No 95 Peak Road) of 3 to 4 storeys including a 1-storey carport.

4.  No 81 Peak Road that comprises 2 flats (i.e. Flats 1 and 20) was originally served by 1 common staircase, but this common staircase has subsequently been altered to serve Flat 1 only, whilst Flat 20 has a separate entrance off Peak Road. Each of the other 4 residential buildings, Nos 83 and 85 Peak Road that comprises 5 flats (i.e. Flats 2, 3, 8, 9 and 14), Nos 87 and 89 Peak Road that comprises 5 flats (i.e. Flats 4, 5, 10, 11 and 15), Nos 91 and 93 Peak Road that comprises 5 flats (i.e. Flats 6, 7, 12, 13 and 16) and No 95 Peak Road that comprises 3 flats (i.e. Flats 17, 18 and 19), is served by 2 common staircases. There are also individual staircases serving Flats 1, 2, 5, 6 and 7 respectively at their back.

5.  With reference to the records of the Land Registry, Flat 8 is attached with a flat roof, Flats 13, 14, 15, 16 and 19 are attached with a roof respectively, and Flat 20 is attached with an open area.  The accesses to the respective roofs are generally by means of common staircases, but an individual staircase to the roof has been built in each of Flat 13 and Flat 15, which were approved by the Building Authority in 2015 and 2008 respectively.

6.  Basically, there are 5 types of flat in the Development as follows: -

Type of Flat	Features	Flat No
Normal Wing Flat (Left)	A left hand side unit of two adjoining units in a block; with split level at the back	Flats 2, 4, 10, 12, 15 and 16
Normal Wing Flat (Right)	A right hand side unit of two adjoining units in a block; with split level at the back	Flats 3, 5, 9 and 14
Duplex	A unit with 1-level in the front and 2-level at the back, which is connected by an internal spiral staircase to basement	Flats 5 and 6
Maisonette	A unit with 2-level in the front of a block and served by an internal staircase	Flats 8, 11 and 13
Apartment	A unit with 1-level (except Flat 1 and Flat 17 that have split level at the back)	Flats 1, 17, 18, 19 and 20

7.  The Lots together with the Development standing thereon are allocated 1,180 undivided shares. Each of the 20 flats together with their respective car parking space(s) are given the undivided shares as follows: -

Flat No	Floor	CPS No	Undivided Share
1	G/F	29	55/1180
2	G/F & Basement	1 & 2	60/1180
3	G/F	4 & 6	60/1180
4	G/F	19	55/1180
5	G/F & Basement	15	55/1180
6	G/F & Basement	17	55/1180
7	G/F & Basement	25 & 27	60/1180
8	1/F & 2/F with Flat Roof on 2/F	3 & 5	70/1180
9	1/F	7 & 9	60/1180
10	1/F	12, 14 & 26	65/1180
11	1/F & 2/F	11 & 13	65/1180
12	1/F	18 & 20	60/1180
13	1/F & 2/F with Roof on 2/F	22 & 24	75/1180
14	2/F with Roof	8 & 10	65/1180
15	2/F with Roof	16	60/1180
16	2/F with Roof	23	55/1180
17	G/F	28	50/1180
18	1/F	30	50/1180
19	2/F with Roof	21	55/1180
20	1/F with Staircase at the back and Open Area	-	50/1180

THE REMAINING RESPONDENTS

8.  At the time of trial, the following 4 respondents remain in the present proceedings: -

Respondent		Premises
1st Respondent	(“R1”)	Flat 1 on G/F and Car Parking Space No 29 (“R1’s Property)
2nd Respondent	(“R2”)	Flat 10 on 1/F and Car Parking Space Nos 12, 14 & 26 (“R2’s Property”)
3rd Respondent	(“R3”)	Flat 17 on G/F and Car Parking Space No 28 (“R3’s Property)
4th Respondents	(“R4”)	Flat 18 on 1/F and Car Parking Space No 30 (“R4’s Property)

9.  The applicants are represented by Mr Julian Chan. R1 is represented by Mr Alexander Wong and Mr Christopher Law. R1’s position is that an order for sale should not be granted to the applicants. Apart from challenging the applicants’ entitlement to make the application, R1 take issues on all other aspects, including both the existing use value (“EUV”) and redevelopment value (“RDV”) assessments particularly the valuation of R1’s Property, age and state of repair of the Development, and the taking of reasonable steps by the applicants.

10.  R1 relies on the reports and valuations prepared by Mr Chris Tang of Multiple Surveyors & Consultants Limited.  The applicants appoint Mr Alnwick Chan of Knight Frank Petty Limited as their valuation expert.

11.  R2 is represented by Mr Adrian But. R2 primarily disputes the EUV assessment but has not appointed any valuation expert.  Although R2 has concern on the RDV assessment too, R2 prefers the RDV proposed by the applicants.  R2 makes no submission on the other issues and put the applicants to proof whether redevelopment is justified under the Ordinance.

12.  Before the trial, the applicants have reached a settlement with both R3 and R4 whereupon they do not oppose the application any more.  On 18 January 2019, leave was granted by the tribunal to R3 and R4 to withdraw their opposition to the application, though they remain as named respondents in these proceedings.

ISSUES FOR DETERMINATION BY THE TRIBUNAL

13.  The issues to be decided in this application are:

(1) Whether the applicants have fulfilled the prerequisites for making the present application?

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

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

(4) What was the respective EUV of all units in the Development as at 1 July 2018, the valuation date adopted in the application valuation report dated 26 September 2018, as assessed in accordance with Part 1 of Schedule 1 of the Ordinance?

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

PREREQUISITES FOR AN APPLICATION

Ownership of the Applicants

14.  At the time of filing of the Notice of Application (“NOA”) on 28 September 2018[1], there were 4 respondents and the applicants owned 81.36% (i.e. 960/1180) undivided shares in the Lots.

15.  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%.

16.  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.

17.  The Land (Compulsory Sale for Redevelopment) (Specification of Lower Percentage) Notice, made under section 3(5) of the Ordinance (“the Notice”), was gazetted on 12 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”

18.  Since the occupation permits of the Development were issued in 1949, i.e. more than 50 years before the date of application (i.e. 28 September 2018; the relevant date under the Notice), the applicable percentage is therefore 80%.

19.  It is R1’s case that Lot 299 only comprises of No 81 Peak Road viz., Flat 1 (which is owned by R1) and Flat 20 (which is owned by the 16^th applicant (“A16”)).  The total number of the notional undivided shares of Lot 299 is the 55 undivided shares for Flat 1 and the 55 notional undivided shares for Flat 20, making a total of 110 notional undivided shares.

20.  Among the applicants, it is only A16 which holds 50% of the notional undivided shares of Lot 299. For this reason, Mr Alexander Wong contends that the applicants have not obtained the prerequisite percentage of undivided shares so as to be qualified to make the present application.

21.  Mr Alexander Wong makes elaborated arguments on this issue. The salient points are, first, per section 3(2) of the Ordinance, in applications concerning multiple lots, the aggregate ownership of the lots can be used instead of that of each lot provided that the buildings of the 2 or multiple lots are connected by a common staircase which is intended for the common use by the occupiers of the buildings.

22.  Since No 81 Peak Road is not inter-connected with other buildings in the Development by any common staircase, the applicants cannot make use of the average ownership percentage of the Lots under section 3(2)(b) of the Ordinance but must acquire over 80 or 90% of Lot 299 in order to be qualified for making the application. However, the applicants have failed to do so.

23.  Secondly, insofar as the applicants try to rely on section 3(2)(a) of the Ordinance (as submitted by Mr Julian Chan at trial) to avail themselves, that provision states, inter alia, that “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” (emphasis added) which clearly means that the statutory provision dictating the prerequisite ownership percentage shall be calculated lot by lot (i.e. separately).

24.  Thirdly, although the buildings in the Development share the same Deed of Mutual Covenant (“DMC”), the DMC does not grant proprietary interests between co-owners, but is only a “secondary document” to regulate “the reciprocal rights of the co-owners to the enjoyment of the building by means of mutual covenant”. Hence, the DMC cannot reflect or confer the shares in each lot of the Lots.

25.  Fourthly, the wordings of sections 3(2)(a) and 3(2)(b) are clear and unequivocal.  If, as Mr Julian Chan submits, these provisions are to be interpreted in a way that the ownership can be inferred by DMC or any other extrinsic documents, such an interpretation is beyond what the statutory wordings can bear and hence, should not be allowed.

26.  Fifthly, the Ordinance was enacted on 7 June 1999 which was long after the concept of DMC was born.  The legislation certainly would have added “unless agreed to be bound by a DMC” if it was so intended.

27.  In fact, the Hansard of 7 April 1998 meeting actually shows that the Bill Committee was well aware that if the percentage of the undivided shares was only applicable to single lots only, there would be a potential of development of “pencil” building in a situation where the applicant did not own any undivided shares in one of the lots whilst holding 90% of the aggregate undivided shares in the lots.  That notwithstanding, the Bill Committee concluded that it was not justifiable to compel the owners of such a lot (where the applicant does not own any shares) to sell their property against their will on the sole ground of comprehensive redevelopment.  After discussion, it was concluded that the ownership percentage should be applied to each lot except where two buildings on different lots are served by a common staircase. In the latter scenario, it would be the average of the undivided shares of the lots that is counted.

28.  In response to Mr Alexander Wong’s arguments, Mr Julian Chan submits that under the DMC, the Lots and the Development were notionally divided into 1,180 shares.  The applicants currently own 960 undivided shares which represents 81.4% of the total.  Without tackling Mr Alexander Wong’s arguments in substance, Mr Julian Chan maintains that the applicants own 81.4% of the undivided shares of Lot 299 as well as Lots 300 to 306 and are entitled to make this application.

29.  We basically agree with Mr Alexander Wong’s analyses subject to some corrections to the calculation of the undivided shares percentage for Lot 299.

30.  Section 3(2)(a) and (b) of the Ordinance stipulates that: -

“(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 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 subsection (1).”

31.  Section 2 of the Ordinance defines “lot” to mean: -

“(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;

(b) includes a section and subsection of a lot.”

32.  The provisions clearly require that for application for compulsory order for sale involving 2 or more lots, the majority owner shall own not less than the specified percentage of the undivided shares in each lot, and a lot is well defined as any piece or parcel of ground the subject of a Government lease instead of 2 or more Government leases.

33.  If we are to focus on the distinction between Lot 299 and the rest of the lots, one feature is that the Government lease for Lot 299 was dated 31 July 1964 whereas the Government leases for Lots 300-306 were all dated 30 June 1964.  In fact, not just Lot 299 but all the lots involved in this application were granted under different Government leases[2].  By the meaning of “lot” as defined in section 2 of the Ordinance, Lot 299 (in fact all lots including Lots 300 to 306) shall be treated as an independent lot for the purpose of section 3(2) of the Ordinance although the counting of undivided shares will depend on whether section 3(2)(b) applies.

34.  As there is not any staircase inter-connecting the building on Lot 299 with the building(s) in the adjourning lot(s), it is section 3(2)(a) that comes into play whilst section 3(2)(b) is not engaged.  The applicants’ reliance on section 3(2)(b) to count the average of the percentage of the undivided shares held in the respective lots to satisfy the ownership requirement is, in our view, incorrect.

35.  As section 3(2)(a) applies and Lot 299 is to be considered independently, the erections on Lot 299 consist of about 110 to 115 undivided shares[3] among which about 50 to 55 undivided shares[4] (representing about 45% to 48% of the said range) are being held by R1. This effectively means that the applicants own about 52% to 55% of the undivided shares of Lot 299.

36.  We also note no provision in the Ordinance to the effect that in calculating the required percentage of ownership of undivided shares, it is the “DMC”, instead of the “lot” that shall stand as the gauge or the unit of calculation.  If the legislature did intend that the required percentage of undivided shares in buildings standing on different lots could be considered together so long as the buildings are under the same DMC, there is simply no reason why the Ordinance does not state so.

37.  In Lead Traders Ltd v Luck Land Enterprise Ltd [5], Fok JA (as he then was) held that the Presiding Officer’s acceptance of the majority owners’ construction arguments in that case was an exercise of the type deprecated by Lord Millett NPJ in China Field Ltd v Appeal Tribunal (Buildings)[6] that “Purposive construction means only that statutory provisions are to be interpreted to give effect to the intention of the legislature, and that intention must be ascertained by a proper application of the interpretative process.  This does not permit the Court to attribute to a statutory provision a meaning which the language of the statute, understood in the light of it context and the statutory purpose, is incapable of bearing.”.  We do not consider that the language of section 3(2)(a) and (b) of the Ordinance could bear a meaning that is in alignment with Mr Julian Chan’s contention as summarised in paragraph 28 above.

38.  To mention in passing, despite it is said that the applicants have settled with R3 and R4 whereupon R3 and R4 no longer oppose the application, the tribunal is told that as a matter of fact R3 and R4 have not assigned their units to the applicants who therefore have not acquired the undivided shares of R3 and R4’s properties.

39.  R3 and R4’s properties are situated at Lot 306 which comprises of 3 units and 5 car parking spaces having a notional undivided shares of about 160 to 165 in total[7]. Among the said 160 to 165 undivided shares, about 95 to 100 undivided shares (representing about 59% to 61% of the said range) are held by R3 and R4[8] whereas 5 undivided shares (representing about 3.1% to 3% of the said range) are owned by R2[9].

40.  Lot 306 is in the same situation as Lot 209 in that the building thereon is not inter-connected with any other building in the adjourning lot(s). Such being the case, section 3(2)(b) cannot be invoked and the applicants’ ownership in Lot 306 has to be considered independently rather than on average with other lots. As the applicants owns about 37.9%[10] to 36%[11] undivided shares in Lot 306 only, it does not appear that the ownership requirement is satisfied for this lot either.

41.  We find that the applicants have failed to satisfy the requirements under section 3 of the Ordinance by failing to own more than the minimum percentage, 80% of the undivided shares in Lot 299. We do not consider it necessary to make any finding in relation to Lot 306 as paragraphs 38 to 40 above are our observations by the way without the benefit of receiving parties’ arguments thereon. The ownership problem in Lot 299 is sufficient to dispose of this issue. 

42.  The applicants’ application for an order for sale of contiguous lots covering Lots 299, 300 to 306 is unsuccessful by reason of their failing to acquire the requisite percentage of undivided shares in compliance with section 3(2) of the Ordinance. The applicants’ application could be dismissed on this ground alone but for the sake of completeness, we will deal with the other issues as well.

Valuation Report

43.  Section 3(1)(a) and Part 1 of Schedule 1 of the Ordinance stipulate that an application should be accompanied by a valuation report, prepared not earlier than 3 months before the date on which the application is made.  In these proceedings, the accompany valuation report was dated 26 September 2018, same as the date of the application.

44.  Mr Alexander Wong submits that the Ordinance requires that the valuation report shall be completed and signed on a date which is within 3 months before the application, excluding the date of the application.  As the applicant’s valuation report was signed and dated on the date of application, it is therefore not within the 3 months before the date of their application, failing to satisfy section 3(1)(a) of the Ordinance.

45.  Mr Alexander Wong develops the following reasoning in support of his contention. First, Order 3, Rule 2(3) of the Rules of the High Court, Cap 4A provides that “where the act is required to be done within or not less than a specified period before a specified date, the period ends immediately before that date”.

46.  Secondly, the Court of Final Appeal said in Capital Well Limited v Bond Star Development Limited[12] that “Schedule 1 Pt 1 sets out the requirements of the valuation report which must accompany the s3(1) application (the s3(1) report). It must have been prepared not more than three months beforehand.”.

47.  Lastly, it is said in Vennex v Leung Chung Ching and Others [13] that “[a] report was prepared when it was completed and signed” and the applicant “was only required to file a valuation report which was prepared, signed or completed within 3 months before the date of Application and no more”.

48.  Mr Julian Chan considers Mr Alexander Wong’s submissions wholly misconceived, which we agree.

49.  Under Schedule 1 Part 1 of the Ordinance, the valuation accompanying the compulsory sale application must be “prepared not earlier than 3 months before the date on which the application under section 3(1) of the Ordinance is made”.  As the date of the application is 26 September 2018, “3 months before the date on which the application under section 3(1) of the Ordinance is made”, when applies to the present case, would be “26 June 2018”.

50.  The plain English meaning of the phrase is clear and unambiguous. When applying the said provision to the present case, the valuation report accompanying the application shall be “prepared not earlier than “26 June 2018”.  Since the applicant’s valuation report was dated and signed on 26 September 2018, obviously the requirement of “not earlier than 26 June 2018” is fulfilled.

51.  The spirit of the provision clearly is to ensure that the valuation report attached to the application is not outdated which is the reason why it cannot be prepared earlier than 3 months before the date of the application.  There is no logical reason why the valuation report cannot be dated and signed on the same day as the application.

52.  In relation to Mr Alexander Wong’s reliance on Order 3, Rule 2 of the Rules of the High Court, Cap 4A, as pointed out by Mr Julian Chan, this rule actually stipulates that “Any period of time fixed by these rules or by any judgment, order or direction for doing any act shall be reckoned in accordance with the following provisions of this rule”. This confines the scope of application of the rule. As the Ordinance is a piece of primary legislation and obviously is not “rules of High Court, judgment, order or direction”. Order 3, Rule 2 simply does not apply in the first place.

53.  Even assuming that Order 3, Rule 2(3) applies, it refers to “where the act is required to be done within or not less than a specified period before a specified date, the period ends immediately before that date”, it is abundantly clear that the Ordinance does not require the valuation report to be prepared “within or not less than a specified period before a specified date”.  What the Ordinance requires is that the valuation report must be prepared “not earlier than 3 months before the application”.

54.  Mr Julian Chan does not consider that Capital Well supports R1’s contention.

55.  Mr Alexander Wong’s quoting words out of context from the judgment of Capital Well is not conducive to the interpretation of section 3(1)(a) and Schedule 1 of the Ordinance.  We agree with Mr Julian Chan that the relevant provisions as properly construed, whether literally or purposively, shall not lead to the construction as contended by Mr Alexander Wong.

56.  We actually opine that Mr Alexander Wong’s argument is fundamentally flawed. Part 1 of Schedule 1 of the Ordinance requires that the application for compulsory sale shall be accompanied by a valuation report prepared not earlier than 3 months before the date on which the application is made. In our view, the focus should be “the date on which the application is made” rather than “the date on which the application is dated”.

57.  It appears that Mr Alexander Wong has omitted the very fact that although the NOA was dated 26 September 2018, it was not filed by the applicants on that day but was filed on 28 September 2018, that was two days afterwards. A compulsory sale application should be regarded as having been “made” at the time when the NOA is filed to the tribunal (i.e. on 28 September 2018). To suggest that the mere act of putting a date of “26 September 2018” on the NOA without having the document actually filed to the tribunal could be taken as the making of a compulsory sale application to the tribunal simply makes no sense.

58.  As the valuation report had been dated/made two days before the application was made to the tribunal, the statutory requirement was fulfilled. Mr Alexander Wong’s attempted challenge over the date of the valuation report vis-à-vis the NOA from a technical perspective is itself technically incorrect.

59.  To conclude, we consider that the valuation report accompanying the application compiles with section 3(1)(a) and Part 1 of Schedule 1 of the Ordinance.

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

60.  Section 4(2) of the Ordinance provides that: -

“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).”

Whether the applicants have taken reasonable steps

61.  Before the application, the applicants have made the following offers to the respondents: -

Respondent	Date	Amount Offered
R1	3 August 2018	$148,225,440
R2	1 August 2018	$186,155,145
R3	27 August 2018	$137,391,540
R4	15 August 2018	$139,152,970

62.  Mr Julian Chan submits that the applicants have already taken reasonable steps to acquire all the undivided shares in the Lots but Mr Alexander Wong submits the otherwise.

63.  On the quantum of offer, Mr Alexander Wong complains that the offered amount was unreasonable as it did not take into account the basement area which R1 occupies and enjoys.

64.  The above offers were based on the valuations of Mr Alnwick Chan, and have reflected the then RDV attributable to the respective flats and car parking spaces owned by R1 to R4.

65.  In assessing the reasonableness of the offers, we have considered the Court of Final Appeal’s judgment in Capital Well particularly in paragraphs 33 and 36 thereof Ribeiro PJ has this to say: -

“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……”

66.  Considering the quantum of the offers alone, we agree that the respective offer prices fall within the range of what may broadly be regarded as fair and reasonable compensation for the interest in question.  In these proceedings, there is no evidence that Mr Alnwick Chan’s valuations were at serious fault, and in fact this tribunal accepts the EUV and RDV proposed and/or agreed by him.

67.  But apart from the quantum of the offers, Mr Alexander Wong contends that the tribunal should also consider whether there was procedural fairness in the steps taken by the applicants to acquire the minority owners’ interest and whether the offer made by the applicants was genuine.

68.  It is R1’s case that no real offer has been made nor any genuine attempt with reasonable, positive and/or sincere step has ever been taken by the applicants to negotiate with R1 for the purchase of its undivided shares before and after the application.

69.  It is noted that the offer made by the applicants was a subject-to-contract offer that the respondents should first accept the terms in an unqualified form within 14 days, and if the applicants made a compulsory sale application, a draft agreement for sale and purchase would be provided to the respondent no later than 7 days before commencement of such application.  If the offer was accepted but no agreement of sale and purchase was entered into at the end, there should be no contract based only on this offer and acceptance.

70.  Mr Alexander Wong submits that the legal definition of an offer is an expression of both intention and willingness to contract on certain terms but the applicants’ offer lacks this essential quality.  Their offer is not an offer at all as the applicants did not possess the slightest intention nor capability to carry out the terms of the offer into effect even if such is accepted.  There is also no document nor any other gesture by the applicants which would amount to their expression of a real genuine intention and willingness to reach a legally enforceable agreement with R1.

71.  It is submitted that the offer or step taken by the applicants only consisted of one letter with a covering email which was dressed up as an offer attempting to satisfy the statutory requirement but was in effect a “sham” and “bogus”.

72.  On the other hand, Mr Julian Chan submits that whether reasonable steps have been taken by the applicants would have to be decided in its own context and according to the particular facts and circumstances of the present case.

73.  We note that the applicants here are not property developers but are 16 private individual co-owners of the Lots who are motivated by a desire to realise the redevelopment potential therein.  It is not disputed that in around 2010, all 20 co-owners of the Lots discussed and considered a collective sale of the whole of the Lots but R1 ultimately pulled out of the plan for a collective sale. As a collective sale was not possible in the absence of R1’s agreement, the 19 co-owners then proceeded in late 2010 to advertise their 19 flats for sale to the market by way of a tender document but this attempted sale was unsuccessful.

74.  In around 2015, the late Mr Edward Chow (of R2) made another attempt to realise the redevelopment potential of the Lots.  He approached all co-owners of the Lots to discuss the possibility of a partnership with a developer to redevelop the Lots.  As R1 did not participate, the attempt was unsuccessful.

75.  In 2017, the 16 applicants entered into an agreement between themselves whereby all agreed to jointly apply for compulsory sale of the Lots.  They set up a limited company named Stewart Terrace Re-Development Company Limited to carry out the plan and manage the legal proceedings.

76.  During cross-examination, Mr Hugo Christopher Barrett (the applicants’ factual witness) said that the applicants communicated with the respondents during 2017 to 2018 hoping to purchase their undivided shares in the Lots. They made several attempts to discuss the matter with Ms Mary Chung of R1 including sending letters, e-mails, and physically visiting the door of Flat 1.  However, Ms Chung refused to communicate or to engage with them at all. She even refused to open the door when the applicants’ representative personally visited her trying to have a face-to-face discussion.

77.  In around July 2018, the applicants engaged a valuation expert, Mr Alnwick Chan, to prepare a valuation of all the flats and car-parking spaces within the Development which formed the basis for the prices to be offered to the respondents to purchase their undivided shares.

78.  The applicants then through their solicitors made written offers to R1 to R4 in August 2018 based on Mr Alnwick Chan’s valuation.  The amount offered to R1 on 3 August 2018 was HK$148,225,440.

79.  Afterwards, R3 and R4 respectively reached settlement with the applicants and they no longer oppose the application.  With the leave of the tribunal, their oppositions were withdrawn.  According to Mr Julian Chan, R2 to R4 have decided that instead of selling their properties to the applicants, they would prefer to receive a share of the sale proceeds upon a successful auction of the Lots.  R2 also does not argue that reasonable steps have not been taken by the applicants.  In other words, R1 is the only one who genuinely opposes a compulsory sale order and argues on the issue of reasonable step.

80.  Mr Julian Chan draws the tribunal’s particular attention to Ms Chung’s oral evidence that she desires to stay in her flat instead of selling it or moving out; the flat is her “home sweet home” and is very special to her; and her wish to stay in the flat is more important than any amount of monetary compensation.

81.  As emphasized by Mr Julian Chan, it is not a case where R1 had accepted the offer but the applicants refused to purchase its flat or provide a draft agreement for sale and purchase by relying on some unfair terms in the offer letter.  The situation was that R1 had deliberately failed to respond and took no step whatsoever to consider or explore the sale of its flat.

82.  Given such factual context, Mr Julian Chan submits that it is highly disingenuous of R1 to now nit-pick on certain wordings of the written offer made or argue that there were insufficient negotiations on fair terms.  In any event, the wordings used in the offer letter were standard one and had nothing unreasonable (Mr Julian Chan’s textual analyses are not elaborated here).  R1’s suggestion that the applicants have funding problem is pure speculation and Mr Alexander Wong’s describing the offers as “shams” and “bogus” is inappropriate and without evidential basis.

83.  We agree with Mr Julian Chan’s analyses on the meaning and implications of the various paragraphs in the offer letter.  Given the very strong attitude of R1 against the sale of its undivided shares to the applicants, to look at the situation from a practical perspective, even if the language of the offer letter was modified with the words not to Mr Alexander Wong’s liking removed, it is not going to make any difference as to what could be achieved.

84.  Instead of confining ourselves to the language used in the offer letter, the previous history of dealings between the applicants and R1 shall be considered as a whole in assessing whether reasonable steps have been taken.  Having considered the efforts made by the applicants for negotiations including but not limited to the offer letter dated 3 August 2018, R1’s disengaging itself to any negotiation and its very firm position, we opine that the applicants have already taken the steps which they could reasonably take in an attempt to acquire all the undivided shares in the Lots.

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

85.  The applicants adduce the building expert evidence of Mr So Kin Shing (“Mr K S So”), a structural engineer of K S So & Associates Limited and Mr Benson Wong Sai Ning (“Mr Benson Wong”), a building surveyor of Benson Wong & Associates Limited.

86.  Mr K S So conducted a structural survey of the Development and prepared a Structural Assessment Report dated 18 March 2019.  Mr Benson Wong conducted a condition survey of the Development and prepared a Condition Survey Report dated 18 March 2019 taking into account the Structural Assessment Report prepared by Mr K S So. Mr Benson Wong opines that redevelopment is justified due to both the age and state of repair of the Development.

87.  None of the respondents adduced building expert evidence to rebut the reports complied by Mr K S So and Mr Benson Wong. R1 put the applicants to proof whether redevelopment is justified on grounds of age or state of repair.  Nevertheless, Mr Alexander Wong challenges the building expert opinion in many aspects, summarised as follows: -

(1) All units in the Development are of tenantable conditions (except Flat 20 which is vacant but not in disrepair).  They are neither in a state of disrepair or in a poor condition. Further, the repair costs are relatively low as compared to the EUV.

(2) On the question of age, reference should be made to the lifespan of a building which includes physical life span and economic life span.

(3) The Development is of good design and was rebuilt just 30 years ago.  It is far from the end of its physical and economic life span which can be shown by the rentals achievable in tenancies.

(4) The repair costs in the sum of $36,495,789 proposed by Mr Benson Wong are excessive and the costs for the following items could be deducted or removed:- (i) replacement of the metal A/C frames, the steel doors, the metal railings and handrails, the external wall tiles and rendering and etc., (ii) repairing the main roofs owned by individual owners, the flats internally, the garages internally, the driveway and external ground, the play equipment and storage room, the swimming pool, the metal gates, the changing room, the drainage systems and etc., and (iii) electricity installation, fire service installation, contingencies and professional fees.  After the deductions and removals, the repair costs should be $10,490,795 only.

(5) Flat 20 has been occupied by a school until recently, and should have compiled with the strict requirements of repair, health and safety under the Education Regulations of the Education Ordinance.

(6) None of the building expert reports point out or identify that there are defects which are structural in nature and that there are immediate dangers in the Development.

(7) The construction costs of a building similar to the existing building proposed by Mr Benson Wong at $111,450,000 is ridiculously low.

88.  We note that the two valuation experts appointed by the applicants and R1 both consider the internal condition of all flats in the Development either good or very good.

89.  During the site visit, we observe that the Development was well maintained and some of the repair items proposed by Mr Benson Wong did not appear to be necessary.  Except Flat 20 which was vacant at the time of inspection, the other inspected units were properly maintained by their owners or occupiers and could hardly be regarded as dilapidated in any real sense.  The Development as a whole was not dilapidated at all or so functionally obsolete to such an extent that deserves to be pulled down.  We venture to say that the residents of the Development are probably in a living condition that is way better than many ordinary households in Hong Kong.

90.  We have reservation about Mr Benson Wong’s conclusion that the Development is in a poor state of repair.  The Development obviously is not of the type and condition that should be accorded with redevelopment priority.  We share Mr Alexander Wong’s observations that, in any event, the repair cost of the Development is relatively low when compared to its EUV [i.e. about 0.67% (Mr Alexander Wong’s submissions) to 2.32% (Mr Benson Wong’s findings) only].

91.  In Fairtex Development Ltd v Tso Pee Hong & ors[14], it was suggest that the tribunal does not have to formulate any general test for age and state of repair, and would consider if the expert evidence is sufficient to show that the age and state of repair is in such state that redevelopment of the relevant lot is justified.

92.  In Top Sai International Limited v Cheng Kai, executor of the estate of Chan Hue also Known as Chan Sum Hiu, deceasedl[15], it was said that:-

“ ……when the requirement of “the age” of the building is considered， [the Tribunal] should not restrict [its] consideration to just the physical age of the building.  There are many factors related to the age of a building which should also be considered...... the Tribunal has discretion to determine at what stage a building should be redeveloped after considering all the relevant factors concerning the age of the building in question.

24. The physical age of a building is clearly one of the considerations， but it would not be the only consideration.  The physical conditions of a building and the amount that would be required to maintain the building are other factors that the Tribunal should consider，as they would affect the decision on whether the life of a building should be ended or prolonged.  The obsolete design of a building should also be considered as it has an important impact on whether it is too old to serve a modern society.” [Emphasis added]

93.  It is not in dispute that the Development, consists of low-rise buildings, was erected more than 72 years ago. As compared with modern buildings, its design may be to a certain degree dated in certain aspects.  That notwithstanding, we observe no major safety or any hygienic issue in the Development and there is no convincing evidence which may suggest that a reasonable living standard cannot be achieved without significant alteration or renovation work being undertaken thereto.  It is clear that the Development is not in a poor physical state nor is it so obsolete, physically or functionally, that justifies a complete pull-down and immediate redevelopment. As the Development was renovated some 30 years ago, we take the view that regardless the length of its design life, with adequate repair and maintenance[16] it can likely stand well and continue to serve its function for some days in the years to come.  In fact, it is also not the conclusion of the building experts that there is any immediate danger or great safety concerns which warrants demolition of the Development at this stage. Realistically speaking, such reasonably-maintained apartments in low-density environment particularly in the luxury residential district, like the Peak, are still in demand irrespective of their age.

94.  The enactment of the Ordinance in 1998 was one of the long term measures introduced by the government to increase the speed and scale of urban renewal. The major objectives of urban renewal are to improve the urban environment and urban layout by replacing old and run-down areas with new development to be served by adequate transport, infrastructure and community facilities and to achieve better utilisation of land in the urban area by thinning out population from over-crowded areas. The present scheme of enabling majority owners to compulsorily dispose of the whole lot(s) despite objections by the minority owners necessarily comes with the disadvantage of undermining private property right of individuals to a certain degree. Such undermining of right, in our view, is unwarranted unless the building or the development concerned is of such a condition or in such a circumstance that genuinely merits redevelopment, hence fulfilling the criteria laid down by the statute.

95.  By reason of the above discussions, we are not satisfied that redevelopment of the Development is justified on the ground of its age or state of repair.

THE EUV OF ALL UNITS IN THE DEVELOPMENT

96.  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.

97.  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.”

98.  There are disputes between the applicants and R1 on both the EUV and RDV valuations, and they rely on the valuation expert opinion of Mr Alnwick Chan and Mr Chris Tang respectively.

99.  After a without prejudice meeting, the two valuation experts prepared their Joint Statement dated 10 December 2019.  They agree on the facts and attributes of the flats (i.e. except Flat 1 owned by R1) and car parking spaces in the Development and the comparables, the selection of comparables and their adjustments. The two valuation experts agree on the EUV of all flats and car parking spaces except Flat 1.

100.  Despite the agreements between the two valuation experts, R2 contends that:- (1) the internal condition of Flat 10 should be regarded as very good instead of good; (2) flat type adjustment to Maisonette flats should be +1% only instead of +3% because they are more inconvenient for families who have infants and residents who are older or handicapped; and (3) there should be top floor adjustment at -1% to Flats 14, 15, 16, 19 and 20 to reflect their exposure to more extreme temperature changes and higher susceptibility to water seepage.

101.  Having reviewed the respective EUV reports, the Joint Statement and the replies of the two valuation experts at trial, we agree to adopt the EUV as agreed by them.

102.  Since the respective accesses to car parking spaces Nos 17, 18, 21 and 22 are blocked by their adjacent car parking spaces in the building plans, the tribunal has further asked the parties after the trial to clarify whether or not they have direct access.  Upon reviewing the assignment plans of car parking spaces Nos 17, 18, 19, 20, 21, 22, 23 and 24 subsequently provided by the applicants, we agree that car parking space Nos 17, 18, 21 and 22 have direct access, and accept their respective values as agreed by the 2 valuation experts in the Joint Statement.

103.  Further, despite the arguments submitted by Mr Adrian But for R2, we consider the internal condition of Flat 10 should be good only instead of very good.  The Maisonette flats that are located in the front of the respective buildings justify an adjustment at +3%.  The subject roofs are less susceptible to temperature changes and water seepage because of their particular location and better maintenance and, therefore, nil adjustment for top floor is necessary in our opinion.

EUV of Flat 1

104.  Mr Alnwick Chan values Flat 1 in 2 scenarios. In his primary case, he discards the staircase, basement floor and basement extension which are currently occupied by R1, and assesses the EUV of Flat 1 at 58,495,726. He considers these structures and/or extensions are not owned by R1. They are unauthorized structures (“UBW”) and should be excluded in the valuation.

105.  Mr Alnwick Chan also provides a fall-back scenario for reference. In case if the tribunal agree with Mr Christ Tang to include the UBW in the assessment, the EUV of Flat 1 should then be $69,680,489, in which the staircase, basement floor and basement extension are converted at 1/4, 1/4 and 3/4 respectively.

106.  Mr Chris Tang assesses the EUV of Flat 1 at $93,300,000. He takes the floor areas occupied by the staircase and basement floor as the saleable areas of Flat 1 and converts the basement extension at 4/5.  That notwithstanding, Mr Chris Tang agreed in the Joint Statement dated 10 December 2019 the EUV of Flat 1 at $69,680,489, which is the fall-back valuation of Mr Alnwick Chan.

107.  Despite the agreement, during oral examination Mr Chris Tang said that the agreement in the Joint Statement was a mistake and the EUV of Flat 1 should actually be $93,300,000, i.e. the same as his assessment in the report dated 24 September 2019. He has also supplemented at trial that if the adjustments and parameters as agreed by him are taken into consideration, the EUV of Flat 1 should then be at least $91,700,000.

108.  It is inconceivable to us that Mr Chris Tang, as a professional valuer, would claim at trial that what had been agreed by him in the Joint Statement was a mistake.  During cross-examination, Mr Chris Tang admitted that he had been given the opportunity to read each and every page of the Joint Statement on EUV before signing on them. He could not provide any credible explanation as to what exactly the mistake was and how the mistake was made. Nothing has been provided by Mr Chris Tang to show or suggest that he had actually intended to include “$93,300,000” (or another figure of $91,700,000 as he said during oral examination) as a disagreed item in the Joint Statement.  We have every reason to suspect that there was no genuine mistake on the part of Mr Chris Tang but only his attempt to shift positon and to withdraw from what had been agreed.  Such retraction from a committed position of a party as confirmed by their expert in a duly signed and filed court document shall not and would not be lightly allowed without adequate explanation being provided.

109.  As to whether the basement floor and the staircase shall be counted in assessing the EUV of Flat 1, Mr Alexander Wong contents, inter alia, that: -

(1) If there is a dispute on the legal title of the basement, that matter should be dealt with in the appropriate forum rather than the Lands Tribunal. The tribunal should follow the compensatory approach held by the Court of Final Appeal in Good Faith[17] and Capital Well to be concerned with the interest, whether or not it is legal, equitable, possessory or otherwise, enjoyed by the minority owner which he/she would have to give up if a compulsory sale order to redevelopment is being granted, instead of making a finding or determination of the legal position of the title of the minority owner so long as he/she has a defence against the attack against his/her proprietary interest on a balance of probability.

(2) The tribunal is entitled to take judicial notice that the developer would in the first assignment reserve everything except those assigned to Flat 20 and then after the DMC, anything left would still belong to the developer. Therefore, even if the basement beneath Flat 1 had not been effectively assigned to Flat 1, R1 could still be entitled to the basement by adverse possession.

(3) Even if the basement area was originally designated as common area, R1’s right of exclusive enjoyment of the basement had been assigned as the appurtenance of Flat 1 to R1 in 2003. Such right had been acquired or given through the first assignment and/or the acquiescence of the other owners of the Lots to R1’s right after R1 purchased Flat 1.

(4) The management office had actual notice of R1’s construction works. Acquiescence and waiver can give rise to rights that bind the successors in title if proprietary estoppel arises from acquiescence. It cannot be disputed that substantial expenses were incurred by R1 in renovating the basement. A value should be attached in light of the proprietary right R1 has on the basement which, therefore, commands a higher EUV.

110.  Concerning the UBWs including the internal staircase, the showering facilities of the maid’s room and the basement extension, Mr Alexander Wong submits, inter alia, that the staircase works are minor in nature and did not involve any structural change or removal of structural wall.  They should not fall into the description of “material change” in section 16(1)(g) of the Buildings Ordinance nor would the application for such construction have been refused.

111.  About the basement floor and the staircase, Mr Julian Chan, in gist, submits that: -

(1) Whether R1 has the contractual right to exclusive use and occupation of the basement and the staircase depends upon the construction of the DMC. Unless an area is specifically assigned to a particular unit in an assignment, it will be a common area.  Since the right to exclusive use and occupation of the basement below Flat 1 and the staircase to Flat 1 has not been included in any assignments for Flat 1, it is a common area.

(2) In the tender document advertisement by the developer in 1991 shortly after the execution of the DMC for the Development, the usable floor area of Flat 1 is stated as approximately 2,038 square feet (i.e. 189.34 square meters) which is much smaller than the area now claimed by R1 of 273.58 square meters (i.e. 2,945 square feet).  It is simply irrelevant that over a decade after the execution of the DMC, an estate agent, the Rating and Valuation Department, R1 or anyone else mistakenly believed that certain common area were included within Flat 1.

(3) The only argument that R1 raises in relation to the DMC is Clause 22 of the Fifth Schedule therein. R1 contents that Clause 22 prohibits the use of common parts for storage.  However, in the 1988 alteration and additions plans the basement underneath Flat 1 is labelled as “existing store (non-domestic)”.  Thus the basement cannot be common parts as under the DMC the basement could not be used for storage purpose. R1 regards this as their “strongest evidence showing our basement is not common part”[18]. As pointed out by the tribunal at trial, Clause 22 of the Fifth Schedule is a restrictive covenant prohibiting “owners for the time being” from using the common parts for storage and the restriction does not apply to the manager who certainly is entitled to use the common parts for storage of items for communal use. Such being the case, R1’s strongest point about the DMC is doomed to fail.

(4) R1’s argument, made for the first time in Mr Alexander Wong’s closing submission, that it has actually been assigned title to the basement are illogical and difficult to follow.  First, it is absurd to suggest that “judicial notice” can be taken of the contents of a particular assignment as the contents of different assignments vary. There is simply no evidence at all that the developer reserved the basement to itself or connected the basement to Flat 1 with a staircase. Indeed, all the evidence available indicates otherwise.

(5) The unchallenged evidence of Mr Barrett is that the basement floor was unobstructed in around 2000 when he visited the then-tenant of Flat 1 and the basement was then used for communal storage of renovation and construction materials. In other words, the basement was unobstructed and freely accessible when occupied by a tenant in around 2000 and was not annexed as part of Flat 1 even up to 2000.  It is submitted that having another means of access by staircase within Flat 1 to a freely accessible common area cannot constitute an annexation.

(6) Concerning the arguments of “acquiescence, waiver and estoppel”, the manager simply does not have the power to waive or acquiesce in R1’s breach of the DMC.  It is trite that for there to be any acquiescence or waiver, there must first be knowledge by the Manager of the factual circumstances of the breach, but R1’s evidence in this regard is only based upon vague and general allegations and is not particularised. In relation to other co-owners, there is similarly no evidence or particulars as to when or how each of them had knowledge of R1’s breaches.  Neither the manager nor other co-owners have ever done any act which would make it unjust for them to now pursue against R1 for breaches of the DMC and to be granted relief.  To the contrary, it is R1 that has enjoyed years of unlawful use of common areas and has obtained an undeserved windfall.

(7) Mr Alexander Wong’s suggestion that R1 had detrimentally relied upon the manager’s acquiescence by paying substantial expenses for the renovation in 2003 and 2004 is contradicted by Ms Chung’s evidence that she believed the basement was part of Flat 1 from the time she inspected it, before R1 purchased Flat 1 in 2003.

(8) Concerning “adverse possession”, it is not reasonably arguable as a matter of law[19] that a co-owner of a building who has encroached on the common part can rely upon it as a defence to an action to enforce provisions of the DMC.

(9) To conclude, the basement floor and the staircase are common area. It is unarguable that the R1 has any interest in the basement floor and the staircase whether legal, equitable, possessory or otherwise.  As agreed by the valuation experts, Mr Chris Tang and Mr Alnwick Chan, insofar as the tribunal determines that R1 does not have any interest in the basement floor and the staircase, no value shall be attached thereto and the valuation of Mr Alnwick Chan should be adopted as agreed by the experts in this regard.

112.  Concerning the basement extension, Mr Julian Chan submits, inter alia, that it is common ground that a cockloft and staircases has been constructed therein.  The unchallenged evidence of Mr K S So is that such a cockloft and new staircase would require approval of the Buildings Authority as it requires cutting through a load-bearing party wall.  As R1 has made no suggestion that any approval had been given by the Buildings Authority, the cockloft and the new staircases must be UBWs and should not be included in the EUV valuation.  The only possible value it could ever bring would be the cost of construction which is insignificant.

113.  As to whether the basement floor, the staircase and the basement extension shall be included in the EUV valuation, Mr Adrian Butt submits, inter alia, that: -

(1) The various drawings, annotations and calculations as featured under the basement floor and ground floor of the 1949 Plans and the 1988 Plans all point to the conclusion that the floor area of the basement floor and the staircase were never designed to be included as part of Flat 1.

(2) The design and user of the basement floor and the staircase behind the front entrance of No 81 Peak Road were all along communal in nature.  The various provisions in the DMC consistently provide that Flat 1 only consists of the floor area at ground floor but not at basement floor.

(3) R1’s expressed withdrawal of the averments of adverse possession in the draft witness statement of Ms Chung during the pre-trial review amounts to a clear and unequivocal election by R1 to concede and withdraw her claim on “adverse possession” or otherwise based on “continuous and uninterrupted occupation” of the basement since her purchase.  R1 should not raise such allegation again through the backdoor by inviting the tribunal to make any so-called “incidental factual finding” on “adverse possession” in the context of a compulsory sale application in awarding R1 a “bigger EUV” based on its purported possessory title in the basement. In any event, no plea or evidence was given by R1 on any factual basis giving rise to “adverse possession” or “equitable” title and in the absence of these, R2 was entitled to treat the claim of adverse possession to have been effectively abandoned.

(4) In any event, R1’s claim on “adverse possession” is doomed to fail because R1 was also a tenant in common of the common parts of the Development and it is highly doubtful whether R1 could dispossess its “own land”.  Ms Mary Chung believed that the basement floor and the staircase were part of their property which is inconsistent with having a prerequisite intention to “dispossess” all other co-owners of those area.

(5) The mere “user” of a land does not give rise to any proprietary right or “equitable ownership” as contended by R1.

(6) R1’s reliance on “equitable right” under the assignment is factually and legally misconceived as the doctrine of “equitable assignment” is only applicable to a situation where no deed of assignment was formally or legally executed and that equity would intervene to rectify such a defect.  In this case, R1’s deed of assignment had been signed, sealed and delivered.  The fact that the basement had not been included under the parcel clause in the schedule to the assignment must be that it was not contractually agreed to form part of the land to be demised or sold to R1.

(7) Based on the totality of evidence given by Ms Mary Chung of R1 together with Mr Benson Wong and Mr K S So, it can be gathered that building works and structural alterations did take place at the basement and the basement extension. In addition to the breaches of the Buildings Ordinance arising from the structural alterations or UBW, section 25 thereof was also breached.  The conversion of the common parts also constituted serious ongoing breaches of the restrictive covenants in Clauses 4, 5, 6 and 22 of the Fifth Schedule to the DMC.  The breaches committed by R1 created real and imminent risks of enforcement by the manager and/or other co-owners.

(8) As regards R1’s arguments of “acquiescence” or “abandonment” of the DMC, waiver etc., R2 contents that enforcement action by the Buildings Department under the Building Ordinance cannot be “waived” or “acquiesced”. It was also not within the power of the co-owners or manager to waive or abandon enforcement of the DMC covenants. The manager and/or co-owners were all along refused entry by R1 to enter into Flat 1.  No inspection could have been carried out. The threshold required for “abandonment” of covenant is high and cannot be lightly inferred. “Consent”, “waiver”, “acquiescence” or “abandonment” are mostly estoppels which operate in personam. They only benefit the current covenantor (i.e. R1) and could not be binding on R1’s successors-in-title.  In other words, the co-owners shall be entitled to evict a purchaser/occupier from the basement once he came into possession after acquiring the basement from R1.  The potential defence of “acquiescence” (even if established) cannot enhance the EUV of the basement from the standpoint of a willing purchaser.

114.  We do not consider it necessary and have no intention to deal with each and every argument articulated by the parties as summarised above suffice it to say that we generally find the arguments of the applicants and R2 more convincing.

115.  It should be specifically noted that the approved building plans including the alteration and additions plans approved in late 1980s clearly show that the basement under Flat 1 is planned for non-domestic use only and, apart from the common staircase in the front of the building, the basement is not linked with Flat 1.

116.  Although the saleable area of Flat 1 as shown in the records of Rating and Valuation Department may include the staircase, basement floor and /or basement extension, it is not the conclusive evidence as to whether these areas form part of Flat 1 as a matter of law.

117.  The records of the Rating and Valuation Department are prepared for the purpose of rate and government rent assessment only.  R1’s reliance on the department’s records is neither convincing nor justified as the department itself expressly disclaims warranty on the accuracy of the information contained in their records and warns against reliance on the same.

118.  The basement extension above the bedroom at the back of Flat 1 and the staircase leading to it obviously do not exist at all on the plans.  There is no evidence in these proceedings that the UBWs have been approved by the Building Authority.

119.  We take the view that R1 does not own the staircase or the basement floor which are the common areas of the Development.  We see no basis in the contention that R1 has acquired any interest, legal, equitable, possessory or otherwise, in the basement floor and the staircase which ought to be reflected in the EUV assessment.

120.  The basement extension and the basement floor are unauthorized structures and/or extensions. All these should be excluded in the valuation.  Even if the UBWs have existed for a period of time and even if R1 has also occupied them for a period of time without facing enforcement action in the past, the UBWs are always subject to the risks of enforcement action by the government and other owners of the Development. Having weighed the advantages and disadvantages under the market reality approach, we consider that a prudent buyer would not pay for them and hence would not give value to the basement extension and the basement floor in the EUV valuation.

EUVs of All Units in the Development

121.  The EUVs of all units in the Development as at the relevant date of valuation, i.e. 1 July 2018, and adopted by this tribunal are appended below: -

Flat	EUV		Flat	EUV
1	$58,495,726		11	$83,834,213
2	$72,793,750		12	$76,996,502
3	$71,009,141		13	$92,805,352
4	$73,006,565		14	$89,033,131
5	$75,827,731		15	$90,315,389
6	$73,631,002		16	$84,864,499
7	$74,711,520		17	$56,298,060
8	$90,106,380		18	$57,297,240
9	$69,853,680		19	$62,785,289
10	$72,476,321		20	$74,007,226
			Sub-total:	$1,500,148,717

Car Park	EUV		Car Park	EUV
1 - 25, 27 - 28	@ $2,440,000		26, 29 - 30	@ $2,196,000
			Sub-total:	$72,468,000

122.  We therefore assess the total EUV of the Development at $1,572,616,717 (i.e. $1,500,148,717 + $72,468,000).

RESERVE PRICE FOR THE PUBLIC AUCTION

123.  Although we are not satisfied that an order for sale should be granted in favour of the applicants, we nonetheless proceed to determine the reserve price for public auction below in case we are wrong in refusing to grant an order for compulsory sale.

124.  The two valuation experts updated their RDV assessments as at 1 November 2020 and prepared their Joint Statement dated 18 December 2020.  They have also prepared a Supplementary Joint Statement dated 30 December 2020 to provide particulars of a recent public land sale transaction (i.e. Nos 2, 4, 6 and 8 Mansfield Road).

125.  The two valuation experts agree on the registered site area of 5,708.75 square meters, the net developable site area of 5,242.01 square meters (i.e. with deduction of the western side right-of-way of 466.74 square meters, whilst the eastern side right-of-way is assumed to be extinguished), the existing plot ratio of 0.927, the bonus plot ratio to be achieved of 0.1049 (i.e. based on the assumption that 110 square meters would be surrendered for street widening), the total plot ratio of 1.032 (i.e. 0.927 + 0.1049), and the maximum permitted gross floor area of 5,410 square meters.  Nevertheless, Mr Chris Tang opines that the total gross floor area for assessment should be about 5,952.82 square meters (i.e. including 10% bonus from Beam Plus).

126.  While Mr Alnwick Chan assesses the RDV by residual method only, Mr Chris Tang has adopted both residual method and direct comparison method.  In the assessment by direct comparison method, Mr Chris Tang compares the Lots with the transaction of Hotung Garden (i.e. section A of Rural Building Lot No 670) at $3,388,371,606 on 7 August 2020 and derives the RDV at $4,160,000,000.

127.  We prefer Mr Alnwick Chan’s approach to discard the direct comparison with Hotung Garden transaction because it was an inter-related parties’ transaction and with reference to its agreement for sale and purchase, it appears to include the construction works on the lot.  On top of that, we consider Mr Chris Tang’s assessment in this regard arbitrary without reasonable explanation as to why he applies a discount of 40%.  It is also out of line with his assessment by residual method at $3,003,000,000 only.  Nevertheless, we are of the view the GDV derived by residual method should be further reviewed with reference to the recent Mansfield Road transaction.

128.  In the assessment by residual method, the two valuation experts agree to develop the Lots into 10 houses of 3-storey over a 1-storey carport and on the selection of 11 comparables.  However, they disagree on the details of both the residual valuation and the hypothetical development particularly the total areas in the assessment of gross development value, on how to analyse the comparables, and on how to make adjustments to the comparables (except the adjustments for time, location and building age which are agreed).

129.  Mr Alnwick Chan assesses the RDV of the Lots as at 1 November 2020 at $2,684,000,000.  The details of Mr Alnwick Chan’s residual valuation including the following items are set out in his supplemental report dated 9 December 2020: -

(1) The total saleable area of 5,447.50 square meters (i.e. inclusive of 37.5 square meters for balconies and utility platforms as green features that are exempted in the calculation of gross floor area);

(2) The gross development value on average at $854,827 per square meters;

(3) The demolition costs at $2,450 per square meter;

(4) The construction costs at $77,120 per square meter;

(5) The estimated premium for extinguishment of the eastern side right-of-way at $10,000,000;

(6) The estimated cost for applying minor relaxation of plot ratio at $300,000;

(7) The marketing cost at 5% of gross development value;

(8) The professional fee at 6%;

(9) The interest rate at 5% per annum;

(10) The development period of 3.5 years (i.e. demolition period of 0.75 year, construction period of 3 years and an overlapping period of 0.25 year); and

(11) The profit on costs at 20%.

130.  We prefer Mr Alnwick Chan’s residual valuation to that of Mr Chris Tang. Mr Chris Tang has not analyzed and assessed the effective areas of garden, roof and etc. of the comparables and the hypothetical development.  He bumps up the total floor areas of the hypothetical development to about 5,682.23 square meters (i.e. 5,952.82 square meters less club house of 270.58 square meters) without justification.  We believe that the Beam Plus as quoted by Mr Chris Tang can never have the floor area increased to such a high level for the purpose of comparison.  Furthermore, Mr Chris Tang has not provided the details of his hypothetical development, the development period or the breakdown of construction costs.

131.  Regarding the adjustments to the comparables, while the parties have agreed on the adjustments for time, location and building age, for those disagreed items we prefer the adjustments proposed by Mr Alnwick Chan (i.e. such as the adjustment for size at an interval basis from 2% to 10%, the adjustment for view from -7% to +10%, the adjustment for headroom at an interval basis from 0% to 4%, the adjustment for privacy at -15% and the adjustment for amenity facilities at -2%).

RDV of the Lots as at 1 November 2020

132.  Based on the agreements between the two valuation experts and the above determinations, we accept the residual valuation of Mr Alnwick Chan at $2,684,000,000, equivalent to an accommodation value of about $495,967 per square meter (i.e. about $46,076 per square foot). This should be the reserve price for public auction if there is any.

133.  We consider the Mansfield Road site (i.e. at an accommodation value of $498,070 per square meter) is not very similar to the Lots, though they are located in the same district, the Peak.  While the Mansfield Road site is larger in size and at a much higher plot ratio of 1.92, part of it appears to enjoy better view and most of it appears to be level with better accessibility.  The parties have not analysed the Mansfield Road site and compared it with the Lots in details.  Nonetheless, we are of the general view that the accommodation value between the two should not be far apart, which tallies with the current difference of about $2,103 per square meter only.

ORDER

134.  Since the applicants do not own more than 80% of the undivided shares in Lot 299, we are not satisfied that an order for sale of the Lots on which the Development was erected should be granted.  In any event, we consider that the redevelopment of the Lots is not justified on the ground of age or state of repair.  The application shall be dismissed.

COSTS

135.  We make a costs order nisi that the applicants do pay the costs of these proceedings (including any reserved costs) to R1 and R2, with certificate for one counsel to each of R1 and R2, to be taxed on the High Court scale if not agreed.  Unless any parties apply by summons to vary the costs order nisi, it shall become absolute upon expiration of 14 days from the date of this judgment.