CHEER CAPITAL LTD v. UNIBASE INVESTMENT LTD AND OTHERS

LDCS 5000 & 6000/2013
(Consolidated)

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LAND COMPULSORY SALE MAIN APPLICATION

NO.5000 OF 2013

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NO. 6000 OF 2013

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(Consolidated pursuant to the Order of
His Honour Judge K W Wong dated 7^th March 2014)

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JUDGMENT

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1.  The applicant makes the following two applications (“the Applications”) for orders for sale of the following 2 pairs of 2 lots each under section 3(2)(b) of the Land (Compulsory Sale for Redevelopment) Ordinance, Cap. 545 (“the Ordinance”). 

	LDCS 5000/2013		LDCS 6000/2013
	1st Pair of Lots		2nd Pair of Lots
Lot	KIL 10534 (“Lot 1”)	KIL 10532 (“Lot 2”)	KIL 10505 (“Lot 3”)	KIL 10564 (“Lot 4”)
	1st Pair of Buildings		2nd Pair of Buildings
Building erected on the lot	Nos. 68 & 68A Kimberley Road   (“Building 1”)	Nos. 70 & 70A Kimberley Road   (“Building 2”)	Nos. 72 & 72B Kimberley Road   (“Building 3”)	Nos. 72A & 72C Kimberley Road   (“Building 4”)

It is to be noted that Nos. 68, 70, 72 and 72A Kimberley Road are in the front portions and that Nos. 68A, 70A, 72B and 72C Kimberley Road are in the rear portions of the respective buildings (“the Buildings”). 

2.  There is erected on each lot a 7-storey building starting from the lower ground floor to the 5^th floor. According to a Domestic Permit (hereinafter referred to as “the occupation permit”) issued on 5 December 1955, the Buildings were permitted to be occupied and used for domestic purposes though during our inspection on 17 March 2015, we noted the units on ground floor fronting onto Kimberley Road (ie G/F of Nos 68, 70, 72 and 72A Kimberley Road) appeared to have been used and occupied as shops[1].  Indeed, most of the ground floors in the surrounding developments are mainly for retail purposes with a number of restaurants in between. There appears also to be a clustering of wedding gown shops along the road, some occupying the upper floors and lower floor of the buildings as well.

3.  The 1^st Pair of Buildings at Nos 68 & 68A Kimberley Road and Nos. 70 & 70A Kimberley Road are connected and served by four common staircases whereas the 2^nd Pair of Buildings at Nos 72 & 72B Kimberley Road and Nos. 72A & 72C Kimberley Road are similarly connected and served by four common staircases. Unless otherwise specified, we shall call each lot by their street number (eg No 68) and the lots collectively as “the Lots”.

4.  H H Judge K W Wong ordered on 7 March 2014 that the two applications be heard together in one trial on the basis that the applicant agrees to assess the Redevelopment Value of the Lots as a merged site.

Live Respondents Remaining

5.  The applicant has discontinued the proceedings against the 2^nd respondent in LDCS 5000/2013 and the 1^st, 2^nd and 4^th respondents in LDCS 6000/2013 following the acquisition of their respective units in the Buildings.

6.  The following respondents are the 3 live respondents remaining on record:

LDCS	R	R’s name	Premises
5000/2013	R1	Unibase Investment Limited (“Unibase”)   holding 5/F, No 70A on trust for R3	5/F, No 70A overlooking scavenging lane
	R3	Andrew Kam Lawrence Lam Keith Lam (“Beneficiaries”)
6000/2013	R3	Grand Sea Holdings Limited (“Grand Sea”)	LG/F, No.72B abutting scavenging lane

7.  Unibase is a trustee holding 5/F, No 70A upon trust for the Beneficiaries.  By the Order of H H Judge K W Wong dated 7 March 2014, Unibase has been excused from participating and attending the trial of these proceedings and will be bound by the determination of the Tribunal in these proceedings in relation to the Beneficiaries.

8.  Hence, there are in effect only two active live respondents remaining in these proceedings, namely the Beneficiaries and Grand Sea. Mr Robin D’Souza (“Mr D’Souza”) acts for the Beneficiaries and Mr Anthony Ismail (“Mr Ismail”) acts for Grand Sea in the present proceedings. The applicant is represented by Mr Patrick Fung, Senior Counsel (“Mr Fung”) and Ms Nancy Ngai.

Issues for determination by the Tribunal

9.  The parties have failed to arrive at an Agreed List of Issues.

10.  The applicant has consolidated below however the issues for determination by the Tribunal by reference to the three Lists of Issues filed by the applicant, Grand Sea and the Beneficiaries.

A. Issues not in dispute but subject to proof by the applicant

(1) Whether the applicant is entitled to make the two Applications?

(2) Whether redevelopment of the Lots is justified due to the “age” and/or “state or repair” of the Buildings?

B. Issues in dispute between parties

(1) Whether the applicant has taken reasonable steps to acquire all the undivided shares in the Lots;

(2) What are the respective market values which are usually termed as the existing use values (“EUV”) of all units in the Buildings as at 28 December 2012 for the purposes of Part 1 of Schedule 1 to the Ordinance.

(3) If an order/orders for sale should be granted, what should be the reserve price for the sale of the Lots together as a whole in one auction (i.e. redevelopment value of the Lots as a merged site (“RDV”)?

(4) What should the particulars and conditions of the sale be.

C. Major ancillary issues

The following issues are ancillary to Issue B.(2) (i.e. the EUV):

(1) Whether the enclosed areas of the yards adjacent to the 6 units on LG/F should be included in the assessment of the respective EUVs of the 6 units on LG/F as at 28 December 2012 (“the Yard Issue”).

(2) Whether the respective EUVs of the units on G/F and LG/F (save and except for those units in respect of which approval of Alternations and Additions Plans had been granted for converting the permitted user of the premises from domestic into non-domestic purposes) and the EUVs of the 8 units on 1/F as at 28 December 2012 should be assessed on the basis that they could only be used for domestic purposes in accordance with the occupation permit, the approved building plans and the relevant Government leases, or alternatively, should be assessed by taking into account their potential for use as non-domestic purposes (if any) as at 28 December 2012 notwithstanding that such non-domestic purposes did not conform with the occupation permit, the approved building plans and/or the relevant Government leases.  For convenience, the applicant will refer to this ancillary issue as “the User Issue”.

The following issues are ancillary to Issue B.(3):-

(3) What should be the “optimum hypothetical development model” of the Lots as a composite site for the purposes of assessing the RDV (Composite Site)?

(4) Whether it is necessary (and, if so, how) to apportion and distribute the proceeds of sale of the Lots between the 1^st Pair of Lots and the 2^nd Pair of Lots (“the Apportionment Issue”)?

Whether the Applicant is entitled to make the two Applications

11.  Section 3(1) of the Ordinance requires an applicant to have not less than 90% of the undivided shares in a lot before he can make an application.

12.  Section 3(5) of the Ordinance provides that the Chief Executive in Council may, by notice in the Gazette, specify a percentage lower than the percentage mentioned in section 3(1) in respect of a lot belonging to a class of lots specified in the notice.

13.  The Land (Compulsory Sale for Redevelopment (Specification of Lower Percentage) Notice was gazetted on 22 January 2010 and came into operation on 1 April 2010 (“the Notice”).  Section 3 of the Notice lowered the threshold for compulsory sale in respect of the classes of lots specified in the Notice from 90% to 80%.  Those classes of lots includes: “a lot with each of the building erected on the lot issued with an occupation permit at least 50 years before the relevant date [ie the date of the application under the Ordinance]”. 

14.  The occupation permit for the Buildings was issued on 5 December 1955 (ie 57 years before the date of the Applications).  The Notice is applicable and the threshold percentage should be 80%.

15.  When the applicant commenced the present proceedings on 4 March 2013, the ownership of the undivided shares in the Lots was:

	LDCS 5000/2013				LDCS 6000/2013
	1st Pair of Lots				2nd Pair of Lots
	Lot 1		Lot 2		Lot 3		Lot 4
	No 68	No 68A	No 70	No 70A	No 72	No 72B	No 72A	No 72C
Lower Ground (“LG/F”)	A	A	A	A	A	R3	A	R4
Ground Floor (“G/F”)	A	A	A	A	R2	R2	A	A
1/F	A	A	A	A	R1	A	A	A
2/F	A	A	A	A	A	A	A	A
3/F	A	A	A	A	A	A	A	A
4/F	A	A	A	R2	A	A	A	A
5/F	A	A	A	R1	A	A	A	A
Undivided shares owned by the applicant	14/14th		12/14th		10/14th		13/14th
Percentage of undivided shares owned by the applicant	100%		85.71%		71.43%		92.86%
Average of the percentage of undivided shares owned by the applicant	92.86%				82.15%

* Each unit is allocated 1 equal and undivided share of the respective lot.

16.  From the above, it is manifest that when the applicant commenced the present proceedings on 4 March 2013, it owned on average more than 80.0% of the undivided shares in each pair of the Lots.  We agree therefore that the applicant was entitled to make the Applications under section 3(2)(b) of the Ordinance.

17.  It is further not disputed that at the date of trial and after the acquisition of the 5 undivided shares from the 2^nd respondent in LDCS 5000/2013 and the 1^st, 2^nd and 4^th respondents in LDCS 6000/2013, the applicant owns 96.43% undivided shares in each pair of the Lots.

Section 4(2)(a) - Whether redevelopment of the Lots is justified due to the “age” and/or “state or repair” of the Buildings

18.  Under section 4(1)(b) of the Ordinance, the Tribunal is to be satisfied that an order of sale should be made pursuant to the Applications.  Section 4(2) of the Ordinance provides that there are basically 2 considerations, namely :

(i) whether the redevelopment is justified due to age or state of repair of the Buildings; and

(ii) whether the applicant has taken reasonable steps to acquire all the undivided shares in the Lots where owners’ whereabouts are known.

19. The applicant has to satisfy this Tribunal that the above statutory requirements were met; otherwise, an order for compulsory sale would not be granted.

20. For the age and state of repair requirements, the applicant adduced the expert evidence of Mr Benson Wong Sai Ning  (“Mr Benson Wong”), an Authorised Person and a building surveyor and Mr Wong Chi Ming (“Mr C M Wong”), a structural engineer. Their expertise is not disputed.

21. Mr C M Wong conducted a structural assessment and prepared two reports both dated 24 April 2014, one in respect of each pair of the Buildings[2].  He identified the following defects in the buildings atNos 68, 68A, 70 and 70A:

(a) of the 20 concrete samples tested, 12 (60%) of the samples were considered to have inadequate concrete strength, where 4 (20%) of the samples had concrete strength of doubtful adequacy. These results indicated that the strength of concrete for the buildings at Nos 68, 68A, 70 and 70A is much inferior to the original design intent;

(b) cracks, spalling and severe water stains at 306 locations were observed during visual inspection of the 22 units and common area;

(c) 86% of the steel reinforcement bars were suffering from mild corrosion;

(d) 90% of the core samples of the structural elements had either ‘considerable’ or ‘numerous’ air voids which would provide an easier route for water and air to penetrate into the concrete, and thus initiate corrosion of the steel reinforcement bars;

(e) carbonation had reached the concrete surrounding the steel reinforcement bars in all of the test samples of slabs and beams whilst 80% of core samples of columns were subjected to this symptom;

(f) 35% of the core samples had chloride content exceeding 0.40%;

(g) 35% of the samples were found to pose a “high” risk of corrosion of the steel reinforcement bars, whilst 60% of the bars were at “moderate” risk;

(h) 11% of the structural members were found to have concrete cover less than the design cover while 86% of the samples from slabs and 65% of samples from beams had been found to have concrete cover less than the minimum required cover under the current design standard;

(i) the average cement content was about 209kg/m³, which is lower than the current standard of 290kg/m³.

22.  Based on his findings, Mr C M Wong concluded that the structural elements of the Buildings were in a very poor condition.  He opined that the structural elements had passed their design working life of 50 years and were inferior to the current standard.  The corrosion of the reinforcement bars had entered the propagation phase and extensive maintenance and repair works would be required in the near future.  He said that the design and construction of the structural frames had become obsolete over time and the structure failed to meet the current safety standard.  He recommended that hammer tapping works be carried out to all the structural members and all revealed cracks and spalling should be patch repaired.

23.  For Nos 72, 72B, 72A and 72C, similar defects were observed by Mr C M Wong and the same conclusion was drawn by him.

24.  Mr Benson Wong also prepared two condition survey reports dated 25 April 2014, one in respect of each pair of the Buildings[3].  In respect of the one at Nos 68, 68A, 70 and 70A, he stated that:

(a) the buildings were in a very poor state of repair due to general wear and tear;

(b) infrared thermographic survey carried out on the external rendering revealed 44 hidden hollow spots scattered throughout the external walls on all elevations posing threats to public safety;

(c) the building envelope was not external seepage resistant with extensive damp penetrations through the external walls, roofs and the original mild steel windows;

(d) the staircases were unsatisfactory means of fire escape for the upper floors;

(e) no improvement had been made to the fire resisting construction and fire service installation in the buildings, and fire service systems would have to be added to comply with the requirements of the Fire Safety (Buildings) Ordinance;

(f) the conditions of the internal doors, finishes, bathrooms and kitchens were poor; the most common defects in the flats were non-conforming flat entrance and exit doors, missing or defective internal doors to bedrooms, bathrooms and kitchens and cracked, spalled, stained or otherwise defective finishes to the internal floors, walls and ceilings;

(g) sanitary fitments in the bathrooms and cooking facilities in the kitchens were generally broken or otherwise defective requiring replacement;

(h) the original mild steel windows in the flats were corroded and not watertight;

(i) the electrical installations inside 3 flats had been haphazardly altered or were in poor condition and required complete replacement for safety reason;

(j) the equipotential bonding connections were not provided for the metal parts inside 16 flats;

(k) closed circuit television survey carried out to the underground drainage revealed 5 numbers of manhole covers defective; and

(l) defects in the electrical installation requiring repair and maintenance.

25.  Again, similar observations were found for the buildings at Nos 72, 72B, 72A and 72C.

26.  Mr Benson Wong estimated that the total costs of immediate repair works to restore the 1^st Pair of Buildings and the 2^nd Pair of Buildings to tenantable standard came to $12,521,644 and $11,977,393 respectively which are about 37.30% of the cost of constructing a new building similar to the Buildings.  He concluded that the Buildings had deteriorated to a state which is beyond reasonable economic repair.  As more rapid deterioration would occur in the future, the necessary maintenance and repairs would inevitably be more frequent and extensive making the continued occupation of the Buildings not economical and even unsafe.  He recommended the owners to redevelop rather than repair given that the Buildings neither possess any historical value or architectural merit. 

27.  As submitted by the applicant, no one seeks to challenge these expert evidences but Mr Ismail for Grand Sea took issue on the independence of Mr C M Wong and Mr Benson Wong. For instance, Mr Ismail refers to Mr C M Wong’s statement in his reports that the purpose of his reports was “to supplement the Condition Survey Report prepared by Mr. Benson Wong of Benson Wong and Associates Ltd. which I have read in draft”[4].

28.  Mr C M Wong explained that this practice was adopted usually to ensure that the reports that he made and the ones done by Mr Benson Wong were based on the same fact like areas and age of the Buildings so that the reports they produced would be compatible. Mr C M Wong also explained that Mr Benson Wong as a building surveyor may identify the presence of certain unauthorized structures so that he would comment on their effects on the structure of the Buildings. Mr C M Wong maintained that the reports he produced reflect his independent view and were not influenced by anybody. We accept Mr C M Wong’s explanation as we appreciate that professionals of different disciplines may sometimes need to make cross reference to the report of each another.

29.  Mr Ismail also suggests that the independence of Mr Benson Wong is questionable because the latter admitted in his professional practice, he had never advised other companies of the Henderson Land Group[5] in similar compulsory sale applications that redevelopment of the existing premises was not justified due to the age and condition of their properties. However, we consider this points neither here or there as properties identified for redevelopment would more probably stand a higher chance that they are ripe for development. The logic does not stand that if Mr Benson Wong did not give any adverse advice on redevelopment, he must be wrong or not independent.

30.  More importantly, both the Beneficiaries and Grand Sea have not adduced any evidence, factual or opinion, in relation to the “age” and “state of repair” of the Buildings. Throughout the trial, both the Beneficiaries and Grand Sea have not suggested that the Buildings should be retained.  Having considered the evidence before the Tribunal, we are satisfied that redevelopment of the Buildings is justified due to the age and state of repair of the existing buildings in each pair.

EUV as at 28December 2012

The Valuation Evidence

31.  Each of the Applications was supported by a valuation report dated 6 February 2013[6] (collectively referred to as “Application Reports”) prepared by Mr Alnwick Chan, containing assessments of the EUV of units in the Buildings on the Lots as at 28 December 2012. The Application Reports were prepared not earlier than 3 months before the date of the Applications, i.e. 4 March 2013 and are therefore, in our view, in compliance with section 3(1) of the Ordinance, setting out the assessed EUV of each unit on the lots.

32. Under section 4(1)(a) of the Ordinance,

“the Tribunal shall determine an application under section 3(1) by……,if any minority owner of the lot the subject of the application disputes the value of any property as assessed in the application, hearing and determining the dispute”

33.  In the case of Main Light Limited v Time Richie Investment Limited, LDCS 3000/2013 (unreported, dated 31 October 2014), the applicant therein submitted to the Tribunal that it was unnecessary for the Tribunal to determine the EUV of all units in the building concerned on the grounds that the only one respondent in that case confirmed that it did not oppose the Applications and that there was no missing minority owner.

34. His Honour Judge K W Wong, Presiding Officer of the Lands Tribunal together with Mr Alex Ng, Member of the Lands Tribunal, held in paragraph 12 of the judgment that:-

“It is true that there is no EUV dispute to be resolved. However, that does not mean that the EUV proposed by the applicant will be automatically accepted by the tribunal. The tribunal has jurisdiction to consider what evidence it will accept for disposal of an issue, particularly when the EUV is of the nature of expert opinion the worth of which lies in the logics and reasoning of the expert’s analyses and his application of a theory or his professional knowledge….” (underline added)

35.  In the present case, there is a hot dispute between the parties’ experts about the assessed EUV of the Buildings. Thus, for the purpose of the present proceedings, the applicant, the Beneficiaries and Grand Sea have adduced the following expert reports as evidence:

For the applicant:

(1) two Supplemental Reports dated 22 April 2014 by Mr Alnwick Chan, one in respect of each pair of the Buildings[7];

(2) Valuation Report on Redevelopment Value of the joint Lots dated 22 April 2014 by Mr Alnwick Chan[8];

(3) Rebuttal Report dated 30 June 2014 by Mr Alnwick Chan[9] commenting on the valuation report dated 30 April 2014 by Mr Patrick Lai on behalf of the Beneficiaries[10];

(4) Rebuttal Report dated 30 June 2014 by Mr Alnwick Chan[11] commenting on the valuation report dated 23 April 2014 by Mr C K Chan on behalf of Grand Sea[12];

(5) Supplemental Reports dated 18 February 2015 by Mr Alnwick Chan on Redevelopment Value and EUV[13];

(6) Joint Expert Statement of Agreement/Disagreement dated 18 August 2014[14];

For the Beneficiaries:

(7) Valuation Report dated 30 April 2014 by Mr Patrick Lai[15];

(8) Supplementary Report dated 30 June 2014 by Mr Patrick Lai[16];

(9) Updated Report on RDV dated 18 February 2015[17];

For Grand Sea:

(10) Valuation Report dated 23 April 2014 by Mr C K Chan on the EUV of LG/F, No 72B as well as its relation to the EUV of the Buildings[18];

(11) Supplemental Valuation Report on the Redevelopment Value of the Lots dated 10 June 2014 by Mr C K Chan[19];

(12) Rebuttal Report dated 23 June 2014 by Mr C K Chan[20];

(13) Supplemental Report for Updated EUV and RDV Valuations dated 13 February 2015[21] (which, despite its date, was only exchanged with that of Mr Alnwick Chan of 18 February 2015 on 23 February 2015).

(14) A revised valuation submitted on 18 March 2015[22] following the changed position of Mr Alnwick Chan regarding the user of the LG/F, G/F and 1/F in his Supplemental Reports dated 18 February 2015.

36.  The parties and the 3 experts above all agree that the EUV to be determined is the EUV of all the units in the Buildings as at 28 December 2012.

37.  Mr Patrick Lai has not assessed the EUV of all the units in Nos 72, 72B, 72A and 72C (ie the 2^nd Pair of Buildings). Mr D’Souza confirmed that the Beneficiaries were not concerned with the EUV of the 2^nd Pair of Buildings when he opened the Beneficiaries’ case.

The User Issue

38.  Notwithstanding the provision of the occupation permit mentioned in §2 above, Mr Lam Chun Kwai (“Mr C K Lam”), a manager of Grand Sea, filed a witness statement dated 2 May 2014 that, inter alia, “as far as (he) know(s), all the units on the lower ground floor, ground floor and first floor of the Building(s), have been used for commercial or shop purposes. His witness statement was not challenged by the parties and Mr C K Lam was not called to give evidence.

39.  Mr Alnwick Chan, the valuation expert for the applicant had prepared his various reports on the basis of commercial and shop use until his report of 18 February 2015.  In his report of 18 February 2015, Mr Alnwick Chan changed his position as regards the existing usage of the LG/F, G/F and 1/F as follows:

Floor	Street Number
	68	70	68A	70A	72	72A	72B	72C
LG	D		N	N	D		N	N
G	N	N	D	N	N	N	D	D
1	D	D	D	D	D	D	D	D

where D denotes domestic and N denotes non-domestic.

40.  Mr Alnwick Chan explained that such change was caused by his making reference to the judgment in Ultra Alpha Limited & Another v The Personal Representatives of Chan Ping Chiu, deceased, LDCS 3000/2014 (unreported, dated 17 October 2014) (“Ultra Alpha”) and as a result of his consultation with Mr Benson Wong who advised that those units on the lower ground floor, rear portions of ground floor as well as first floor cannot physically be converted into non-domestic use. Mr Benson Wong later filed his additional opinion by way of a letter dated 9 March 2015 that the conversion is not feasible because it would be in breach of the Code of Practice for Fire Safety in Buildings 2011 and/or Regulation 72 of the Building (Planning) Regulations[23].

41.  Indeed, in respect of all the 4 units on G/F abutting Kimberley Road, Mr Alnwick Chan assesses their EUVs on the basis that they can be used for non-domestic purposes because, except G/F, No.72, plans for alterations and additions of building works (commonly known as the A & A plans in the profession) had been approved by the Building Authority for non-domestic purposes in the 50s or in 1965.  In respect of G/F, No. 72, Mr Alnwick Chan takes into account Mr Benson Wong’s opinion that it is feasible and not complicated to obtain an A & A approval for converting it from domestic into non-domestic use. He makes a 4% discount to the value of G/F, No.72 in order to reflect the time and cost required for obtaining the A & A approval.

42.  As regards the 4 units on G/F facing the scavenging lane, Alnwick Chan assesses the EUVs of all the other 3 units on G/F facing the scavenging lane on the basis that they can only be used for domestic purposes save for G/F, No. 70A where A & A approval was obtained as long as in 1965. It should be noted that all these four G/F units are owned by the applicant.

43.  In respect of the 2 units on LG/F abutting Kimberly Road and each occupying two numbers (i.e. LG/F Nos. 68-70 and L/G Nos. 72-72A), Mr Alnwick Chan assesses their EUVs on the basis that they can only be used for domestic purposes.

44.  Mr Alnwick Chan assesses the EUV of LG/F, No. 70A, on the basis that it can be lawfully used for non-domestic purposes in light of the relevant A & A approval obtained also in 1965.  He considers that the optimum use of the remaining 3 units on LG/F abutting the scavenging lane, including LG/F, No.72B owned by Grand Sea, should be non-domestic purposes provided that they do not require licences, such as liquor licence or restaurant licence, for their business operation, having regard to Mr Benson Wong’s opinion that it is not feasible to obtain A & A approval for converting the said LG/F units from domestic into non-domestic uses.  Mr Alnwick Chan assesses the EUVs of these LG/F units on the basis of the hope or expectation that the non-conforming use of them for non-domestic purposes will be tolerated because of their “long history of non-domestic use” and the likelihood of enforcement by the Building Authority is very low[24].

45.  Mr Patrick Lai, the expert appointed by the Beneficiaries, disagrees however with the usage of LG/F, No 68A for non-domestic purposes. He assesses the EUV of this unit on the basis for domestic use.

46.  Mr D’Souza refers to Ultra Alpha and submits that an important consideration in assigning non-domestic usage to a domestic unit is whether the Buildings Department would approve the necessary application for A & A works to permit the change of usage of the subject unit, taking into account particularly compliance of fire safety regulations. He went on to say that if Mr Alnwick Chan had relied on Ultra Alpha for his change of position and if Mr Benson Wong’s opinion on this issue as summarised in §44 above is to be heeded, the EUV of LG/F, No 68A should be assessed on the basis of domestic use.

47.  In Ultra Alpha, the Tribunal said:-

“22. This time, Mr C Chan referred to Many Gain Investment Limited v. Chan Fai Ho and the Others, LDCS 28000 of 2012 dated 18 June 2014 (unreported) (“Many Gain”) and concurred that retail use was the optimum use for the ground floor units of the Buildings. He was advised by the building surveying expert, Mr Benson Wong (“Mr B Wong”), an Authorised Person and a qualified building surveyor, who is another expert appearing on behalf of the applicants that obtaining all necessary approvals for the change of use from domestic to retail use for the ground floor units of the Buildings are highly practical.

23. Mr B Wong says the ground floor units of the Buildings can be legally converted into shop uses relatively easily subject to the submission of necessary plans for alterations and additions building works (commonly known as the A & A plans in the industry) to the Buildings Department. The process would only take a few months subject to a cost of about $1,450,000. Mr B Wong also gave evidence that for his professional practice of about 33 years, he had not been aware of any such enforcement action, if any, taken by the Building Authority.

24. Nevertheless, when Mr C Chan assessed the 2 units on ground floor on the basis of shop uses despite the occupation permit in respect of the Buildings was issued for domestic purposes, he revised his assessment of the EUV of the ground floor units of the Buildings by applying a discount of 3% to reflect the fact that they were designated for domestic use under the occupation permit (“the Modified Basis 1”).

25. In support, Mr Mok also refers to one more recent case I decided, Worldman Development Limited v. The Personal Representatives of Chan Chau Ling, deceased, LDCS 8000 of 2013 dated 21 July 2014 (unreported) (“Worldman”) where similar approach was adopted. Mr Mok argues the approach and legal reasoning adopted in Many Gain and Worldman are preferred to those found in another case Eversound Investments Limited v. Wong Hiu Man and others, LDCS 10000 of 2012 dated 15 August 2013 (also unreported) (“Eversound”).

26. In Eversound, the legal reasoning was that the non-conforming retail use was an illegal use and a title defect where a prudent purchaser would not be willing to pay the price of an illegal use. Mr Mok submits this reasoning was flawed in at least two fundamental aspects:

(1) The unwillingness of the hypothetical purchaser to pay the full price of retail use owing to the title defect can only mean that he is going to pay less than the full price for retail use. It cannot automatically mean that the hypothetical purchaser is only willing to pay at the level as low as that of domestic use. There is an unjustifiable quantum leap.

(2) Part 1 of Schedule 1 to the Ordinance adopts the concept of market value with the 3 assumptions stipulated in (a)-(c) and their link to the concept of title defect with the quantum leap as argued by counsel in Eversound is not self-evident and should be rejected.

27. This is particularly so with the undisputed evidence (a) that, according to Mr B Wong, an A & A plan application to regularise the shop use of the two ground floor units would just take a few months and cost about $1,450,000, (b) that G/F No. 148 Austin Road has a business registration since the 1960s[4] and (c) that there had been many Building Orders as from 1992 onwards involving G/F No. 148 Austin Road and there was no evidence of any complaint by the Building Authority of the change of use of the ground floor units.

28.  I agree the approach of Mr C Chan as regards the assessment of EUV of the ground floor units of the Buildings on the Modified Basis 1.”

48.  When questioned during cross examination, Mr Alnwick Chan admitted that he only noted LG/F, No 68A was formerly occupied as a foot massage parlour when he first visited the Buildings in June 2012 and had no evidence to support his suggestion of “long history of non-domestic use”. However, such “long history of non-domestic use” was never mentioned in Ultra Alpha though the ground floor unit in question in that case had a business registration since the 1960s. More importantly, Grand Sea who owned LG/F, No 72B has led evidence of a tenancy agreement that LG/F, No 72B had been let out for commercial purposes since 1995 and liquor licence had been secured for the premises despite the alleged breach of occupation permit[25].

49.  Mr Ismail for Grand Sea submits further that the use of the units on the LG/F and G/F for non-domestic use is not a breach of the occupation permit dated 5 December 1955 because under the then Buildings Ordinance, a domestic building means a building used wholly or partly for human habitation. Mr Ismail points out that on the approved basement (ie lower ground floor) plan, certain areas were specifically marked “STORE (NON-DOMESTIC)”. Mr Ismail relies on the Tribunal’s Judgement in Pine Harvest Limited & Another v Hui Che Shing & Another, LDCS 48000 of 2012 (unreported, dated 22 August 2013) (“Pine Harvest”) to support his position.

50.  In Pine Harvest, the Tribunal said as follows:

“17.  The Applicants have noted from the occupation permit issued on 19 July 1955 that the Buildings and other adjacent buildings not being the subject of the Application (i.e. Nos. 307-317 Des Voeux Road West altogether) were for “domestic purposes” whereas the approved building plans dated 30 November 1954 and 17 March 1955 provided for the ground floor shop accommodation.  Mr. Mok submits that the domestic permit referred to stating that the architect had certified that the new building complied in all respects with the provisions of the Buildings Ordinance (Chapter 123 of the Revised Edition, 1950) could only mean that the new building was constructed in accordance with the approved building plans with ground floor shops, cocklofts and upper floor domestic units. Under the then Buildings Ordinance, 1950 Edition, there were the following significant differences to the current issue of the Buildings Ordinance (“BO”):

(a) Section 2 defines ‘domestic building’ to mean “any building constructed, used or adapted to be used, wholly or partly, for human habitation, but does not include any building where caretakers only, not exceeding two in number, pass the night” (underline added) whereas the current version of the BO defines ‘domestic building’ to mean “a building constructed or intended to be used for habitation and the expression domestic purposes shall be construed accordingly”  In other words, submits Mr. Mok, unlike under the 1950 BO, a domestic building under the current BO has to be wholly for human habitation and cannot be partly for non-domestic use.

(b) There is no provision prohibiting material change of use as found in section 25 of the current BO.

(c) Whereas section 137(1) provided for the need of a written permit from the Building Authority to occupy a new building, the first sentence of section 137(2) provided: “In issuing permits the Building Authority shall have regard to the nature of the building and its fitness for occupation or use as a domestic or as a non-domestic building and shall accordingly issue permits appropriate to such occupation or use”. Mr. Mok submits, a domestic permit issued to a new building could be partly (such as Ground Floors and cocklofts) for non-domestic use and were not inconsistent with the approved building plans providing for Ground Floor shops and cocklofts.

(d) The second sentence of section 137(2) provided: “And no person shall wilfully use or knowingly permit to be used any building with respect to which a non-domestic permit has been issued as a domestic building”. Mr. Mok submits that unlike the current BO, the prohibition went only one way to prohibit non-domestic buildings to be used as domestic buildings but not the other way round.

18.  Accordingly, submits Mr. Mok, under the 1950 BO, the domestic permit issued to cover the Buildings was consistent with what was expressly provided in the approved building plans for the non-domestic use of the ground floor and cockloft units and such non-domestic use was/is the permitted use.

19.  Indeed, recently in Tsuen Wan Trade Association Education Foundation Ltd. v. Chui Kam Ying [2012] 2 HKLRD 1163, Jeremy Poon J., deciding on a similar provision under the old Buildings Ordinance No 18 of 1935, ruled that “even if two domestic permits had in fact been issued, it does not necessarily follow that the Property can be used for residential purpose only.  …..  This inferentially but strongly shows that the Property can in fact be used for non-residential purposes legally.” (underline added). I therefore accept Mr. Mok’s submission as regards the ground floor shop and cockloft usage.”

51.  Indeed, back in 2011, the Building Authority had issued Building Orders requiring the owners of the Buildings to carry out extensive repair works at the Buildings but no complaint whatsoever had been received regarding the change of use. We agree with the judgment in Pine Harvest and Mr C K Chan’s evidence that A & A approval was irrelevant for the purpose of assessment of the EUV of LG/F, No 68A on the basis of non-domestic use if structural alteration to the premises was not required. Market realities should dictate.

52.  Mr C K Chan, the expert appointed by Grand Sea, initially, like Mr Alnwick Chan, assessed the EUV of all units on the LG/F, G/F and 1/F on the basis of non-domestic use and those on the upper floors for domestic use[26]. However, on the 3^rd day of the trial (ie the day following the joint site inspection with the Tribunal), Mr C K Chan changed his own assessment of the EUV of the lowest 3 floors to accord with Mr Alnwick Chan’s change of position and confirmed his revised EUV on the 5^th day of the trial on 20 March 2015 when he gave evidence.

53.  We agree that this change of position has merit after our inspection of the Buildings on 17 March 2015 as we noted no signs of non-domestic use on the other units on LG/F, G/F and 1/F[27]. In Mr Alnwick Chan’s report of 6 February 2013 and Mr C K Chan’s report of 23 April 2014, they only mentioned that most of the first floors of the surrounding developments are used for commercial purposes[28]. In any event, these units without proper access cannot sensibly be compared with any unit purposely built for non-domestic purposes.

54.  We do not agree however with the changed position of Mr Alnwick Chan (or that of Mr C K Chan) as regards their taking the “existing use” of G/F, 72B as domestic. According to Mr Alnwick Chan’s report of 6 February 2013, G/F, 72B had been combined with G/F, No 72, ie the unit to its front, into one single unit as a bridal shop[29]. This evidence has never been challenged. Thus, for the same reason that we consider the assessment of the EUV of LG/F, No 68A should be on the basis of non-domestic use, we consider likewise the EUV of G/F, No 72B should be assessed on the basis of non-domestic use.

55.  If this be the case, we see no reason not to assess the other two ground floor units, ie G/F, No 68A and G/F, No 72C on the basis of non-domestic. In any event, we concur with Mr Alnwick Chan’s opinion that the subject locality commands high commercial value on ground floor retail shops and such mere change of use for retail purpose does not necessarily need A & A approval anyway if it involved no structural alteration. Also, according to Mr C K Chan’s initial Valuation Report of 23 April 2014, “(i)t is noted that lower ground floor units and ground floor units of the Application Property have been used for commercial purposes.”[30] Again, market realities should dictate.

56.  Notwithstanding the above, in comparing these units with other genuine comparables in the vicinity, so long as we are comparing like with like, the potential for non-domestic use, if any, would have been taken into account.

The Yard Issue

57.  There is a yard adjacent to each of the Lower Ground Floor units in the Lots (“the Yards”). Grand Sea’s expert, Mr. C K Chan, attributes to each of the 7 enclosed yards as shown coloured Yellow and Blue on his plan at Appendix 8 of his report dated 23 April 2014[31] a value equivalent to 1/6^th of the assessed EUV per unit saleable area of the LG/F premises which the enclosed yard is adjoining.

58. Mr C K Chan justifies his opinion based on :-

(1) the allegation that the enclosed yards are not common parts of the Buildings according to Clause 2 of the relevant Deed of Mutual Covenant (“ the DMCs”);

(2) site inspection revealed that the yards were enclosed by walls for the exclusive use of the occupiers of the adjacent units; and

(3) according to Mr C K Lam, Grand Sea’s tenants had exclusively used the adjoining enclosed yard for a long period of time with no objection from the other owners[32].

59.  Mr Ismail for Grand Sea also refers to plans attached to all of the respective Government Leases at the time of the re-grant in 1978[33] that common passages leading from common staircases to the scavenging lane as referred to in the DMCs were delineated and marked off from the area of the yards[34]. He submits therefore the Yards are not common parts of the Buildings.

60.  All of the four DMCs of the Buildings contain the following covenant:-

“2. Each of the parties hereto and all persons authorized by him shall in common with all others having the like right have access to and be entitled to use the entrance staircases landings passages roof and other common parts in the said building as described in the First Schedule of the Multi-storey Buildings (Owners Incorporation) Ordinance Cap.344 for all purposes connected with the proper use and enjoyment of the part of the said building of which he is entitled to the exclusive use occupation and enjoyment and for the purpose of ingress to and egress from such part PROVIDED ALWAYS that none of the parties hereto shall use or allow or permit to be used the said entrances staircases landings passages roof and other common area in any manner so as to cause nuisance or annoyance to the other or others of them.” (underline added)

61.  However, it is fatal to Mr Ismail’s argument when Mr CK Lam on behalf of Grand Sea who instructs him admits that Grand Sea does not have legal ownership of the yard adjacent to LG/F, No 72 B. Also as submitted by Mr D’ Souza on behalf of the Beneficiaries, there is no evidence that the Yards have been specified or designated as being for the exclusive use occupation or enjoyment of an owner in any instrument registered in the Land Registry. Under section 2 of Building Management Ordinance, the Yards would then be common parts of the Buildings unless they have been specified or designated as being for the exclusive use occupation or enjoyment of an owner.

62.  Mr Ismail tries to support his argument by referring to T S Cheng & Sons Limited v Attorney General [1986] HKC 607 where Macdougall J applied the meaning of “appurtenances” in the Jowitts Dictionary of English Law which included “yards”. It is however our view that when “yards” is not specified or designated in an instrument registered in the Land Registry as being for the exclusive use, occupation or enjoyment of an owner, it would have come under the definition of common parts in the Building Management Ordinance[35] which governs the management of multi-storey buildings. Any meaning provided elsewhere carries little weight.

63.  Having said the above, we appreciate that:

(a) under section 34I of the Building Management Ordinance, the prevailing use of the Yards by the owner of the adjacent unit may be approved by a resolution of the owners' committee (if any);

(b) during our inspection on 17 March 2015, the Yards appeared, on a balance of probabilities, to have been enclosed for a long time for the exclusive use of the occupiers of the adjacent LG/F units,

(c) save for the yard adjacent to LG/F, No 72C, common passages as identified by Mr Ismail have been provided as secondary exits for units situated on LG/F to 5/F of the Buildings from the scavenging lane via the two side staircases on the left and right sides of the two buildings.

(d) as regards the yard adjacent to LG/F, No 72C, it was observed during our site inspection and agreed by the experts that the enclosed yard next to LG/F, No.72C had probably been in existence for a long time since it was fairly run down.  On the balance of probability, a common passage that leads from the left side (ie the northeastern side) of the buildings should have likewise been allowed and according to the estimate of Mr C K Chan, this would take up some 1/3^rd or 1/4^th of the area of the yard[36]. In this regard, an area of some 17.8 m² is adopted[37] as this is in line with the reduction in area by the passage.

64.  Indeed, Mr Alnwick Chan modified his view at his oral evidence in-chief and agreed that all of the 8 enclosed yards should have some value. We also agree that in the reality of the market the owner of the relevant LG/F unit would not let his premises without charging a rent for the full area of the enclosed yard. In this regard, the applicant accepts that it accords with the view of Lord Millett NPJ on market value in Dragon House Investment Limited & Another v Secretary for Transport and Housing (2005) 8 HKCFAR 668 (“Dragon House”) which was adopted by the Tribunal in Many Gain Investment Limited v Chan Fai Ho and Others, LDCS 28000/2012 (unreported, dated 18 June 2014, Worldman Development Limited v The Personal Representatives of Chan Chau Ling, Deceased, LDCS 8000/2013 (unreported, dated 21 July 2014) and Ultra Alpha, supra.

65.  In Dragon House, Lord Millett NPJ held at 676C that in the assessment of compensation for the resumption of land under ss 10 and 12 of the Lands Resumption Ordinance, Cap 124:-

“Section 12(d) represents the open market value of the subject land, but it is expressly made subject to s.12(c).

12. Paragraph 17 of the Yin Shuen judgment sets out the principles of English law which govern the assessment of compensation for the compulsory acquisition of land when based on its open market value. Paragraph 17(3) states the general rule that the subject land must be valued not only by reference to its present use but also by reference to any potential use to which it may lawfully be put. Paragraph 17(4) explains that, where land is subject to restrictions which affect its value, the claimant is not entitled to be paid the unrestricted value of the land. While, however, the existence of the restrictions must be taken into account, so too must the possibility of obtaining a discharge or modification of the restrictions. In such a case the costs as well as the risks and delays involved in obtaining any necessary consents must also be taken into account.

13. Accordingly the compensation payable on the resumption of land held under a Government lease which restricts its use, if based on the open market value of the land, would take account of the value of the land subject to the restrictions together with the prospects and cost (including the payment of any premium) of obtaining a modification of the terms of the lease. The greater the likelihood of obtaining a modification to allow a more beneficial use, the greater the open market value of the land.

14. Section 12(d), however, is subject to s.12(c). It is self-evident, therefore, that resumed land is not to be valued under s.12(d) at its open market value but at a value which takes no account of “any expectancy or probability of the grant…by the Government…of any licence, permission…or permit whatsoever.” In the Yin Shuen judgment we held that where the resumed land is held under a Government lease no account may be taken of any element in the open market value which reflects the prospect of a modification of the terms of the lease. It does not matter whether the prospects of obtaining a modification are remote or a near certainty; unless the claimant has a legal right to the modification the land must be valued without regard to the prospects or cost of obtaining it.” (underline added)

66.  As regards the value of the Yards, although Mr C K Chan suggests 1/6^th of the EUV per each sq metre of saleable area of LG/F units adjacent thereto which is conventionally adopted by the market in the absence of other evidence, we agree with Mr Alnwick Chan that in this particular case, a more appropriate factor should be 1/8^th instead of 1/6^th.

The Saleable AreaIssue

67.  Mr Alnwick Chan derives the saleable areas of the units in the Buildings by measuring the approved building plans. In his valuation of the EUV of all the units in Nos. 68-68A and 70-70A Kimberley Road (ie the 1^st Pair of Buildings) and Nos. 72-72B and 72A-72C Kimberley Road (ie the 2^nd Pair of Buildings), Mr. Alnwick Chan adopts the saleable areas which he has measured.

68.  Mr Patrick Lai, the valuation expert appointed by the Beneficiaries, is in agreement with Mr Alnwick Chan in terms of the methodology applied for the derivation of the saleable areas (i.e. by measurement of the approved building plans and assignment plans) and also the figures of the saleable areas measured for the purposes of assessing the EUV of all those units in the 1^st Pair of Buildings.

69.  Mr C K Chan, on the other hand, applies directly the information on saleable areas which he has obtained from the Property Information Online of Rating and Valuation Department (“RVD”) in his assessment of the EUV of most of the units in the Buildings.  In respect of the saleable areas of those units which he has not applied the RVD’s figures, Mr C K Chan is in agreement with Mr Alnwick Chan.

70.  Grand Sea and Mr C K Chan also allege that in the property market, real estate agents are required by section 36 of the Estate Agents Ordinance, Cap 511 (“EAO”) as well as the Estate Agents Authority to supply to their clients information about floor areas by adopting the RVD’s saleable area and the property prices could be worked out accordingly. It is submitted by Mr C K Chan that RVD’s saleable areas should be applied in the valuation of the EUV of the units in the Buildings in the present case.

71.  We however agree with Mr Fung for the applicant that the reference to EAO is irrelevant.

72.  Section 36 of EAO says:-

“(1)(a) ……every licensed estate agent shall, as regards every property (whether situated in Hong Kong or elsewhere) in relation to which he has entered into an estate agency agreement…

(iii) supply to persons who are of a class or description prescribed for the purposes of this paragraph information so prescribed;

(iv) comply with requirements prescribed for the purposes of this paragraph when supplying to others information which is required by this Ordinance to be supplied to them…

(2) Without affecting the generality of subsection (1), information prescribed for the purposes of subsection (1)(a) in relation to any property situated in Hong Kong, being property in relation to which a particular licensed estate agent has entered into an estate agency agreement, or in relation to any property which is of a prescribed class or description of such properties, may include the following…

(b) the total or entire area, calculated and expressed in a manner prescribed for the purposes of this paragraph, which the relevant property comprises…” (underline added)

73.  Section 2(1) of EAO provides the following definitions:-

"estate agency agreement" (地產代理協議) means 1 or more written documents embodying the terms agreed for the time being between an estate agent and a client of such agent being terms on and subject to which estate agency work is to be done by such agent for the client, as from time to time varied or supplemented by an agreement made in accordance with regulations made under section 46(4);

"estate agency work" (地產代理工作), subject to subsection (3), means any work done in the course of business for a client-

(a) being work done in relation to the introduction to the client of a third person who wishes to acquire or dispose of a property, or to the negotiation for the acquisition or disposition of a property by the client; or

(b) being work done, after the introduction in the course of that business to the client of a third person who wishes to acquire or dispose of a property or the negotiation in the course of that business for the acquisition or disposition of a property by the client, in relation to the acquisition or disposition, as the case may be, of the property by the client”  (underline added)

74.  More importantly, section 2(3)of EAO specifies that:-

“For the avoidance of doubt it is hereby declared that-

(a) references in this Ordinance to estate agency work are not to be construed as including references to work which relates solely to a survey, to a valuation or to a disposition by way of auction or tender”. (underline added)

Plainly, the obligation imposed by EAO upon an estate agent to provide floor area information by application of RVD’s saleable area does not apply to valuation of property and particularly to the present valuation exercise in the assessment of the EUVs.

75.  Similarly, the Circular No 12-02 (CR) issued by the Estate Agents Authority is irrelevant when it only sets out guidelines for licensees on the provision of floor area information for the sale or lease of second-hand residential properties in their practice. Likewise, the fact that the applicant’s related company, Henderson Land Development Company Limited, supplies RVD’s information about saleable areas in its brochures for the sale and leasing of its residential properties is neither here nor there.

76.  While Mr Ismail submits that the information provided by RVD should be impartial, independent and therefore reliable, it is proven and accepted by Mr C K Chan that RVD’s saleable areas is not free from error. For instance, when Mr C K Chan gave his oral evidence at trial, he confirmed that all the 3 experts agreed that there was an error in the saleable area provided by RVD in relation to LG/F, Nos. 68-70 Kimberly Road and, therefore, they all agreed to adopt the saleable area of that unit as measured by Mr Alnwick Chan[38]. 

77.  As shown in the table prepared by Mr Alnwick Chan in his rebuttal report dated 30 June 2014, in relation to the saleable area of LG/F, Nos. 68-70 Kimberley Road, there is a 3.67% difference between RVD’s saleable area and the saleable area measured by Mr Alnwick Chan[39].

78.  RVD itself includes a disclaimer saying that it does not warrant the accuracy of the information published in the RVD’s Property Information Online for any purposes other than rates and Government rent assessments.  RVD recommends users of the RVD’s information to verify the information from the original documents and plans and where necessary consult their own professional advisers.

79.  Mr C K Chan further agreed during cross examination by Mr Fung that qualified valuation surveyors, including himself and Mr Alnwick Chan, are qualified and well equipped to measure saleable areas of properties.

80.  Further, we do not agree with Mr Ismail’s submission that in the market, vendors and purchasers of properties would determine the property prices based on the RVD’s saleable areas. If, for instance, a prospective purchaser, on viewing the property, finds the area quoted by the vendor or the estate agent’s advertisement, whether the source is from RVD or otherwise, is wrong, the prospective purchaser would definitely rely on his/her own measurement in determining the price he/she would be ready to pay. This particularly accords with the knowledgeable and prudent purchaser’s approach as required by the definition of “market value” as adopted by the Hong Kong Institute of Surveyors or the Royal Institution of Surveyors which states as “the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion”[40] (underline added)

81.  In fact, there are significant differences between RVD’s saleable areas and the saleable areas measured by Mr Alnwick Chan in relation to the following units[41]:

Unit	Percentage difference between RVD’s saleable areas and saleable areas measured by Mr. Alnwick Chan
5/F, No.72	-4.68%
LG/F, No.72B (i.e. Grand Sea’s unit)	-5.89%
5/F, No.72C	-2.77%

82.  In respect of Grand Sea’s unit (ie LG/F, No 72B), Mr C K Chan and Mr Alnwick Chan had indeed carried out a joint on-site measurement on 3 March 2015 to verify its saleable area.  Both of them agree that the saleable area of LG/F, No.72B as measured on-site is 64.3m² and the area of the enclosed yard next to it as measured on-site is 28.2m².[42]  Mr D’Souza for the Beneficiaries has confirmed that Mr Patrick Lai has no dispute about the findings of the said on-site measurements.  In fact, Mr Alnwick Chan’s measurements in relation to the saleable areas of the units in the 1^st Pair of Buildings are also agreed by Mr Patrick Lai as per Bundle D2/400. 

83.  In regard of the above, we consider that Mr Alnwick Chan’s measurements, if any, should be adopted in preference to the RVD’s saleable areas.

EUV Assessment

Assessment of G/F units

84.  In the Application Reports of 6 February 2013, Mr Alnwick Chan explained the method of valuation and the process of his assessment to arrive at the EUV of each unit of the Buildings. In assessing the EUV of all Ground Floor units, Mr Alnwick Chan adopted the Zoning Method explaining that “the layout of the comparables is different from the subject ground floor units, eg shape, depth and frontage of the shops”[43].

85.  When he changed his position as regards the existing usage of the LG/F, G/F and 1/F in his report of 18 February 2015, however, Mr Alnwick Chan dropped the Zoning Method in favour of the conventional Direct Comparison Method on the ground that “the depth of the G/F shops are similar to the comparables identified”[44] (probably when he has revised the usage of the rear unit for domestic purposes) though no additional ground floor shop sale comparables were collected.

86.  Mr Alnwick Chan adopted G/F, No 68 as the reference unit (“the Reference Shop Unit”).  He then took into account 11 comparable shop sale transactions in the locality though he in fact relied on only 8 of them. After making what he regarded as the necessary adjustments (for time, location, building age, frontage, layout, headroom, size) for all these comparable transactions, he took the average of the adjusted unit rate of the comparables to come to the unit price of the Reference Shop Unit which was then applied to the other ground floor units of the Buildings.

87.  Of these 8 comparables, five of them are shared by Mr Patrick Lai of and 3 are shared by Mr C K Chan as follows:

Ref:	Address	Transaction Date	Price	Saleable Area (m2)	Unit Rate/ m2
KF 2/ LBase S1/ AA S1	Unit 2, G/F, Windsor Mansion, 17 Austin Avenue	5 Mar13	$29,800,000	36.56	$815,098
KF 3/ LBase S2/ AA S2	Unit 1, G/F, Windsor Mansion, 17 Austin Avenue	1 Mar13	$29,900,000	39.90	$749,373
KF 10/ LBase S3	Shop A & Shop C, G/F, Austin Mansion, 15A Austin Avenue	1 Mar 12	$23,500,000	46.64	$503,859
KF 4/ AA S3	Shop B, G/F, South Sea Apartment, 81 Chatham Road South	31 Dec 12	$38,300,000	38.57	$993,000
KF 5/ AA S4	Shop B, G/F, Golden Mansion, 83-85A Chatham Road South	20 Sept 12	$48,000,000	61.44	$781,250
KF 8/ AA S5	Shop A, G/F, Kimberley Mansion, 15 Austin Avenue	9 Jul 12	$24,650,000	29.95	$823,038
KF 9	Unit 7, G/F, King’s Commercial Building, 2-4 Chatham Court	27 Jun 12	$8,780,000	12.29	$714,402
KF 11	Unit 6A, G/F, Kiu Fung Mansion, 14/18C Austin Avenue/83-89 Kimberley Road	19 Dec 11	$14,300,000	28.85	$495,667

* KF stands for comparables adopted by Mr Alnwick Chan, LBase stands for those by Mr C K Chan while AA stands for those by Mr Patrick Lai.

88.  While both Mr Alnwick Chan and Mr Patrick Lai adopt the same reference unit, ie G/F, No 68 which has an agreed saleable area of 65.60 m² before they proceeded to carry out the analysis, Mr C K Chan took G/F, No 72A as the reference unit which has a saleable area of 61.40 m². In view of the small difference in area between the two, the analysis by the parties should make no difference and for the sake of consistency, we are prepared to adopt G/F, No 68 as the reference unit. Their corresponding adjustments are reproduced as follows:

Ref:	Time	Location	Age	Frontage	Layout	Headroom	Size	Total
KF 2	-3.87%	5%	0%	7%	-5%	0%	-2%	0.5%
LBase S1	-3.7%	0%	0%	10%	0%	-3%	-8%	-4.7%
AA S1	-3.7%	-10%	0%	5.7%	0%	-0.6%	-5.8%	-14.4%
KF 3	-3.87%	5%	0%	4.0%	-5%	0%	-2%	-2.3%
LBase S2	-3.7%	0%	0%	7.0%	0%	-3%	-8%	-7.7%
AA S2	-3.7%	-10%	0%	5.8%	0%	-0.6%	-5.1%	-13.6%
KF 10	29.18%	5%	0%	6.0%	0%	-1%	-1%	40.9%
LBase S3	29.2%	0%	0%	10.0%	10%	-4%	-6%	39.2%
KF 4	0.00%	10%	0%	7.0%	-5%	0%	-2%	9.6%
AA S3	0.00%	-20%	0%	6.4%	0%	-0.2%	-5.4%	-19.2%
KF 5	7.63%	5%	0%	4.0%	0%	0%	0%	17.5%
AA S4	7.60%	-20%	0%	4.1%	0%	-0.3%	-.8%	-9.4%
KF 8	12.29%	5%	0%	7.0%	-5%	0%	-3%	16.3%
AA S5	12.30%	-10%	0%	6.6%	0%	0.4%	-7.1%	2.2%
KF 9	16.38%	20%	-2%	9.0%	-5%	0%	-5%	34.6%
KF 11	40.60%	10%	0%	8.0%	-5%	-1%	-3%	52.4%

89.  From the above table, we note that Mr Alnwick Chan applies the adjustment through the multiplication process and arrives at an average of $867,700/m² whereas both Mr C K Chan and Mr Patrick Lai adopted the summation process: Mr C K Chan arrives at an average of $723,300/m² but Mr Patrick Lai arrives at an average of $739,000/m².

90.  For the sake of comparison, the results of two different approaches are tabulated as follows:

Ref:	Total adjustments
	summation	multiplication	Difference* (in absolute term)
KF 2	1.1%	0.5%	0.6%
LBase S1	-4.7%	-5.5%	0.8%
AA S1	-14.4%	-14.2%	0.2%
KF 3	-1.9%	-2.3%	0.4%
LBase S2	-7.7%	8.0%	0.3%
AA S2	-13.6%	-13.5%	0.1%
KF 10	38.2%	40.9%	2.7%
LBase S3	39.2%	41.1%	1.9%
KF 4	10.0%	9.6%	0.4%
AA S3	-19.2%	-19.6%	0.4%
KF 5	16.6%	17.5%	0.9%
AA S4	-9.4%	-11.4%	2.0%
KF 8	16.3%	16.3%	0.0%
AA S5	2.2%	0.5%	1.7%
KF 9	33.4%	34.6%	1.2%
KF 11	49.6%	52.4%	2.8%

* Most of the end differences between the two approaches to adjustment fall below 2%.

91.  In Penny’s Bay Investment Company Limited v Director of Lands, LDMR 1/2005 (unreported, dated 15 October 2014), the Tribunal said as follows:

207.  There is no fixed rule in the textbook whether summation or multiplication is right or wrong. However, the more adjustments that there are the greater may be the difference between the result of using a summation and a multiplication process.  The larger the magnitude of the adjustments, the greater is the difference between the result of using a summation and a multiplication process.

208.  The Tribunal considers it is more logical to use multiplication method.  For an instance, there are two factors for adjustment, say, time and location.  We need to adjust the time factor from the transaction date to the date of valuation.  After the adjustment in time, we then make adjustment on locational difference.  If the summation process is being adopted such a factor cannot be reflected in the end figure.”

92.  Indeed, in arriving at the market value, a comparable needs to be compared with the subject property for the similarities and the dissimilarities. If a comparable property is superior to the subject property to which it is being compared, then a negative or minus adjustment is made to take the comparable property from that superior position down to a level equal to the subject property; if a comparable property is inferior when it is being compared to the subject property, then a positive adjustment is made.  The amount of dollar adjustment for each element should arise independently as observation from the market reflecting the dissimilarities that affect value, and they are simply added together. The total of the adjustments is then added to or subtracted from the comparable’s sale price to make the comparable equal to the subject as of the date of valuation.

93.  When percentage adjustments are applied, the result must be mathematically equal to dollar adjustment that is obtained separately from the market. However, adding and subtracting the percentage adjustments gives an answer that is different from that derived by the principle of adjusting using dollars; this adding the several percentage adjustments together and then applying the end result to adjust the comparables sales would be theoretically and mathematically incorrect because this does not result in moving from basis to basis[45] though we appreciate that such summative percentage adjustments are most commonly used by the valuation profession in Hong Kong perhaps for the reason that this approach is simpler to apply and easy to be understood.

94.  When we now face with the choice between the two different approaches, we consider Mr Alnwick Chan’s multiplication process should be adopted. In any event, the differences between the two approaches should be insignificant or nominal if the magnitude of the adjustments is small.

Unit 2, G/F, Windsor Mansion, 17 Austin Avenue

(ie KF 2, LBase S1, AA S1)

95.  For the time adjustment, all parties agree that reference should be made to the Private Retail Price Index published by RVD. Mr Alnwick Chan has provided a copy of the retail price index at Appendix 6 of his Supplemental Report dated 18 February 2015[46]. On verification, we find the adjustment of -3.7% is more appropriate.

96.  As regards location, Mr Alnwick Chan considers the subject is better than this comparable; Mr Patrick Lai holds an opposite view whereas Mr C K Chan is of the view that no adjustment is required.  Mr Patrick Lai particularly forms the opinion that pedestrian flow on the west side of Kimberley Road or that upper section of Austin Avenue is higher than the side of Kimberley Road (ie the east side) where the Buildings are situated which is leading towards the dead end.

97.  Having conducted the joint inspection on 17 March 2015, we agree that the subject location is better as suggested by Mr Alnwick Chan; pedestrian walking in that section of Kimberley Road may still turn right to Chatham Court or Austin Avenue before going towards the dead end. In fact, pedestrian may still cross the street from the east side of Kimberley Road to the west side or vice versa without difficulty. The presence of the guard rail along the pavement of Kimberley Road on the west side only starts somewhere in front of Kimberley Mansion at 15 Kimberley Road opposite Chatham Court. Therefore, +5% for location is agreed.

98.  As agreed by both Mr Alnwick Chan and Mr C K Chan, the Reference Shop Unit has a physical frontage of 7m but this comparable has only 3.46m, ie approximately half of that of the Reference Shop Unit. Mr Patrick Lai arrives at different figures based on “clear frontage”.

99.  In Good Faith Properties Limited and Others v Cibean Development Company Limited, LDCS 42000/2011 (unreported, dated 31 May 2013), a differently constituted Tribunal already gave its view on the dispute on such frontage issue and agreed with the expert in that case, who happened to be Mr Alnwick Chan, that the columns in shops do have potential to attract customers and the value of a particular shop due to its frontage shall not be dictated by the width of the opening shown in the approved building plan.

100.  More recently, in Tai Ping Restaurant Limited v Director of Lands, LDLR 1/2013 (unreported, dated 8 December 2014) (“Tai Ping Restaurant”), Member Ng of the Tribunal said:

“38. I consider columns on the frontage of a shop are valuable, but the weight of such columns in an assessment is generally less than that of clear frontage. Subject to the availability of information, different weights should be attached to columns on the frontage and clear frontage respectively in an assessment. Nevertheless, in the absence of detailed assessment, there is no material difference between these two approaches if each could be applied consistently in the valuation.

39. In the present valuation, I would prefer the adjustment for full frontage to the adjustment for clear frontage because the former would not miss the effects of columns on the frontage if any in the frontage adjustment.

101.  To account for the frontage difference, Mr Alnwick Chan adopts 7%, Mr C K Chan adopts 10% while Mr Patrick Lai proposes 2% for every difference of 1%, a formula approved by the Tribunal in Tai Ping Restaurant. While we are hesitant to commit to applying any mechanistic formula, a methodology which was criticised in Supergoal Investment Limited v Five F Ming House Limited & Others, LDCS 46000/2011 [2014] 1 HKLRD 286[47] (“Supergoal Investment”), we consider +7% appropriate in the present case.

102.  This comparable is in a rectangular shape whereas the Reference Shop Unit is in a “L” shape with its base abutting Kimberley Road. Mr Alnwick Chan applies -5% to account for the difference in layout whereas the other two experts apply nil. We consider -5% is appropriate because the Reference Shop Unit has a greater depth of 13.8m when this comparable has only 10.93m.

103.  As regards the headroom between this comparable (3.90m) and the Reference Shop Unit (3.45m), we consider the difference is marginal. Mr Alnwick Chan applies nil for the difference but in this particular case, we tend to adopt Mr Patrick Lai’s adjustment of -0.6%.

104.  Coming to the size, this comparable having a saleable area of 36.56 m² is approximately half of that of the Reference Shop Unit of 65.60 m². But this does not necessarily mean that a substantial adjustment has to be made. As the Tribunal commented in Supergoal Investment, sometimes a larger shop, if sub-divided into two, may yield at least as much as before sub-division. To the extent that we have allowed -5% for the difference in layout, we consider a further adjustment of -5% for size is appropriate.

105.  Thus, in summary, the total adjustment for this comparable is -2.9% as demonstrated in the table below:

Time	Location	Age	Frontage	Layout	Headroom	Size	Total
-3.7%	5%	0%	7%	-5%	-0.6%	-5%	-2.9 %

Unit 1, G/F, Windsor Mansion, 17 Austin Avenue

(ie KF 3, LBase S2, AA S2)

106.  This comparable is situated next to the comparable above, having similar size (39.90m²) but a slightly wider frontage (4.65m). Therefore, our comments stated in §§95-105 above are applicable and we accept Mr Alnwick Chan’s adjustment for frontage at 4%. The total adjustment for this comparable is -5.7% as demonstrated in the table below:

Time	Location	Age	Frontage	Layout	Headroom	Size	Total
-3.7%	5%	0%	4%	-5%	-0.6%	-5%	-5.7%

Shop A & Shop C, G/F, Austin Mansion, 15A Austin Avenue

(ie KF 10, LBase S3)

107.  This comparable is situated close to the two comparables above and therefore our remark on the adjustment for location is applicable. It also has frontage width between the two (ie 3.53m) but a marginally larger area in total (46.64 m²). Its headroom is also similar to that of the two comparables above. Its layout is however severely handicapped as Shop A and Shop C are in fact separated by a rear yard or corridor. For this reason, Mr Patrick Lai says this is not suitable for comparison to the more traditional type shops like the subject. Nevertheless, we agree with Mr Alnwick Chan that the splitting of this shop into two parts is not fatal to its use as a restaurant; Shop A is now being occupied as the dining hall whereas Shop C is used as its kitchen. However, we agree with the adjustment for layout proposed by Mr C K Chan to reflect such disability. Thus, the total adjustment for this comparable is 49.4% as demonstrated in the table below:

Time	Location	Age	Frontage	Layout	Headroom	Size	Total
29.2%	5%	0%	6%	10%	-0.6%	-5%	49.4%

Shop B, G/F, South Sea Apartment, 81 Chatham Road South

(ie KF 4, AA S3)

108.  Despite its address, this comparable is situated on Observatory Road. We agree that this location is more quiet as compared to that of the subject but we consider the adjustment proposed by Mr Alnwick Chan of +10% is excessive. We adopt +5% instead. This shop has a saleable area of 38.57 m² and a frontage of 3.33m, that is very similar to KF 2 above. Thus, in summary, the total adjustment for this comparable is 1.4% as demonstrated in the table below:

Time	Location	Age	Frontage	Layout	Headroom	Size	Total
0%	5%	0%	7%	-5%	0%	-5%	1.4 %

Shop B, G/F, Golden Mansion, 83-85A Chatham Road South

(ie KF 5, AA S4)

109.  This comparable is situated on Chatham Road South which is a major distributor in the area with very busy vehicular traffic and even with bus stops nearby. We would like however to make our remark similar to that in Supergoal Investment at §88 that this location is off the hub of the retail character of Kimberley Road which is famous as wedding gown street as submitted by Mr Ismail[48] and is intermingled with a variety of restaurants many of which are of Korean cuisines.  For this reason, we agree the adjustment for location recommended by Mr Alnwick Chan at +5%. Whereas the differences in adjustments on other factors between the two experts, Mr Alnwick Chan and Mr Patrick Lai, are insignificant or nominal, we accept those of Mr Alnwick Chan and the total adjustment is +17.5%.

Shop A, G/F, Kimberley Mansion, 15 Austin Avenue

(ie KF 8, AA S5)

110.  This comparable is situated closest to the Reference Shop Unit on the opposite side of Kimberley Road but right behind the guard rail as mentioned in §97 above. It is rectangular in shape but has a much smaller size; it has otherwise a frontage (3.34m), depth (9.32m) and headroom (3.35m) very similar to the other comparables KF 2, KF 3 and KF 10. For reasons explained above, we adopt the adjustments recommended by Mr Alnwick Chan for location, frontage and layout but accept the adjustments proposed by Mr Patrick Lai on time, headroom and size. Particularly for the latter, this comparable has a saleable area of mere 29.95m². Thus, the total adjustment for this comparable is 11.8% as demonstrated in the table below:

Time	Location	Age	Frontage	Layout	Headroom	Size	Total
12.3%	5%	0%	7%	-5%	0.4%	-7.1%	11.8 %

Unit 7, G/F, King’s Commercial Building, 2-4 Chatham Court

(ie KF 9)

111.  Mr Alnwick Chan is the only expert who adopts this as a comparable. However, as commented by Mr Patrick Lai, this unit has a very small saleable area of 12.29 m², ie less than 20% of the size of the Reference Shop Unit and the mere -5% adjustment recommended by Mr Alnwick Chan is obviously inadequate. We agree with Mr Patrick Lai that this “comparable” should be disregarded especially when we have sufficient number of better comparables.

Unit 6A, G/F, Kiu Fung Mansion, 14/18C Austin Avenue/83-89 Kimberley Road

(ie KF 11)

112.  Again, Mr Alnwick Chan is the only expert who adopts this as a comparable.  As commented by both Mr C K Chan and Mr Patrick Lai, the transaction date was December 2011 which is about a year earlier from the agreed date of valuation as at 28 December 2012. As a result, Mr Alnwick Chan has to apply the Private Retail Price Index of RVD as much as 40.6% to adjust for the time difference. Nevertheless, the preparation of an index is more or less an averaging exercise and there is no guarantee that the price trend for the subject location or property necessarily follows the index. This is particularly the case for shop premises where a slight variation in location would lead to significant difference in value. Therefore, the larger the extent of the adjustment, the higher probability of error would ensue. Also we doubt if the 10% adjustment for location is sufficient to reflect a much more quiet location though it is situated on the opposite side of KF 2 and KF 3. We agree with Mr Patrick Lai that this “comparable” should be disregarded.

113.  Thus, from the above analysis, we have altogether 6 comparables, the result of which is as follows:

Ref:	Address	Unit Rate/ m2	Total adjustment	Adj unit rate/ m2
KF 2/ LBase S1/ AA S1	Unit 2, G/F, Windsor Mansion, 17 Austin Avenue	$815,098	-2.9%	$791,460
KF 3/ LBase S2/ AA S2	Unit 1, G/F, Windsor Mansion, 17 Austin Avenue	$749,373	-5.7%	$706,659
KF 10/ LBase S3	Shop A & Shop C, G/F, Austin Mansion, 15A Austin Avenue	$503,859	49.4%	$752,765
KF 4/ AA S3	Shop B, G/F, South Sea Apartment, 81 Chatham Road South	$993,000	1.4%	$1,006,902
KF 5/ AA S4	Shop B, G/F, Golden Mansion, 83-85A Chatham Road South	$781,250	17.5%	$917,969
KF 8/ AA S5	Shop A, G/F, Kimberley Mansion, 15 Austin Avenue	$823,038	11.8%	$920,156
			Average:	$849,319 Say $850,000

* Standing back, we find the adjusted result compares favourably with the unadjusted unit rate of KF 8 which appears to be the best comparable in terms of location.

114.  Then, we follow the approach of Mr Alnwick Chan in assessing the EUV of the other ground floor units as follows[49]:

Address	Area (m2)	Internal Condition Adjustment	Adjusted Unit Rate/m2	EUV
G/F, No 68 (Front)	65.6	0%	$850,000	$55,760,000
G/F, No 68A (Rear)	65.3	0%	$106,250	$6,938,000
G/F, No 70 (Front)	65.6	+5%	$892,500	$58,548,000
G/F, 70A (Rear)	65.8	-10%	$95,625 (see Note (2) below)	$6,292,000
1st Pair of Buildings				Sub-total:	$127,538,000
G/F, No 72 (Front)	66.0	0%	$850,000	$56,100,000
G/F, No 72 A (Front)	61.4	0%	$850,000	$52,190,000
G/F, No 72B (Rear)	63.9	0%	$106,250	$6,789,000
G/F, No 72C (Rear)	54.9	0%	$106,250	$5,833,000
2nd Pair of Buildings				Sub-total:	$120,912,000
Total:					$248,450,000

Notes:

(1) In respect of G/F, No 72, Mr Alnwick Chan allows a discount of 4% to allow for the time and cost required for the unit to be legally converted into shop use. However, in view of the history of the uses in the Buildings and particularly its occupation permit issued in 1955 would permit non-domestic use in any event, we do not consider such a discount necessary in this case.

(2) We adopt the same assumption of Mr Alnwick Chan that the effective unit rate of ground floor shops in the rear portion is 1/8^th of the unit rate of the Reference Shop Unit in the front.

Assessment of LG/F units

115.  Mr Alnwick Chan could not find any comparable for the LG/F units for non-domestic purposes. Instead, he has relied on 7 sale comparables on the first floor of commercial buildings with unit rates ranging from $60,498/m² to $132,578/m². In respect of those units in purpose built office buildings, eg Oriental Centre, Dolford Mansion, Kee Shing Centre (just next to the Buildings) and even Tung Wui Building, we agree with the submission of Mr D’Souza that these are not suitable as comparables for shop or more properly non-domestic premises on the lower ground floor. While these “comparables” are of a different character, their conversion to retail uses may be in breach of the relevant DMC, For instance, in The Incorporated Owners of Foo Hoo Centre v Hong Kong Alliance in Support of Patriotic Democratic Movements of China, HCMP 1037/2014 (unreported, dated 16 February 2015), the proposed showroom purpose was facing injunction action by the Incorporated Owners. Whereas Mr Alnwick Chan conceded that an additional adjustment may be required, Mr Ismail submits Mr Alnwick Chan was “comparing apples to oranges”.

116.  On the 3^rd day of trial, ie after the joint inspection on 17 March 2015, Mr Alnwick Chan dropped the comparable at Quality Tower. Then his only comparable left is an arcade shop at Unit 8, 1/F, King’s Commercial Building, 2-4 Chatham Court which, after adjustments in the following analysis, results in $85,364/m²:

Time	Age	Condition	Size	Location	Street Exposure	Natural Lighting/ Ventilation	Lift	Total
25.15%	-5.0%	-10%	-4.0%	20.0%	-30%	-5%	-5%	-14.3 %

117.  Mr D’Souza submits that this comparable is however too small when compared with the reference unit of 65.3 m². Also this comparable has a better window frontage onto the street. This is quite different from the lower ground floor units that are not visible from the street level.

118.  Mr C K Chan does provide an additional comparable at G/F  Carson Mansion, 61-63 Kimberley Road. Although this comparable is named “G/F” in the land registration record, it is in effect 1/F premises accessible from a exclusive staircase via a LG/F entrance fronting onto Kimberley Road at its junction with Observatory Road:

Time	Age	Condition	Size	Location	Street Exposure	Natural Lighting/ Ventilation	Street Entrance	Total
0.0%	0.0%	0.0%	25.0%	0.0%	0.0%	0.0%	-10.0%	15.0 %

119.  One comment on Mr C K Chan’s analysis is that he adopts the same unit rate of the LG/F entrance as that of the G/F premises (which on site are in effect on 1/F fronting onto Kimberley Road).  In Bright Dragon Properties Limited v Director of Lands, LDLR 3/2007 (unreported, dated 8 August 2014), the Tribunal acknowledged at §33 of the judgment the approach to determine the value of the 1/F premises with exclusive G/F access “is by deducting from the transaction price the price attributable to the ground floor shop, arrived at by reference to more readily available shop comparables. The residue after the deduction is taken as the price attributable to the upper floor space.” This view is now further reinforced by the evidence provided by Mr Alnwick Chan and confirmed by our joint inspection on site that the owner of a ground floor unit of Quality Tower was ready to forsake valuable ground floor space to provide an exclusive staircase to the 1/F, a comparable that Mr Alnwick Chan has disregarded as stated in §116 above.

120.  At §113 above, we have determined the EUV of the Reference Shop Unit at $850,000/m². The size of this ground floor entrance (21m²) of the Carson Mansion comparable is similar to that of KF 8 above and therefore at least 7.1% has to be added back. By allowing an adjustment of 10% for the corner location, the total adjustment would become +17.8% (ie 1.071 x 1.1) or the unit rate would become $1,001,300/m². Thus, the value of this ground floor entrance would be 21m² x $1,001,300/m² = $21,027,300 which is more than double the adjustment for street entrance made by Mr C K Chan. With the transaction price of $91,000,000 in December 2012, the value left for the 1/F premises is about $70,000,000. When this is divided by the area of the 1/F premises (384m²), the unit rate is $182,292/m² subject to other adjustments.

121.  As pointed out by Mr Alnwick Chan during the site inspection, this comparable by Mr C K Chan enjoys extensive street frontage through its long façade. Following Mr Alnwick Chan’s allowance at -5% for age, -10% for condition, -5% for natural lighting and -30% for street exposure but adopting Mr C K Chan’s adjustment for size at +25% (ie 0.95 x 0.9 x 0.95 x 0.7 x 1.25), the total adjustment for this “comparable” should be -29% and the adjusted value should be $182,292 x 0.71 = $129,427/m².

122.  We note it is the position of the Beneficiaries that this comparable should be disregarded in light of its heavy adjustments on size. But if this be the case, we are left with one single comparable proposed by Mr Alnwick Chan which is indeed an arcade shop on 1/F instead of the lower ground floor.

123.  Nevertheless, Mr Alnwick Chan has provided a LG/F comparable though for his purposes of assessing the redevelopment value of the sites. This is the sale of LG/F, Shun Fai Building at 64-66A Kimberley Road (ie adjoining the Buildings) in September 2014 for $49,800,000, ie $180,402/m² after accounting for its sheer size of 276.05 m².

124.  As to the use of a comparable transacted after the valuation date, it is well established that a market transaction concluded after the valuation date does not per se bar it from being considered as a comparable[50]. According to the Private Retail Price Index provided by Mr Alnwick Chan[51], the time adjustment should be somewhat like 158/175, ie -10%.

125.  This is a relatively new building completed in 1985 and following the age adjustment proposed by Mr Alnwick Chan for buildings of similar ages, -6% is allowed.

126.  Also, despite its address being at lower ground level, this comparable is visible from Kimberley Road and is accessible by a direct common staircase off the street. The other adjustments will thus follow those proposed by Mr Alnwick Chan in analysing his comparable at King’s Commercial Building and those proposed by Mr C K Chan for his additional comparable at Carson Mansion (save for smaller adjustment for size and street exposure) .

127.  Thus, the total adjustment for this comparable is -30.6% as demonstrated in the table below:

Time	Age	Condition	Size	Location	Street Exposure	Natural Lighting/ Ventilation	Direct Street Entrance	Total
-10.0%	-6.0%	-10%	20.0%	0.0%	-20%	0%	-5%	-30.6 %

128.  The adjusted value of this comparable becomes $180,402/m² x -30.6% = $125,200/m².

Use of investment or capitalization method

129.  Mr C K Chan uses the investment or capitalization method to cross-check his valuation.

130.  It is undisputed that LG/F, No 72B had been let out for a bar or restaurant purposes since January 2010. When that tenancy expired on 3I December 2011, negotiation went on between the landlord and the sitting tenant until about June 2012. Grand Sea managed to secure new rental for $38,000 per month (exclusive of rates, management fees etc) for a term of 2 years from 1 January 2012. According to Mr C K Lam for Grand Sea, the tenant had in or about July 2013 surrendered vacant possession of the unit as he could not operate his bar business with the then conditions of the Buildings under repair[52]. Also, despite the alleged breach of occupation permit by the applicant, the tenant managed to renew the liquor licence issued by the Liquor Licensing Board on 4 October 2012[53].

131.  Thus, Mr C K Chan puts forward his investment or capitalization method as follows[54]:

Monthly Rent of the Latest Tenancy		$38,000	per month
	x	12
Annual Rent		$456,000
Market Yield @3%	÷	0.03
		$15,200,000

132.  Mr C K Chan explains that his 3% capitalization rate was derived from the Property Market Yields for Retail premises published by RVD which was 2.9% as at January 2012[55].

133.  We have commented at §112 above that the preparation of an index by RVD is more or less an averaging exercise. The same applies to the collaboration of the “market yield”. Bearing in mind the location of LG/F No 72B, the dispute on user and the renewal history of the last tenancy, we are of the opinion that the yield (which is the proxy for risk) expected by the landlord should be higher than the average. Also, when the proposed yield is as low as 3%, a slight change by say 0.5%, eg a yield of 3.5%, would result in an assessment of $13,028,571, ie a decrease of 15%. As said by the Tribunal at §22 in Fan Chun Keung v Secretary for the Environment, Transport and Works, LDMR 5/2004 (unreported, dated 15 July 2005) on the capitalization rate, “with one more set of variable, there is less certain chance of arriving at a value that equals to the market value of the subject land, which is the subject matter of valuation.”

134.  Mr Alnwick Chan also challenges the rental of $38,000 saying that it did not represent market rent. Mr Alnwick Chan refers in particular to the requirement under Part 1 of Schedule 1 to the Ordinance that the EUV should be assessed on a vacant possession basis. We accept his view bearing in the mind the unit had been granted a liquor license and the rental was achieved as a result of renewal of tenancy with the sitting tenant who has inertia to pay higher rent as previously remarked by the Tribunal[56].

135.  It so happens that the sale of LG/F, Shun Fai Building at 64-66A Kimberley Road (ie adjoining the Buildings) in September 2014 was subject to a tenancy dated 12 May 2014 for a term of 4 years from 1 April 2014 at $120,000 per month exclusive of management fee with a rent free period of two months from 1 April 2014 to 31 May 2014[57]. Mr Alnwick Chan analysed the effective rent to be $120,000 x 46/48 = $115,000 or $416.59/m². When the adjustments at §127 above are followed save for the adjustment for time (where -7% is adopted[58]) as well as that for the age and condition where a tenant is less concerned about, the unit rental becomes $353.27/m². On the other hand, when dividing the rental of $38,000 by its area of 63.9 m² (& adjoining yard of 27.7 m² which is assessed at 1/8^th of that of the unit), the unit rent appears to be as much as $564/m². This is much higher than that of $353.27/m² analysed for LG/F, Shun Fai Building.

136.  In light of the above, the validity of Mr C K Chan’s investment or capitalization method is in doubt.

137.  If we repeat Mr C K Chan’s exercise but adopting a unit rental of $353.27/m² and a yield of say 3.5%,

Monthly Rent of the Latest Tenancy		$353.27	/m2 per month
	x	12
Annual Rent		$4,239.24
Market Yield @3.5%	÷	0.035
		$121,121

138.  All in all, we consider this comparable at LG/F, Shun Fai Building at 64-66A Kimberley Road is the best comparable when compared with either Mr Alnwick Chan’s comparable at Unit 8, 1/F, King’s Commercial Building (with adjusted unit price of $85,364/m²) or Mr C K Chan’s comparable at G/F, Carson Mansion (with adjusted unit price we analysed at $129,427/m²). We adopt the unit price of $125,200/m² we analysed at §128 above for the assessment of the subject units on LG/F.

139.  Thus, our assessments of the EUV of the respective units on LG/F are as follows:

Address	Saleable Area	Yard	Adjusted Unit Rate/m2	EUV
LG/F, Nos 68 & 70	136.5 m2	46.6 m2	To be assessed on domestic use basis
LG/F, No 68A (with yard abutting scavenging lane)	65.3 m2	36.9 m2	$125,200/m2	$8,753,000
LG/F, No 70A (with yard abutting scavenging lane)	65.8 m2	30.7 m2	$125,200/m2	$8,719,000
LG/F, 72 & 72A	135.0 m2	43.4 m2	To be assessed on domestic use basis
LG/F, No 72B (with yard abutting scavenging lane)	64.3 m2	28.2 m2	$125,200/m2	$8,492,000
LG/F, No 72C (with yard abutting scavenging lane)	54.8 m2	17.8 m2	$125,200/m2	$7,140,000

Assessment of other units on domestic use basis

140.  In his valuation of the EUV of the units for LDCS 5000/2013 on domestic use basis, Mr Alnwick Chan adopted the following methodology :

(a) He selected 4/F, No 68 which is situated on the middle floor of the domestic portion as the reference unit (“the Reference Domestic Unit”)[59]. 

(b) The unit price of the Reference Domestic Unit was first assessed by reference to market comparables.  He took into account 5 comparable transactions in 4 different buildings nearby.  After making what he regarded as the necessary adjustments (for time, location, age, building condition, natural lighting/ventilation, floor, size, lift facilities and privacy) for all these comparable transactions, he took the average of the adjusted unit rate of the comparables to come to the unit price of the Reference Domestic Unit.

(c) He further considered the floor difference, internal conditions, size, privacy and natural lighting/ventilation of the Reference Domestic Unit and the remaining domestic units within the Buildings and made adjustments to arrive at the EUV of all the domestic units.

141.  As pointed out by Mr C K Chan, three out of the five comparables adopted by Mr Alnwick Chan are served by lifts whereas the subject Buildings are not. Mr Alnwick Chan agreed that these comparables are of a different character in relation to the Buildings and withdrew these as comparables.

142.  Further, it is noted that Mr Alnwick Chan relied on 2 transactions in the same building, ie 2/F and 3/F respectively of 5 Austin Avenue which were sales by the same owner[60] to two different but related companies. These two sales in effect took place less than a month after the acquisition of the 4/F of the same building by one of the two companies. The 4/F was one of the comparables relied on by Mr C K Chan (LBase D4).

143.  Mr Patrick Lai suggested these sales were unusual. While we observe these sales were apparently at very low prices (from $52,083/m² to $52,630/m²) which did not reflect any overbid for special interest, Mr Patrick Lai said it was not useful to speculate whether a higher price or lower price was paid for the properties because the purchaser seems to be interested in this particular building. In the absence of further evidence however which points to any abnormality, we do not consider these transactions should be disregarded altogether; we are prepared to take only the acquisition of the 4/F (ie LBase D4) as comparable but not those two proposed by Mr Alnwick Chan for the reason that on the one hand to avoid any peculiarity as alleged by Mr Patrick Lai but more importantly to avoid the end adjustment to be biased heavily toward this series of transactions. In respect of the latter, as suggested by Patrick Lai, this series of transaction took place some two years prior to the relevant date as at 28 December 2012 and time adjustment based on the territories-wide Private Domestic Prices Index for Class B published by RVD turns out to be as much as +33.6%. We have pointed out in §112 above that the larger the extent of the adjustment, the higher probability of error would ensue.

144.  Indeed, Mr C K Chan had another comparable which is shared by Mr Patrick Lai (ie AA D4). This is the sale of 4/F, 1A Kimberley Street which took place in June 2011 at $82,540/m². Mr C K Chan however disregarded this transaction because he thought the unit rate appears to be out of tone with those for 5 Austin Avenue. But as explained in the paragraph above, we would rather take only the transaction in respect of 4/F, 5 Austin Avenue as a single comparable to avoid the analysis to be biased. Therefore, we do not see this transaction of 4/F, 1A Kimberley Street being out of tone with the series of transactions at 5 Austin Avenue.

145.  However, Mr Alnwick Chan comments that this transaction at 1A Kimberley Street as well as three others adopted by Mr Patrick Lai (ie AA D1, AA D2 and AA D3 all along Hau Fook Street ranging from $94,018/m² to $98,103/m²) are tainted with prospect for redevelopment. Having conducted our joint inspection on 17 March 2015 and in the absence of further evidence, we do not consider this to be the case for 1A Kimberley which, if to be developed, must be merged with the sites along Granville Road.

146.  As regards those three comparables at Hau Fook Street, again we do not consider their transaction prices necessarily excessive on existing use basis if we allow an adjustment for location which Mr Patrick Lai had left out. We consider Hau Fook Street is within a more bustling environment, in closer proximity to the Tsim Sha Tsui MTR station.  We consider -5% should be allowed for this locational difference for domestic purpose[61]. On the other hand, we consider such an adjustment for 1A Kimberley not necessary.

147.  Reference Domestic Unit, ie 4/F, No 68, is a front unit onto Kimberley Road but northwest facing. Mr Patrick Lai has allowed a 2% adjustment for orientation facing southeast or southwest. We consider such a minor adjustment not necessary as we appreciate that all the comparables are on low floor levels.

148.  Similarly Mr Alnwick Chan allows -5% for units facing the rear service lane whereas Mr Patrick Lai takes this as an adjustment for view. Therefore, we shall reconcile the two adjustments as one. On the other hand, Mr C K Chan allows a discount for such as much as 10% which we consider to be excessive.

149.  Mr Alnwick Chan suggests that domestic units which are located on the same floors with non-domestic uses are considered to have less privacy than those on floors with purely domestic use. However, we have not inspected these domestic comparables and we are not satisfied that we have evidence to support such an adjustment.

150.  Thus, we have altogether 5 comparables. Unless otherwise stated, we follow the adjustments proposed by the respective parties:

Ref:	Unit Rate/m2	Time	Location	Age	Natural Lighting/ Ventilation	Floor	Size	Lift	Total	Adj Unit Rate/m2
LBase D4	$52,083	33.6%	0%	-1.5%	0%	0%	0%	0%	31.6%	$68,541
AA D1	$98,103	10.8%	-5.0%	1.0%	0%	-4.0%	-0.6%	0%	1.4%	$99,476
AA D2	$94,018	10.8%	-5.0%	-1.5%	0%	-4.0%	-0.5%	0%	-1.0%	$93,078
AA D3	$96,752	12.0%	-5.0%	-3.5%	0%	-6.0%	-1.0%	0%	-4.4%	$92,495
AA D4/ LBase D1	$82,540	20.3%	0%	-5.5%	5.0%	-2.0%	-6.6%	0%	9.3%	$90,216
										$88,761   Say $88,800

Notes:

(1) While Mr Alnwick Chan is prepared to make no allowance for age in respect of difference from 0 to 4 years, both Mr C K Chan and Mr Patrick Lai adopt 0.5% per year difference. In this case, we adopt 0.5% per year difference, ie the view of both Mr C K Chan and Mr Patrick Lai. Having done so, it appears that the condition allowance proposed by Mr Alnwick Chan is no longer necessary.

(2) While both Mr Alnwick Chan and Mr Patrick Lai allow an upward adjustment of 2% per floor level difference, Mr C K Chan allows 1%. We are prepared to adopt an adjustment of 2% as proposed by both Mr Alnwick Chan and Mr Patrick Lai.

151.  Before we proceed with our assessment of the EUVs of the other units, we note Mr Patrick Lai has pointed out that an air-conditioning plant (or “chiller plant”) is installed on ground floor of Beverley Commercial Centre adjoining the scavenging lane at the back of the 1^st Pair of Buildings. Mr Patrick Lai considers the living environment of the domestic units on low floors facing the scavenging lane, ie units of No 68A and No 70A are adversely affected by noise and heat emitted from the said air-conditioning plant. In cross examination, Mr Alnwick Chan agreed that there would be noise and heat emission from the plant but he considered that such noise and heat were no different from other urban living environment.

152.  In Lo Yu Chuv. Kam Fu Lai Development Co. Ltd[1994] 3 HKC 18, the appellant was awarded damages by the District Court for nuisance caused to her as a result of noise produced by an air-conditioner which served 152 shops on the lower levels. When the case went to the Court of Appeal, Godfrey JA also stated at p 27G-H that:

“The operation of this rogue air-conditioning plant … for the benefit of the shops in Pearl House, is clearly a real annoyance and discomfort to the plaintiff in her occupation of her flat, not merely in a subjective sense, but according to proper objective standards as to the sort of noise which the occupier of a flat in Pearl House might reasonably be expected to tolerate. It is accordingly an actionable nuisance.”

153.  No evidence of complaint for noise or heat has ever been produced in respect of the Applications. Nevertheless, we agree that a minor adjustment of -5% is reasonable for the lower floors of the 1^st Pair of Buildings. Otherwise, save for our disregarding the adjustment for privacy, we follow the other adjustments suggested by Mr Alnwick Chan in his report of 18 February 2015.[62] Thus, our assessment of the EUV of the units of the 1^st Pair of Buildings, ie LDCS 5000/2013 is tabulated at Appendix 1 hereof.

154.  Similarly, our assessment of the EUV of the units of the 2^nd Pair of Buildings, ie LDCS 6000/2013 is tabulated at Appendix 2 hereof. The total EUV of the Buildings is in the sum of $515,397,900.

Conclusion on EUV

155.  Thus the total EUV for the 1^st Pair of Buildings, ie LDCS 5000/2013 is $127,538,000 (G/F) + $8,753,000 (LG/F, No 68A) + $8,719,000 (LG/F, No 70A) + $117,410,800 (for the domestic units) = $262,420,800. The Beneficiaries’ interest in 5/F, 70A Kimberley Road represents 2.1301% of the total EUV of the 1^st Pair of Buildings or 1.0846% of the total EUV of the Buildings.

156.  Likewise, the total EUV for the 2^nd Pair of Buildings, ie LDCS 6000/2013 is $120,912,000 (G/F) + $8,492,000 (LG/F, 72B) + $7,140,000 (LG/F, No 72C) + $116,433,100 (for the domestic units) = $252,977,100. The Grand Sea’s interest in LG/F, No 72B Kimberley Road represents 3.3568% of the total EUV of the 2^nd Pair of Buildings or 1.6477% of the total EUV of the Buildings.

Disputes on the estimation of the RDV of the Lots

Optimum hypothetical development model

157.  Whereas all parties agree that the merged sites of the Lots should be considered for assessing the RDV, all three valuation experts resort to the residual valuation method in determining the RDV. This is done by deducting development costs (including construction costs, professional fees, finance costs etc) and developer’s profit from the estimated gross development value of the completed optimum development.

158.  The experts agree that the total site area of the Lots is 807.00 sq m and the total gross floor area (“GFA”) of a new development thereon is 9,694.50 sq m[63]. However, they cannot agree on the form or mode of the new development proposed.

159.  In his Supplemental Report of 18 February 2015, Mr Alnwick Chan has prepared an assessment of the RDV of the Lots at $900,900,000 (ie an accommodation value of $92,929 / sq m) on the basis of a 17-storey office cum commercial building (including LG/F) with LG/F, G/F, 1/F and 2/F designated for retail purposes and the upper floors designated for office purposes[64]. At trial, Mr Alnwick Chan conceded that his mode of development could accommodate retail activities on the upper floors except food and beverages. This is in line with the proposed development postulated by Mr C K Chan. On the other hand, Mr Patrick Lai considers the new development should be a Ginza type which can accommodate retail activities including food and beverages.

160.  In support of his proposed office cum retail development, Mr Alnwick Chan has conducted what he calls a market demand survey of 14 commercial buildings in the vicinity of the Buildings. According to his findings contained at Appendix 7 of his report dated 18 February 2015[65], office use is the dominant use on the upper floors of 12 out of 14 buildings. The property known as One Knutsford is dominated by retail use as it is situated at the west-end of Knutsford Terrace along which the pedestrian flow is busier and with higher retail potential as compared to the location where the Lots are situated. Mixed uses are found in Kimberley Plaza in which the upper floor units are occupied by offices, shops, retail supporting services and service trades[66].

161.  We however agree with Mr Patrick Lai that this survey was flawed because the 12 buildings surveyed are purpose built office buildings especially of many years ago which was not apt to accommodate retail use or even food and beverages activities. Particularly for those which have the individual units sub-divided and subject to the covenants under DMC, there will be restriction like that as found in The Incorporated Owners of Foo Hoo Centre v Hong Kong Alliance in Support of Patriotic Democratic Movements of China, HCMP 1037/2014, supra, whereby “No owner shall use or permit or suffer any part of the Building owned by him to be used except in accordance with the Crown Grant, any applicable Building Regulations, other Government Regulations, Ordinances and the Occupation Permit, any other permit, consent or requirement as may from time to time be applicable thereto, and the covenants terms and conditions herein contained.” As found by Mr Patrick Lai, the occupation permits issued for these buildings only permits the upper floors for office purposes[67]. Mr C K Chan, while being cross-examined, stated it was not surprising at all that the occupation or uses of those office buildings were predominantly for office use taking the purpose of the buildings in consideration.

162.  We are particularly interested in the survey result for Kimberley Plaza at 45-47 Kimberley Road where office activities account only for 38.5%. This building was however completed in 1978 and its design was out-moded. We consider its potential for further accommodating retail trades is inhibited by having only one passenger lift with another cargo lift in a recessed position on ground floor serving the upper 12 storeys[68]. The lifts are small and can only carry a few passengers/customers each time.

163.  We also note that Katherine House at 53-55 Chatham Road South which was formerly an office building has been re-marketed in the recent years for retail accommodation.

164.  Of most interest to us is the relatively new development at No 8 Hau Fook Street (which is now called H8) which is devoted mainly to restaurant purposes. Hau Fook Street is particularly a cul-de-sac though it is accessible by pedestrian alleys from Cameron Road, Granville Road and Granville Circuit.

165.  In comparison, we agree with Mr Patrick Lai’s evidence that the vicinity of the Lots is undergoing transformation. During our joint inspection, a substantial new office/commercial development is being constructed on Observatory Road. We are persuaded that the Lots should have the potential for being developed into a similar if not better development like H8 in view of its location along Kimberley Road which is a famous “wedding gown street” and is intermingled with a variety of restaurants many of which serving Korean cuisines, the “agglomeration effect” as suggested by Mr C K Chan. 

166.  However, we are not satisfied with Mr C K Chan’s suggestion that the trades on the upper floors of the proposed development should be so limited to those related to the wedding gown shops, florists, wedding planners, studios, beauty parlours etc, “a theme building” as called by him. In making this decision, we have taken into consideration the former failed attempt of promoting the lower floors of China Minmetals Tower at 79 Chatham Road South to be a centre of wedding gown showrooms and related activities though Mr C K Chan explained that the design of this building may not easily accommodate such retail activities. While we consider the location of this building to be off the hub of retail activities of Kimberley Road as well, we are of the view that the demand from these wedding gown related trades may not be sufficient to take up all the premises of the whole building; many of these shops still require their presence at street level. As submitted by the applicant, bridal shops operators prefer setting up their shops horizontally along the one stop “wedding gown street” instead of hiding inside a one stop “wedding gown building”.

Ginza Type Development

167.  Indeed, Mr Alnwick Chan has assessed the RDV assuming a Ginza type development for cross reference in his Supplemental Report of February 2015. He arrived however at a lower value of $780,800,000 (ie an accommodation value of $80,541/m²)[69]. We shall scrutinize the process of his assessment with particular reference to those of Mr Patrick Lai and Mr C K Chan.

168.  As mentioned at §35 above, the experts had formerly agreed a Joint Expert Statement dated 18 August 2014 on the parameters of the development[70]. Whereas all experts agree that there is no car park and loading/unloading requirements for the proposed development, we are surprised that Mr Patrick Lai did not allow full use of the lower ground floor for retail purposes but only as a basement mechanical floor[71] leaving an area of void.

169.  Indeed, the so-called lower ground floor is not underground because the Lots are situated on a sloping site and the lower ground floor is at the same level of the scavenging lane running between the ground level of Chatham Court and Observatory Road, abutting the latter is a new office/commercial development near completion as mentioned in §165 above. We have noted earlier at §123 that the sale of LG/F, Shun Fai Building at 64-66A Kimberley Road (ie adjoining the Buildings) in September 2014 for $49,800,000, ie $180,402/m². In such regard, we note Mr C K Chan has allowed a saleable area of 269 m² on the lower ground floor but we prefer Mr Alnwick Chan’s revised design of having 578.1 m² in his Supplemental Report of 18 February 2015.

170.  We have reviewed Mr Alnwick Chan’s revised design both on the basis of office cum retail development and that of the Ginza type. Although we have stated our opinion of adopting the Ginza type proposal, we prefer the saleable areas for the office cum retail development firstly because the saleable areas of the two scheme are very close and secondly, as pointed out by Mr D’Souza, Mr Alnwick Chan had unreasonably excluded the areas of the lift lobbies on each of the upper floors from the calculation of saleable area in his Ginza development proposal. We also prefer the design of 3 lifts for giving access to the upper floors instead of 4 lifts suggested by Mr Alnwick Chan.

171.  Also, as described at §§119-121 above, the prospective owner/developer is willing to forsake valuable ground floor space to provide exclusive access for the upper floors. Thus, we consider it is not necessary to specifically deduct the area that may be occupied by an exclusive lift to serve the LG/F to 2/F.

172.  We then proceed to determine the RDV of the Lots on the basis of a residual valuation.  

Assessment of the value for LG/F

173.  Only the sale of LG/F, Shun Fai Building at 64-66A Kimberley Road (ie adjoining the Buildings) in September 2014 for $49,800,000, ie $180,402/m² is submitted as comparable by Mr Alnwick Chan for assessing the value for LG/F; the other two experts provide no comparable on LG/F. We have already stated at §138 that we accept this Shun Fai Building unit as the best comparable. We do not agree with the 10-15% adjustment for the poor accessibility of the “external” staircase as proposed by Mr C K Chan. In the absence of further evidence, we agree with all the assessment by Mr Alnwick Chan at $205,100/m².

Assessment of the value for G/F

174.  In assessing the value of the ground floor premises of the proposed development, Mr Alnwick Chan reverts to using the Reduced Zoning Method, assuming a Zone A depth of 6.07 m². The Tribunal has been very hesitant to apply such a valuation approach in Hong Kong and it should only be used in exceptional situation[72]. This was a situation in Zhuang PP Holdings Ltd v Lam How Mun Peter and others, HCA 1589/2003, (unreported, dated 19 August 2009) where Deputy Judge To (as he then was) remarked at §107 that “(i)t is useful for shops of irregular shape and greater depths.”

175.  In the present case, we agree that in assessing the value of the ground floor shops of the hypothetical development of depth up to 26.2 m² when the comparables so collected by the parties have depths ranging from 8.97m² to 12.84 m² (ie less than half the depth of the subject), the Reduced Zoning Method is applicable. We consider the hypothetical arcade design proposed by Mr C K Chan cannot avoid the problem because arbitrary adjustments have still to be made to the arcade shops inside. Indeed, Mr Patrick Lai, when being cross-examined, admitted that the exercise of ascertaining the gross development value was an averaging exercise; we find from the evidence of Mr Alnwick Chan that the arcade design of Kimberley Plaza does not serve any better.

176.  Nevertheless, we consider the halving-back application of the Reduced Zoning Method proposed by Mr Alnwick may result in unreasonably low value for his Zone D; “ground floor sales rates, even at the rear, should generally always exceed ancillary and storage rates elsewhere in the shop”[73]. In this regard, we are going to adopt 1/6^th instead of 1/8^th of the Zone A value to this Zone D.

Shop C, G/F, South Sea Apartment, 81 Chatham Road South

(ie KF 1)

177.  This comparable is situated just next to KF 4 adopted in assessing the EUV of the Reference Shop Unit[74] but it turns out to have a unit rate of $822,000/m² which is less than $993,000/m² for KF 4 after a period of 2 years. This is criticized by Mr Patrick Lai as unreliable as it is against the increasing price trend during the period. We are however not provided with evidence to show which comparable is correct and therefore prepared to adopt this as one of the comparables. Further, we accept the adjustments proposed by Mr Alnwick Chan subject to our former analysis at §108 above and an adjustment for age/condition at 10% instead of 5%; the adjustments for frontage and layout suggested by Mr C K Chan and Mr Patrick Lai are no longer necessary when the Reduced Zoning Method is adopted:

Zone A Value/m2	Adjustments						Adj Zone A Value/m2
	Time	Location	Age	Headroom	Size	Total
$1,083,333	0%	5%	10%	2%	-6%	10.7 %	$1,199,200

Unit 1 and Unit 2, G/F, Windsor Mansion, 17 Austin Avenue

(ie KF 5 & KF 4, LBase RDVS3 & LBase RDVS2, AA S2 & AA S1)

178.  These two comparables are same as KF 3 and KF 2 adopted in assessing the EUV of the Reference Shop Unit[75]. For time adjustment, Mr Patrick Lai agreed with Mr Alnwick Chan that is to be about 8% but Mr C K Chan suggests 9%. As the difference is nominal, we adopt 8%.  However, there is also difference in opinion between Mr Alnwick Chan and Mr C K Chan on the adjustment for age/condition; we prefer Mr C K Chan’s 10% to Mr Alnwick Chan’s s 5% as this comparable building was completed in 1960. As regards headroom, Mr Alnwick Chan suggests 2% whereas Mr Patrick Lai and Mr C K Chan adopts 2.3% and 3% respectively. Again, the difference is not significant and we adopt the average of 2.4%.

179.  We have in §177 above said that the adjustments for frontage and layout suggested by Mr C K Chan and Mr Patrick Lai are no longer necessary when the Reduced Zoning Method is adopted. Then similarly for the adjustment on size, the Zone A area for the hypothetical unit suggested by Mr Alnwick Chan is just 30.4m² when compared with those for the two units around 22 m²; we consider the -6% proposed by Mr Alnwick Chan adequate. The total adjustments are therefore tabulated as follows:

Comparable	Zone A Value/m2	Adjustments						Adj Zone A Value/m2
		Time	Location	Age	Headroom	Size	Total
KF 4	$1,057,112	8%	5%	10%	2.4%	-6%	20.1 %	$1,269,600
KF 5	$933,208	8%	5%	10%	2.4%	-6%	20.1%	$1,120,800

Shop A & Shop C, G/F, Austin Mansion, 15A Austin Avenue

(ie KF 2, LBase RDVS1)

180.  Again, this comparable is same as KF 10 adopted in assessing the EUV of the Reference Shop Unit[76] but the transaction date is March 2014 instead of March 2012 for the previous KF 10. Owing to the previous criticism on its splitting nature, the analysis based on Zoning Method is particularly applicable.

181.  Nevertheless, during this 2 years’ period, the increase from $23.5 million to $27.8 million is about 18% as opposed to about 35% as suggested by the Private Retail Price Index published by RVD. We are however not provided with evidence to show which transaction is not market sales or the price trend for this property does not accord with the index published by RVD[77]. Like KF 1 in §177 above, we adopt this as one of the comparables. And in the absence of other evidence, we accept the time adjustment proposed by Mr C K Chan, ie 8.6% which follows the RVD index instead of 7.5% proposed by Mr Alnwick Chan.

182.  While we have already commented on the adjustments for other factors in the preceding paragraphs, we do not consider the -9% for size proposed by Mr Alnwick Chan explicable; we just adopt -6% like the others. Thus, the total adjustment for this comparable is 14.8% as demonstrated in the table below:

Zone A Value/m2	Adjustments						Adj Zone A Value/m2
	Time	Location	Age	Headroom	Size	Total
$989,324	8.6%	5%	5%	2%	-6%	14.8 %	$1,135,700

183.  Thus, the four comparables above come up with an average Zone A value of $1,181,300/m² (and a Zone B of value about $590,700/m² which together with Zone A extend to a depth of 12.14 m². The average of these two zones is $886,000/m²). We consider this result is consistent with the EUV assessment of the Reference Shop Unit (with depth of 13.80m²) of $850,000/m² as at 28 December 2012[78]. The Zone C and Zone D are devalued at $295,300/m² and $197,000/m² respectively.

184.  Mr Patrick Lai has provided two more comparables, one at Koon Fook Centre, 9 Knutsford Terrace with a much larger frontage (of more than 6m) and the other at Windsor Mansion, 29-31 Chatham Road. These two comparables have not been analysed using the Reduced Zoning Method and if we analyse the one at Koon Fook Centre using the Reduced Zoning Method, its Zone A value is approximately $1,400,000/m² which is higher than the average of $1,181,300/m² arrived above. However, Knutsford Terrace is popular for its own character for entertainment which is different from the subject location; we cannot agree with Mr Patrick Lai that there should be no discount for locational difference. A discount of 15% from $1,400,000/m² would give a similar result.

185.  The other comparable at Windsor Mansion is situated further away from the Lots. Our analysed Zone A value is about $880,000/m² which is 25% lower than $1,181,300/m². Again, further adjustment for location tends to be arbitrary and subjective. These two comparables are therefore disregarded.

186.  Thus based on Mr Alnwick Chan’s analysis as shown at Appendix of his Supplemental Report of 18 February 2015 (but with no discount on size)[79], the overall unit prize is about $570,000/m².

Assessment of the value for 1/F

G/F, Carson Mansion, 61-63 Kimberley Road

187.  The parties basically rely on two transactions for the purpose of determining the value for 1/F of the hypothetical development, one being the sale of G/F, Carson Mansion, 61-63 Kimberley Road described at §118 above. As stated in §119 above, Mr C K Chan assumes the same unit rate for that of the Lower Ground Floor and the Ground Floor. On the other hand, Mr Alnwick Chan does not allow any value for the exclusive street entrance (ie Lower Ground Floor of Carson Masnion) while Mr Patrick Lai assumes the unit value of the Lower Ground Floor as twice of that for the Ground Floor (which is in fact on 1/F level overlooking Kimberley Road). Thus, there are three different approaches by the experts in analysing the unit price of the first floor premises.

188.  The Lands Tribunal is not bound to accept the submission of any party and may rely upon its own experience in determining the dispute under section 4(1)(a) of the Ordinance[80]. As described at §§119-121 above, if we deduct the ground floor value of $21,027,300 from the transaction price of $91,000,000 in December 2012, the value left for the 1/F premises is about $70,000,000. When this is divided by the area of the 1/F premises (384m²), the unit rate is $182,292/m² before the other adjustments.

189.  Here, both Mr Alnwick Chan and Mr Patrick Lai propose a time adjustment of 12.2% while Mr C K Chan says 13.3%. We adopt the average of 12.5%. In relation to the adjustment for age/condition, however, we prefer the 10% proposed by Mr C K Chan to account for such an aged building completed in 1978. As for adjustment on size, we again adopt an average of what they proposed ie 4.2% when their differences are small. We would not make further allowance for location, etc when we have already deducted the value of the ground floor entrance and we agree with Mr C K Chan and Mr Patrick Lai that the adjustments for “façade length” and “street exposure’ are not necessary. We are only prepared to allow 5% for the lift access which appears to be agreed by all parties. Thus, the total adjustments and the resulting value derived from this comparable are tabulated below:

Value/m2	Adjustments						Adj Value/m2
	Time	Age	Size	Location/street exposure	Lift	Total
$182,292	12.5%	10%	4.2%	0%	5%	35.4%	$246,800

1/F, Woon Lee Commercial Building, 7-9 Austin Avenue

190.  Both Mr Alnwick Chan and Mr Patrick Lai adopt a second comparable at 1/F, Woon Lee Commercial Building, 7-9 Austin Avenue. Like that for Carson Mansion, it has an exclusive staircase leading from the ground floor occupying some 24.02m². This comparable is situated at a much more quiet location and both experts allow 25% for location. The two experts also agree a time adjustment of 5.9%. If these adjustments are followed and the $1,181,300/m² above is similarly discounted, the value of this ground floor entrance is about $20,000,000. When we deduct this ground floor value from the transaction price of $72,500,000 in May 2014, the value left for the 1/F premises is about $52,500,000. When this is divided by the area of the 1/F premises (360.20 m²), the unit rate is $146,000/ m² before the other adjustments.

191.  We then just follow the adjustments adopted by Mr Alnwick Chan for time, age, size and location[81], we get the following:

Value/m2	Adjustments						Adj Value/m2
	Time	Age	Size	Location/street exposure	Lift	Total
$146,000	5.9%	5%	2%	25%	0%	41.8%	$207,000

192.  Thus, the adjusted average of the two comparables is about $227,000/m².

Assessment of the value for 2/F

193.  Mr Alnwick Chan adopts an office unit on 2/F, Glory Centre, 8 Hillwood Road as comparable. We agree with the criticism made by Mr C K Chan that this is not a comparable at all in terms of location and character. Mr Patrick Lai, in his evidence in-chief, has suggested instead to discount the value of the first floor to arrive at the value of the 2/F. This approach was also adopted by Mr C K Chan. But as commented by Mr Patrick Lai, the downward adjustment as much as 34% suggested by Mr C K Chan is excessive; during cross examination, Mr Patrick Lai recommended 1-2% to be appropriate which we consider not adequate. We adopt a 3% discount from the value of 1/F to determine the value of the 2/F, ie $220,000/m².

Assessment of the value for the upper floors

194.  Mr C K Chan has provided no comparables for assessing the value of the upper floors; he merely adopts the value he derived from the Carson Mansion comparable in determining the value of the 1/F. This is unsatisfactory.

195.  Mr Alnwick Chan, on the other hand, in respect of the analysis of comparables for the Ginza type, relies on the sales of Katherine House and H8 as mentioned in §§163-164 above.

196.  Mr Patrick Lai has relied on 4 transactions in H8, two of which took place in January 2013. The applicant suggests these two transactions should be disregarded because they took place immediately before the Government new measures to curb the overheated property market, after which the property prices had dropped (from $284,508/m² or $300,000/m² to about $260,000/m²) as demonstrated by the other two transactions in H8 which are shared by Mr Alnwick Chan. The applicant is referring to the double stamp duty announced by the Financial Secretary on 22 February 2013.

197.  Mr Patrick Lai responded that the change can be adjusted by reference to the property price index published by RVD. But as discussed in §112 and §181 above, there is no guarantee that the price trend for the subject location or property necessarily follows the index. The larger the extent of the adjustment, the higher probability of error would ensue. As we have two other transactions of the same building which took place closer to the valuation date, we agree that the older ones adopted by Mr Patrick Lai should be disregarded.

198.  We shall take the unit on 8/F of the hypothetical development as adopted by Mr Alnwick Chan as the Reference Commercial Unit.  In respect of the analysis of the sales in H8, however, we consider the adjustment for location by Mr Alnwick Chan at -40% is excessive but Mr Patrick Lai’s adjustment at -15% is too small; we adopt -20%. On the other hand, we prefer Mr Patrick Lai’s adjustment for age/condition; for the rest we follow those adopted by Mr Alnwick Chan. The result of our analysis is as follows:

H8	Value/m2			Adjustments						Adj Value/m2
		Time	Age		Size	Location	Floor	Street Exposure	Total
KF 9	$259,921	7.2%	5%		-6%	-20%	7%	0%	-9.4%	$235,500
KF 10	$256,505	6.7%	5%		0%	-20%	-3.5%	-5%	-17.8%	$210,800
								Average:		$223,150 Say $223,000

199.  For a new hypothetical Ginza type development, Katherine House may not be a good comparable because its original design for the upper floors was for office use only. Nevertheless, in order to avoid the pitfalls of relying on a single comparable building, we are prepared to accept the adjustments proposed by Mr Alnwick Chan save that for location which we consider -10% appears more appropriate. Thus, subject to the above comments, we reproduce the adjustment table below but excluding the sale in March 2013 (ie KF 8) for the reason that its price might have been affected by the Government’s measure announced in February 2013. More importantly we have other 7 comparables within the same building closer to the relevant date:

H8	Value/m2			Adjustments						Adj Value/m2
		Time	Age		Size	Location	Floor	Street Exposure	Total
KF 1	$164,638	7.7%	13%		7%	-10%	4.5%	0%	22.50%	$201,700
KF 2	$146,949	7.7%	13%		-2%	-10%	3.5%	0%	11.10%	$163,300
KF 3	$153,749	7.7%	13%		-2%	-10%	1.5%	0%	9.00%	$167,600
KF 4	$152,020	7.2%	13%		-2%	-10%	-0.5%	0%	6.30%	$161,600
KF 5	$152,020	7.2%	13%		-2%	-10%	2.0%	0%	9.00%	$165,700
KF 6	$155,593	7.2%	13%		-2%	-10%	0.5%	0%	7.40%	$167,100
KF 7	$146,949	7.2%	13%		-2%	-10%	-1.5%	0%	5.20%	$154,600
								Average:		$168,800 Say $169,000

200.  The average of the adjusted values derived from the comparable buildings is therefore $196,000. While we opine that H8 is a better comparable than Katherine House, we are prepared to place more weight on the former and round up the average to $200,000/m², which is within a 10% range of the usual margin of error from $223,000/m².

Construction cost

201.  Firstly as regards the cost of demolition, both Mr Alnwick Chan and Mr Patrick Lai allow $3,600,000. On the other hand, Mr C K Chan suggests $4,000,000 but a shorter demolition period of 6 months. Having heard the evidence of the three experts, we are prepared to adopt $3,600,000.

202.  In relation to the construction cost of the new building, Mr Alnwick Chan adopts the Development Cost Pro-forma promulgated by the Hong Kong Institute of Surveyors to facilitate consideration of construction costs[82]. Based on the gross floor area of 9,694 m² and the construction cost data for a shopping centre provided by Rider Levett Bucknall Ltd (“RLB”) for the 3^rd quarter of 2014, he arrives at a construction cost of $305,415,277 or a unit rate of $31,504/m². Mr Patrick Lai adopts $25,500/m² per construction floor area for shopping centre based on average construction cost discerned from the Approximate Order of Construction Costs in Hong Kong and Selected Cities in China for the 3^rd quarter of 2014 compiled by RBL. On the other hand, Mr C K Chan relies on $20,700/m² per construction floor area for medium quality office from the same source, suggesting that the hypothetical development should not be materially different from an office building. Because of the difference between gross floor area and construction floor area[83], we take that Mr Alnwick Chan and Mr Patrick Lai are in effect adopting the same basis.

203.  In order to cater for the entertainment facilities, if any, to be accommodated in the hypothetical Ginza type development and the flexibility of uses, we agree with both Mr Alnwick Chan and Mr Patrick Lai that construction cost on the basis of shopping centre should be followed. Also, in view of the more detailed analysis in the format promulgated by the Hong Kong Institute of Surveyors, we are prepared to accept the construction cost proposed by Mr Alnwick Chan, save that as pointed out by Mr C K Chan at trial, the basement construction appears unnecessary as explained in §169 above. Thus, some $11,800,000 (including time adjustment[84]) has to be deducted and the construction cost should become $293,607,176 or a unit rate of $30,286/m² per gross floor area.

Demolition and development period

204.  There is also a dispute on the period of demolition. Mr Alnwick Chan allows 9 months, Mr Patrick Lai allows 1 year whereas Mr C K Chan adopts 6 months. As stated in §201 above, we have adopted the demolition cost proposed by Mr Alnwick Chan and Mr Patrick Lai. We also concur with their view that demolition period of mere 6 months is too short and may not be compensated by allowing a higher demolition cost. We agree a period of 9 months is appropriate and also a total development period of 3.75 years as proposed by Mr Alnwick Chan.

Marketing cost

205.  As regards marketing cost, Mr Alnwick Chan allows 1.5% of the Gross Development Value (“GDV”) whereas both Mr Patrick Lai and Mr C K Chan adopt 1%. We agree that 1% would be too small particularly when we are now adopting a Ginza type development, a more speculative development that has to be promoted. We therefore adopt 1.5% as proposed by Mr Alnwick Chan.

Professional Fees

206.  All the experts agree that the professional fees involved is 6% on cost.

Developer’s Profit

207.  Like what happened in Good Faith Properties, Mr Alnwick Chan and Mr Patrick Lai disagree on the developer’s profit to be allowed; the former adopts 20% and the latter adopts 15%. Mr C K Chan adopts 15% as well in the present case. For a more conventional office cum retail development, we agree 15% is adequate but here we have adopted a Ginza type development, a more speculative development that may fetch a higher return which in terms of investment parlance is experiencing higher risk. We therefore confirm that 20% is applicable in this case.

Interest on development cost

208.  All along, valuation experts coming to the Tribunal tend to adopt the best lending rate being offered by, for instance, HSBC. Mr Alnwick Chan and Mr Patrick Lai are no exception and they agree on 5% per annum in the present case. Mr C K Chan who had worked with a renowned developer in Hong Kong for 4 years suggests that the big developers in Hong Kong enjoy lower borrowing rates; he proposes 3% per annum in the present case. It sounds persuasive as property buyers are now charged by the major licensing banks in Hong Kong at rates lower than the best lending rates. To the extent that we have already allowed for a higher developer’s profit, we should not double count the risk involved and we are prepared to adopt the 4%[85], a mid-rate between 5% and the 3% proposed by Mr C K Chan.

Finding on RDV and the Reserve Price

209.  Thus, subject to what we have stated above, we shall follow Mr Alnwick Chan’s residual valuation model on the determination of the RDV because by comparison, we have adopted Mr Alnwick Chan’s parameters more than the others. We estimate the land value of the Lots as merged at $1,074,543,518 (ie accommodation value of $110,841/m²) as shown at Appendix 3 to this judgment which we round off to $1,075,000,000.

210.  Mr Alnwick Chan also conducted a valuation on basis of direct comparison. He basically relies on two recent auctions pursuant to the Tribunal’s order in LDCS 32000 / 2011 and LDCS 3000 / 2014 (ie Ultra Alpha) dated 12 April 2013 and 17 October 2014 at accommodation values of $88,060/m² and $93,210/m² respectively. We agree with the submissions by both the Beneficiaries and Grand Sea that these two sales are not good comparables because they are in respect of much smaller sites (about 270 m²) and in a more quiet location. These two factors severely limit the development potential of these two sites. Nevertheless, in comparison, Mr Patrick Lai’s determination of RDV at  $1,574,600,000 (ie AV$162,422/m²) or Mr C K Chan’s determination  at $1,925,100,000 (ie AV$198,577/m²) appears to be far fetched and out of kilter.

211.  We shall adopt the estimated RDV of $1,075,000,000 as the Reserve Price for the auction of the Lots.

Section 4(2)(b) – Whether Applicant has taken reasonable steps

212.  The applicant is under an obligation to take reasonable steps to negotiate on terms that are fair and reasonable for the purchase of the interest of the Beneficiaries (or their trustee, Unibase) and Grand Sea under section 4(2)(b) of the Ordinance.

213.  It is not disputed that the applicant has made the following offers to the Beneficiaries (or their trustee, Unibase) and Grand Sea to acquire their units:-

Before filing of the Notices of Application on 4 March 2013

Offer	Date of offer	Unibase/Beneficiaries	Grand Sea
1st round	5.1.2013	$7,078,000	$9,057,000
2nd round	21.1.2013	$7,531,000 Unibase received offer but did not accept	$9,562,000
3rd round	5.2.2013	$7,533,000	$9,599,000

After filing of the Notices of Application

Offer	Date of offer	Unibase/Beneficiaries	Grand Sea
4th round	31.12.2013	$12,750,000
Beneficiaries rejected offer dated 31.12.2013	14.1.2014	$25,000,000 Beneficiaries’ W/P counter offer disclosed by Beneficiaries
Beneficiaries’ W/P offer to sell	28.8.2014	$21,000,000 Disclosed by Beneficiaries
5th round	24.12.2014	$8,685,000	$10,709,000
W/P offer by applicant	24.12.2014	$14,000,000 Disclosed by Beneficiaries
6th round	30.1.2015	$10,264,000	$12,655,000
7th round	18.2.2015*	$11,264,000	$13,720,000
Beneficiaries’ W/P counter offer	18.2.2015*	$20,945,707 Disclosed by Beneficiaries

* The applicant submits that these two offers were made after Mr Alnwick Chan changed his position as regards the existing usage of the LG/F, G/F and 1/F as per his Supplemental Report of 18 February 2015.

214.  The applicant submits that the above offers though reasonable, had not been accepted by the Beneficiaries nor the Grand Sea.

215.  Mr Justice Ribeiro P J on behalf of the Court of Final Appeal in Capital Well Limited v Bond Star Development Limited(2005) 8 HKCFAR 578 (“Capital Well”) had expressed a similar view at §2 of p 582  that:

“(the Ordinance) permits a person owning at least 90% of the undivided shares in the Lot, who has failed to acquire the balance of the undivided shares despite having made appropriate efforts to do so, to apply to the Lands Tribunal for a compulsory order requiring sale of the lot for the purposes of redevelopment.”

216.  We are of the view that the Ordinance provides a statutory mechanism which a majority owner may only invoke after he has taken reasonable steps to acquire the undivided share of a minority owner. Thus, to determine whether the applicant has taken reasonable steps in acquiring the units owned by Grand Sea and Unibase/the Beneficiaries, the Tribunal is to make reference to what steps/actions the applicant has actually taken at various stages in the acquisition process.  Relying on Capital Well Limited v Bond Star Development Limited (2005) 8 HKCFAR 578, Mr Fung for the applicant submits that the Tribunal should determine whether the prices offered by the applicant are fair and reasonable in light of the independent professional valuation opinion available to the applicant at the time of the offers. The applicant determined the respective offer prices in reliance on the independent professional valuation opinion of Mr Alnwick Chan of Knight Frank Petty Limited.

217.  In any event, the applicant submits that the purchase prices offered by the applicant were fair and reasonable in light of the independent professional valuation opinion available to the applicant at the time of the respective offers.  On the other hand, the applicant submits that it was reasonable in refusing to accept the Beneficiaries’ counter-offers highlighted above in grey colour. Each offer shall be discussed below.

Offers made on 5 January 2013

218.  The applicant submits that the offer prices made on 5 January 2013 in the sum of $7,078,000 to the Unibase (i.e. the Beneficiaries) and $9,057,000 to Grand Sea represented the respective market values of the units owned by Unibase/the Beneficiaries and Grand Sea, such offer having sufficiently reflected their proportionate shares in the joint redevelopment potential of the Lots as a composite site calculated by reference to the then RDV assessed by Alnwick Chan of Knight Frank Petty Limited.

Offers made on 21 January 2013

219.  The applicant again took into consideration Mr Alnwick Chan’s independent professional opinion on the EUV of the Buildings and the RDV (Composite Site) in determining the offer prices.  The applicant submits the offer prices made on 21 January 2013 in the sum of $7,531,000 to Unibase (i.e. the Beneficiaries) and $9,562,000 to Grand Sea exceeded the then market values of their units reflecting their respective proportionate shares in the then assessed RDV by 5%.

220.  Unibase replied to the applicant on 29 January 2013 however requesting for:

(a) a full list of units of the 1^st Pair of Buildings owned by the applicant;

(b) details of the applicant’s redevelopment plan for the 1^st Pair of Lots; and

(c) copies of the valuation of the 1^st Pair of Lots on the existing use and redevelopment basis.

221.  Mr D’Souza for the Beneficiaries complaint that the applicant did not respond to the above request. We agree with the Ms Lui Wing Yan (“Ms Lui”), the Manager of the applicant, that Unibase should look after its own interest by engaging its own experts for such information as requested. On the one hand, the Court of Final Appeal said at §32 of Capital Well that “(t)he Ordinance … recognises that the minority is perfectly entitled to take its own view and to refuse to sell at the price offered even though the Tribunal may regard that price as fair and reasonable.” On the other hand, the Court of Appeal in Good Faith Properties Limited & Others v Cibean Development Company Limited, CACV 35/2014 (unreported, 22 September 2014) (“Good Faith Properties (Appeal)”) held that the minority owners would be entitled to the expenses reasonably incurred in  determining the amount of compensation.

222.  All in all, as events of the Applications develop, the parties agree by consent that the two applications are heard together in one trial on the basis that the RDV of the Lots to be assessed on a merged site. The information sought by Unibase would serve little purpose.

Offers made on 5 February 2013

223.  The applicant again took into consideration Mr Alnwick Chan’s independent professional opinion on the EUV of the Buildings and the RDV in determining the offer prices.  The applicant submits the offer prices made on 5 February 2013 in the sum of $7,533,000 to Unibase (i.e. Beneficiaries) and $9,599,000 to Grand Sea exceeded the then market values of their units reflecting their respective proportionate shares in the then assessed RDV by 5%.

Offers made on 31 December 2013

224.  On or about 19 December 2013, Conitec Limited (“Conitec”), 2^nd respondent in LDCS 5000/2013, agreed to sell 4/F, No.70A (which is immediately below Unibase’s Unit) to the applicant at the price of $12,750,000 and entered into a Formal Agreement for Sale and Purchase with the applicant. Hence, on or about 31 December 2013, the applicant made a further offer to Unibase/the Beneficiaries to purchase 5/F, No.70A at the offer price of $12,750,000. The applicant submits (and this Tribunal agree) that, in general, the market value of a 5/F domestic unit should be lower than that of a 4/F domestic unit in a building without elevator. The applicant submits therefore the offer at the price of $12,750,000 made to Unibase/the Beneficiaries, was fair and reasonable.

225.  The Beneficiaries did not accept such offer and instead, on 14 January 2014, the Beneficiaries counter-offered to sell their unit at the price of $25,000,000.  The Beneficiaries’ asking price had exceeded the price for the purchase of 4/F, No.70A by 96.08% [i.e. (($25,000,000 ¸ $12,750,000) – 1) x 100%].  The applicant submits that it was reasonable in refusing to accept the unreasonable counter-offer.

Beneficiaries’ counter offer on 28 August 2014

226.  Meanwhile, in April 2014, Mr Alnwick Chan advised the applicant that the RDV on the basis of a merged site as at 20 April 2014 was $869,500,000. Then on 28 August 2014, the Beneficiaries offered to sell their unit to the applicant at the price of $21,000,000 which, according to the applicant, was still 65% higher than the price of $12,750,000 paid by the applicant in purchasing the unit formerly owned by Conitect and situated immediately below the unit owned by Unibase/the Beneficiaries [i.e. ($21,000,000 ¸ $12,750,000 – 1) x 100% = 65%].  The applicant submits that it was reasonable in refusing to accept the said unreasonable counter-offer.

Offers made on 24 December 2014

227.  The applicant took into account Mr Alnwick Chan’s opinion on the RDV (Composite Site) as at 20 April 2014 and added a 10% premium in addition to the respective proportionate shares of the Beneficiaries and Grand Sea in the assessed RDV in determining the offer prices made on 24 December 2014 to Unibase/the Beneficiaries (i.e. $8,685,000) and to Grand Sea (i.e. $10,709,000).

228.  The applicant submits with the benefit of hindsight and as evidenced by Mr Alnwick Chan’s latest opinion on the RDV as at 18 February 2015 and EUVs of all units in the Buildings as at 28 December 2012 the offer prices of $8,685,000 and $10,709,000 made on 24 December 2014 were and are fair and reasonable. The offer prices appear to be slightly higher than the respective market values of the units owned by Unibase/the Beneficiaries and Grand Sea as in February 2015 reflecting their proportionate shares in the joint redevelopment potential of the Lots as a composite site calculated by reference to the RDV as at 18 February 2015 and EUV as at 28 December 2012 as assessed by Mr Alnwick Chan in February 2015 (i.e. $8,663,970 for the Beneficiaries and $10,553,690 for Grand Sea).

Without Prejudice Offer made on 24 December 2014 to the Beneficiaries

229.  On the same day (i.e. 24 December 2014), the applicant also made a without prejudice offer to Unibase/the Beneficiaries at a much higher price of $14,000,000 which was also rejected by the Beneficiaries.  The said offer price is 62% higher than the open offer price of $8,685,000 made by the applicant to the Beneficiaries.

Offers made on 30 January 2015

230.  The applicant took into account Alnwick Chan’s opinion on the RDV (Composite Site) as at 20 April 2014 and determined the offer prices made on 31 January 2015 to Unibase/the Beneficiaries (i.e. $10,264,000) and to Grand Sea (i.e. $12,655,000) by adding a 30% premium to the respective proportionate shares of the Beneficiaries and Grand Sea in the assessed RDV as at 20 April 2014.

231.  The applicant submits that although at the time of the offers the applicant did not have an updated independent expert’s opinion on the RDV and in turn the then proportionate shares of the Beneficiaries and Grand Sea in the RDV as in January 2015, the applicant had taken reasonable steps to make sure that fair and reasonable offer prices were made to them by the addition of a 30% premium as aforesaid.  With the benefit of hindsight and as evidenced by Mr Alnwick Chan’s latest opinion on the RDV as at 18 February 2015 and EUVs of all units in the Buildings as at 28 December 2012, the offer prices of $10,264,000 and $12,655,000 were significantly higher than the respective market values of the units owned by Unibase/the Beneficiaries and Grand Sea as in February 2015 reflecting their proportionate shares in the joint redevelopment potential of the Lots as a merged site calculated by reference to the EUV as at 28 December 2012 and RDV as at 18 February 2015 as assessed by Mr Alnwick Chan (i.e. $8,663,970 for the Beneficiaries and $10,553,690 for Grand Sea).

Offers made on 18 February 2015

232.  As mentioned in §39, Mr Alnwick Chan changed his position as regards the existing usage of the LG/F, G/F and 1/F as per his Supplemental Report of 18 February 2015. The applicant submits the offer prices made on 18 February 2015 in the sum of $11,264,000 to Unibase (i.e. Beneficiaries) and $13,720,000 to Grand Sea well exceeded the market values of their units which represent their respective proportionate shares in the then RDV by 30%.

Beneficiaries’ counter offer made on 18 February 2015

233.  On the same day (i.e. 18 February 2015), the Beneficiaries counter-offered to sell their unit at the price of $20,945,707.  According to the applicant, such offer price exceeds the market value of the unit owned by Unibase/the Beneficiaries which represents their proportionate share in the assessed RDV (Composite Site) as at 18 February 2015 (i.e. $8,663,970) by 142% [i.e. ($20,945,707 ¸ $8,663,970 -1) x 100%] and exceeds the applicant’s offer price by 86% [i.e. $20,945,707 ¸ $11,264,000) -1) x 100%].

234.  Before trial, we were also informed that the applicant had successfully purchased the interest of Better Ray Company Limited, the 1^st respondent of LDCS 6000 of 2013, at $16,500,000 on 16 February 2015. By reference to the evidence of the offer letter dated 24 December 2014[86], at the time of making offer to purchase this unit of 1/F, No 72, this unit was assumed by the applicant as being occupied for non-domestic purposes and therefore the offer was calculated on that basis. According to the applicant, the acquisition was resulted from the counter-offer by Better Ray Company Limited. Ms Lui said during cross examination that the applicant agreed to increase the purchase price to $16,500,000 on the ground that the minority owners might not have incentive to sell their premises to the applicant before trial as it was decided by the Court of Appeal in Good Faith Properties (Appeal) that the minority owners’ legal costs in the proceedings would be paid by the applicant in any event. The EUV of this unit as assessed by us is $6,501,000 ie 1.2614% of the total EUV of the Buildings. Its proportionate share of the RDV as assessed by us is $13,560,050 whereas the acquisition price was $16,500,000, ie some 22% higher.

235.  Similarly, we were informed that the applicant had successfully purchased the interest of Davis Properties Company Limited, the 2^nd respondent of LDCS 6000 of 2013, at $143,000,000 on 16 February 2015. The units concerned are G/F, Nos 72 and 72B Kimberley Road. The EUV of these units as assessed by us is $56,100,000 + $6,789,000 = $62,889,000 or 12.2020% of the total EUV of the Buildings. Its proportionate share of the RDV as assessed by us is $131,171,500 whereas the acquisition price was $143,000,000, ie some 9% higher.

236.  On the face of the above, the applicant did appear to have taken reasonable steps to acquire all the undivided shares in the Lots. This is the case despite Mr Ismail for Grand Sea points to a clause in §8 of the respective offer letters from the applicant that suggested “each party will bear its own legal costs”. We accept Ms Lui’s explanation that the “legal costs” refers to “conveyancing costs” and “each party will bear its own legal costs” was normal conveyancing practice. To the extent that the Ordinance still encourages the majority owner to reach agreement with the minority to purchase the latter’s interest on terms which are fair and reasonable, this does not necessarily take the offers from the applicant out of normal conveyancing practice. Moreover there was no evidence of counter-offer by Grand Sea to persuade us that the applicant had acted unreasonably in refusing its offer.

237.  We appreciate that on the one hand, following the Good Faith Properties (Appeal), the legal costs incurred by the minority owners in the Application would be paid by the applicant. On the other, if the Lots are sold by auction pursuant to an order of the Tribunal, under section 10(2) the trustees may deduct the expenses required to be borne by the majority owner or any minority owner of the lot from any deposit money of the purchase price of the lot that is apportioned to such owner. The final amount that the minority owners can get may end up to be smaller than the proportionate share of the RDV of the Lots under Part 3 of the Schedule to the Ordinance. A fortiori, the amount of RDV is subject to determination by the Tribunal and will still remain uncertain until the Lots are sold by auction. This may encourage the parties to negotiate and reach settlement akin to normal conveyancing practice. We also notice that the applicant has included in its offer letters the statement that if “you still consider our offer unacceptable, our client has no alternative but to continue its application to the Lands Tribunal for an order for the compulsory sale of all of the undivided shares…..” We are of the view that such standard warning is not unreasonable.

238.  Notwithstanding the above, those steps taken by the applicant were steered by the independent professional valuation opinion of Mr Alnwick Chan. We have in the above paragraphs adjusted his assessments of the EUV and RDV. In respect of the RDV, we have particularly disagreed with Mr Alnwick Chan on the highest and best development potential of the Lots.

239.  In Good Faith Properties, the Tribunal had at §40 of the judgment confirmed that the time for it to be satisfied with the steps taken being reasonable was at trial and not before. Pausing here, we also bear in mind the following guidance from the Court of Final Appeal in Capital Well, at §33:

“… 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.”[87]

240.  We are here therefore concerned with whether on the evidence available, the offers made by the applicant fell “within the range of what may broadly be regarded as fair and reasonable compensation for the interest in question.” (underline added)

241.  Before proceeding any further, we must ascertain on what basis the apportionment of the proceeds of sale between the majority owner and minority owner of the lot, the subject of an order for sale of the lot pursuant to Section 10(3) of the Ordinance has to be applied.

242.  Part 3 of Schedule 1 to the Ordinance mandates the apportionment to be:

“On a pro rata basis in accordance with –

(a) subject to paragraph (b), the values of the respective properties of each majority owner and each minority owner of the lot as assessed in the application concerned under section 3(1) of the ordinance;

(b) where –

(i) there has been a dispute referred to in section 4(1)(a)(i) of the Ordinance which has resulted in a variation of those values; or

(ii)in consequence of the requirement under section 4(1)(a)(ii) on the majority owner to satisfy the Tribunal as to the matter referred to in that section, there has been a variation of those values,

those values as varied.”

243.  We have here originally two applications which however by order of consent as stated in §4 above are heard together in one trial on the basis that the RDV of the Lots be assessed as a merged site. Thus there is assessed a single RDV for the Lots and any suggestion by means other than by reference to “the values of the respective properties” to apportion the proceeds to each Pair of Buildings is not sanctioned by the Ordinance. Indeed, any such suggestion would only be arbitrary because if each Pair of Buildings is to be assessed individually, their development potential would be significantly different from a merged site. In our view, the only basis of apportionment of the proceeds of sale sanctioned by the Ordinance is pro rata in accordance with the EUV of the constituent units, ie total EUV of the Buildings. 

244.  At §155 above, we have determined that the Beneficiaries’ interest in 5/F, 70A Kimberley Road represents 1.0846% of the total EUV of the Buildings. Similarly at §156 above, we have determined Grand Sea’s interest in LG/F, No 72B Kimberley Road represents 1.6477% of the total EUV of the Buildings. As we have determined the RDV of the merged site at $1,075,000,000 in §211 above, their proportionate shares in the assessed RDV are as follows:

	Pro rata share of Total EUV	Proportionate shares in RDV	Latest Offer on 18 February 2015
The Beneficiaries	1.0846%	$11,659,450	$11,264,000
Grand Sea	1.6477%	$17,712,775	$13,720,000

245.  From the above, the offer to the Beneficiaries on 18 February 2015 was marginally lower than our determination[88] but the offer to Grand Sea was some 23% below.

246.  We appreciate that property valuation is not an exact science; mathematical precision is neither a feature of valuation particularly for developable land owing to the imperfection of the market where even between skilled valuers the margin of opinion may be surprisingly wide. In Singer and Friedlander Limited v John D Wood & Co (1977) 243 EG 212; (1977) 2 EGLR 84, Watkins J stated: "The valuation of land by trained, competent and careful professional men is a task which rarely, if ever, admits of precise conclusion. Often beyond certain well-founded facts so many imponderables confront the valuer that he is obliged to proceed on the basis of assumptions. Therefore he cannot be faulted for achieving a result which does not admit of some degree of error." Nevertheless, the learned judge went on to say that it was agreed generally in the profession that a permissible margin was 10 per cent either side of a figure which could be said to be the right figure (assessed as if arrived at when the valuation was made and not with the benefit of hindsight). In exceptional circumstances the margin could be 15 per cent or a little more either way. In Muldoon v Maps of Lilliput Limited (1993) 14 EG 100, Judge Zucker QC used a range of 15-20%[89]; this illustrates that the margin of error is not set by precedent.

247.  It is noted however that even if the valuation is outside the range, the professional may not be held to be negligence if he had exercised reasonable skill and care (see Goldstein v Levy Gee [2003] EWHC 1574 (Ch), Lewison J, Dennard v PricewaterhouseCoopers LLP [2010] EWHC 812 (Ch), Vos J, and Capita Alternative Fund Services (Guernsey) Ltd v Drivers Jonas [2011] EWHC 2336 (Comm) where at §145 the principles in this regard are distilled by Eder J from the authorities). To apply the same principle to the present case, even if the offer on the face of it was outside the bracket, it could not be readily said that it was unreasonable.

248.  In the present case, the latest offer by the applicant to Grand Sea was marginally beyond the 20% bracket, if there is a bracket to be applied at all[90].

249.  We have also found from §§218-237 above that the applicant has made reasonable effort to make offers to purchase the minority owners’ interest including that of Conitec and the Beneficiaries. The failure of the applicant to make higher offers to Grand Sea, in our opinion, arose mainly on the disparity of views between the parties on the proportionate share of the RDV (7.6142% as opposed to 1.6477%) as well as on the future mode of development which we agree to be debatable in the subject location.

250.  In Capital Well, the counsel for the appellant had indeed suggested that the Tribunal had to decide first what the correct valuation was and then to assess the fairness and reasonableness of the majority owner’s offer against the valuation carried out on correct principles. The Court of Final Appeal confirmed at §35 of the judgment that the Tribunal is not required to perform any such task. Notwithstanding the view of the Court of Final Appeal, we have nevertheless gone through the exercise to decide the valuation. Bearing in mind such guidance from the Court of Final Appeal, however, we are satisfied that on the evidence available and in the circumstances of these Applications, the applicant has taken reasonable steps to acquire all the undivided shares in the Lots including negotiating for the purchase of such of those shares as are owned by Grand Sea on terms that are fair and reasonable.

Conclusion 

251.  Having considered the above, this Tribunal is satisfied that the requirements and conditions as laid down in the Ordinance have been met and an order for compulsory sale sought by the applicant should be granted.

252.  As said before, it is common ground between the applicant, the Beneficiaries and Grand Sea that the Lots should be sold together in one auction on the basis of the merged site. However, the Order of H H Judge K W Wong dated 7 March 2014 did not decide the number of order for sale to be made if the Tribunal should be satisfied that the Lots should be sold for redevelopment under the Ordinance.

253.  Section 4(6)(a)(i) of the Ordinance provides that:-

“Where the Tribunal makes an order for sale……it may also give such directions as it thinks fit-

relating to-

the sale and purchase of the lot the subject of the order, including (but without limiting the generality of the foregoing) settling the particulars and conditions of sale of the lot.”

254.  In Day Bright Development Limited and Others v Choi Pak Ling and Others, LDCS 13000 of 2012 (unreported, dated 14.3.2014) the Tribunal (though differently constituted) held in paragraph 51 that:-

“Having said that we agree that if separate applications have already been made to the Tribunal in respect of individual lots of a merged site, upon application and in appropriate cases the Tribunal do have power under section 4(6)(a)(i) to make directions for them to be sold to, say, one single purchaser in one auction as if the lots constitute a single lot along the line in Golden Bay Investment Limited as mentioned by the CFA in Capital Well. That is, however, subject to the pre-condition that the Tribunal has already seized of all the lots by other empowering provisions….” (underline added)

255.  We agree therefore with the applicant’s primary submission that there should be 2 orders for sale, one in respect of the 1^st Pair of Lots and the other in respect of the 2^nd Pair of Lots but the 2 pairs of lots should be sold in one single batch in one auction.

The Apportionment Issue

256.  It is the applicant’s primary case that the proceeds of sale of the Lots should be apportioned and distributed between the 1^st Pair of Lots and the 2^nd Pair of Lots on a pro rata basis in accordance with their respective site areas as per the approach adopted by the applicant in the course of determining the offer prices made to Unibase/the Beneficiaries and Grand Sea[91]. In support, the applicant refers to section 10(3) of the Ordinance which stipulates that:-

“The apportionment between the majority owner and minority owner ofthe lotthe subject of an order for sale of-

(a) the proceeds of sale of the lot; and

(b) any deposit money forfeited as referred to in section 5(3)(b),

shall be on the basis specified in Part 3 of Schedule 1.” [92] (underline added)

257.  The applicant submits that pursuant to this section 10 (3) the basis of apportionment of proceeds of sale set out in Part 3 of Schedule 1 by reference to EUV is applicable to the apportionment between the majority and minority owners of the subject of an order for sale. Therefore, the basis of apportionment set out in Part 3 of Schedule 1 by reference to EUV is applicable to the apportionment between the applicant and Unibase/the Beneficiaries insofar as the apportionment of the proceeds of sale of the 1^st Pair of Lots is concerned.  Insofar as the apportionment of the proceeds of sale of the 2^nd Pair of Lots is concerned, Part 3 of Schedule 1 is applicable to the apportionment between the applicant and Grand Sea.

258.  The applicant concedes however the Ordinance is silent as to how the proceeds of sale of should be apportioned between the 2 subjects of the 2 orders for sale (i.e. the 1^st Pair of Lots and the 2^nd Pair of Lots). We do not find any support that the apportionment between the 1^st Pair of Lots and the 2^nd Pair of Lots be on a pro rata basis in accordance with their respective site areas.

259.  The applicant also refers to Capital Well, from 590J to 591A, where Mr. Justice Riberio PJ said in obiter that

“42. ……if a restrictive construction of the Ordinance is required, we wish expressly to leave it open for possible future consideration whether the Tribunal has a discretion to give suitable directions (under s 4(6)(a) of the Ordinance or otherwise) concerning conduct of the sale designed to secure that the sale of the single lot, the subject of its order, can take place together with the sale of the other redevelopment lots, similar to the directions given by the Court of Appeal in Golden Bay Investment Ltd v Chou Hung [1994] 2 HKC 197 at 200-202, or along analogous lines.” (underline added)

260.  In Golden Bay Investment Ltd and Another v Chou Hung & Others [1994] 2 HKC 197, the Court of Appeal directed that the proceeds of sale be apportioned and distributed between the 4 lots on a pro rata basis in accordance with their respective market values.  We note however the peculiar fact in Golden Bay Investment that the previous buildings erected on the 4 lots were demolished on 2 December 1991 before the commencement of the proceedings in 1992 (ie HCMP 554-557/1992). That application for sale was made pursuant to the Partition Ordinance, Cap 352 instead of the Ordinance in the Applications and there were no EUV assessments.

261.  Repeating our observation in §243 above, the only basis of apportionment of the proceeds of sale sanctioned by the Ordinance is pro rata in accordance with the EUV of the constituent units, ie total EUV of the Buildings as per the Tribunal’s decision at §§138-144 in Supergoal Investment. This is acceptable by the applicant as its alternative submission and is the basis suggested by Mr C K Chan, in his latest report dated 13 February 2015[93].

Other Incidental Matters

262.  The applicant proposes to appoint Chow Wing-Kin Anthony (周永健) and Chow Suk-Han Anna (周淑嫻), both solicitors of Peter C Wong, Chow & Chow, as the sale trustees.  Based on the information on their background and experience as set out in their letter dated 5 February 2015, we are satisfied that they are proper persons to be appointed as trustees to discharge the duties imposed on trustees under the Ordinance.  The remuneration package proposed in the said letter appears to be reasonable.

263.  In the same letter, it is also proposed to appoint Messrs. Michael Cheuk, Wong & Kee as independent legal adviser for the Trustees (“the Trustees’ Solicitors”). The remuneration package proposed in the said letter appears to be reasonable too.

264.  The applicant has prepared a set of draft Particulars and Conditions of Sale of the Lots[94].  Subject to any amendment that may become necessary as a result of our ruling on the arrangement of auction above, the particulars and conditions of sale of the Lots by public auction submitted by the applicant are also reasonable.

Order

265.  This Tribunal make the following orders :

(1) this Tribunal is satisfied that the redevelopment of the Lots redevelopment of the Lots is justified due to the “age” and “state of repair” of the Buildings and that the applicant has taken reasonable steps to acquire all the units in the Buildings including that of the 3^rd respondent of LDCS 5000/2013 and the 3^rd respondent of LDCS 6000/2013;

(2) two orders for sale of all the undivided shares in the Lots should be made and a combined sale of the Lots together in one auction should be directed pursuant to section 4(6)(a)(i);

(3) the reserve price for the sale of the Lots as a merged site be set at $1,075,000,000;

(4) The entire amount of the proceeds of sale of the Lots (after deduction of all legitimate expenses and payments) be apportioned among the applicant, the Beneficiaries and Grand Sea by reference to the respective EUVs of their units and the total EUV of the Buildings in accordance with the statutory basis set out in section 10(3) and Part 3 of Schedule 1 to the Ordinance;

(5) Mr Chow Wing Kin Anthony (周永健) and Ms Chow Suk Han (周淑嫻), nominated by the applicant, be appointed trustees (“the Trustees”) to discharge the duties imposed on trustee under the Ordinance in relation to the Lots and the Trustees be authorized to charge such remuneration for their services in accordance with the terms set out in the letter from Messrs. Peter C Wong, Chow & Chow dated 5 February 2015;

(6) Messrs Michael Cheuk, Wong & Kee be appointed as the solicitors for the Trustees (“the Trustees’ Solicitors”) to assist the Trustees in discharging their duties imposed by the Ordinance and the Trustees’ Solicitors be authorized to charge such remuneration for their services in accordance with the terms set out in the letter of Messrs. Peter C. Wong, Chow & Chow dated 5 February 2015;

(7) for the purposes of the sale of the Lots by public auction, the sale of the Lots be on the particulars and conditions of sale substantially the same as those in the draft Particulars and Conditions of Sale as set out in Bundle A2/375-399 to be initialed and approved by the Tribunal.

(8) subject to further extensions that the Tribunal may subsequently allow upon the application of the purchaser of the Lots or its successor in title, the redevelopment of the Lots and the development to be erected thereon shall be completed and made fit for occupation within a period of 6 years after the date on which the purchaser of the Lots becomes the owner of the Lots; and

(9) Liberty to the applicant, the respondents and the Trustees to apply to the Tribunal for further directions.

Costs

266.  Both the Beneficiaries and Grand Sea are successful in arguing for their respective EUV and the corresponding proportionate share of RDV. More importantly, the Tribunal has adopted the hypothetical development model proposed by Mr Patrick Lai for the Beneficiaries in assessing the RDV and determining the reserve price for auction under Schedule 2 to the Ordinance. Following the ruling of the Court of Appeal in Good Faith Properties, we make a costs order nisi that the applicant do pay costs of these proceedings to the Beneficiaries, ie the 3^rd respondent of LDCS 5000/2013 as well as to Grand Sea, ie the 3^rd respondent of LDCS 6000/2013 with certificate for counsel, to be taxed if not agreed at High Court Scale.  Unless any of the parties apply by summons to vary, the costs order nisi shall be made absolute upon expiry of 14 days.

267.  It remains for us to thank counsel for their invaluable assistance.

Appendix 1

EUV assessment for the domestic portion of 1^st Pair of Buildings (LDCS 5000/2013)

Appendix 2

EUV assessment for the domestic portion of 2^nd Pair of Buildings (LDCS 6000/2013)

Appendix 3

Residual Valuation

* Areas for the exclusive lift of 25m² were added back to the saleable area of the G/F, 1/F & 2/F.

[1] The corresponding Government Leases only restrict user of the lots to non-industrial purposes subject to the restriction on various trades for offensive uses.

[2] See Bundle B1 for Nos 68, 68A, 70 and 70A and Bundle B2 for Nos 72, 72B, 72A and 72C.

[3] See Bundle C1 and C2 for Nos 68, 68A, 70 and 70A and Bundle C3 and C4 for Nos Nos 72, 72B, 72A and 72C.

[4] See §4 at Bundle B1/4 and §4 at Bundle B2/4.

[5] The applicant is a subsidiary of the Henderson Land Group.

[6] See Bundle D1/1-80 for Nos 68, 68A, 70 and 70A and D1/81-155 for Nos 72, 72B, 72A and 72C.

[7] See Bundle D1/156-293 for Nos 68, 68A, 70 and 70A and D1/294-426 for Nos 72, 72B, 72A and 72C.

[8] See Bundle D2/1-98.

[9] See Bundle D2/99-128.

[10] See Bundle E/1-197.

[11] See Bundle D2/129-162.

[12] See Bundle F1/1-473.

[13] See Bundle D2/163-398.

[14] See Bundle D2/399-412.

[15] See Bundle E/1-197.

[16] See Bundle E/198-343.

[17] See Bundle E/344-382.

[18] See Bundle F1/1-473.

[19] See Bundle F2/1-41.

[20] See Bundle F2/42-57.

[21] See Bundle F2/58-150.

[22] See Bundle G/186-189.

[23] See Bundle G/42-46.

[24] Mr Alnwick Chan’s oral evidence is that LG/F, 68A was occupied as a foot massage parlour and LG/F, 72C was occupied as a shoe repair/manufacturing workshop.

[25] Although the prevailing Fire Safety Code came into effect in 2011, it was preceded by the Code of Practice for the Provision of Means of Escape in case of Fire 1996. The Fire Safety Code has merely consolidated this code with other codes.

[26] See Bundle F1/23 at §10.1.

[27] A placard hanging out at the façade of Nos 72 and 72A advertising the availability of rooms for letting does not show anything on this issue. The façade and window frame of 1/F, No 72 were painted red but we are provided no further evidence on the use of the unit.

[28] See Bundle D1/22 at §7.2.2, Bundle D1/101 at §7.2.1 and Bundle F1/10 at §6.5.3.

[29] See Bundle D1/100 at §7.1.3.

[30] See Bundle F1/10 at §6.5.3.

[31] See Bundle F1/114.

[32] The Beneficiaries do not dispute Grand Sea’s case that it has exclusive use of the enclosed yard adjoining LG/F, No 72B but disagree the other yards were exclusively used by the adjoining owners.

[33] The occupation permit of the Buildings was issued on 5 December 1955.

[34] See Bundle F1/392b and F1/401b.

[35] The Building Management Ordinance has replaced its predecessor, the Multi-storey Buildings (Owners Incorporation) Ordinance in 1993.

[36] In his closing submission, Mr Fung for the applicant confirms that if the Tribunal considers that a common passage should be re-provided connecting the side staircase to the scavenging lane, it is appropriate to reduce the size of the enclosed yard by 25%.

[37] In the Joint Expert Statement at Bundle G/400, we note an area 17.8 m² was proposedby Mr Patrick LAI, the expert on behalf of the 1^st respondent of LDCS 5000/2013 and agreed by Mr Alnwick Chan.

[38] See the Joint Expert Statement at Bundle D2/400.

[39] See Bundle D2/133-134.

[40] Such a definition is also found in Mr Alnwick Chan’s valuation report of 6 February 2013 at §3.1 and in Mr C K Chan’s valuation report dated 23 April 2014.

[41] See Bundle D2/134.

[42] See Bundle G/51.

[43] See Bundle D1/21 at §7.1.3 and Bundle D1/101 at §7.1.4.

[44] See Bundle D2/193 at §5.2.7.

[45] A factor increase of 30% and another factor decrease of 30% do not cancel out one another because (1+30%) x (1-30%) or vice versa is equal to 0.91 ≠ 0. There is no issue on the order of applying the adjustments because 1.3 x 0.7 = 0.7 x 1.3. With respect, that the multiplication approach was sometimes termed as “the sequential method” of adjustments was misconceived. See also Stellmacher, H. B. (1998), An Easy Method for Developing Accurate Land Comparables Adjustments, The Appraisal Journal, July 2008, pp 316-319 and Williams, T. P. (2004), Base Adjusting in the Sales Comparison Approach, The Appraisal Journal, Spring 2004, pp 155-162.

[46] See Bundle D2/236.

[47] See §94 of the judgment.

[48] It is not disputed by the parties that G/F, No 68 was formerly occupied by such a wedding gown shop.

[49] See Bundle D2/379, D2/383, D2/394 and D2/398.

[50] See Good Faith, supra, at §97 and Cruden, Gordon N, in Land Compensation and Valuation Law in Hong Kong, 3^rd edition (2009), pp. 606-608.

[51] See Bundle D2/236.

[52] See the witness statement of Mr C K Lam at Bundle A2/77-78.

[53] See the copy of liquor licence at Bundle F1/431.

[54] See Bundle F1/32 at §10.7.4 and Bundle F2/74 at §5.6.4.

[55] See Bundle G/242.

[56] Cruden, Gordon N, Land Compensation and Valuation Law in Hong Kong, 2^nd edition (1999), p 269.

[57] See Bundle G/215-233.

[58] The Private Retail Rental Index shows a change from 158.3 (as at December 2012) to 169.7 (as at March 2014), ie an increase of 7%. See Bundle D2/236.

[59] As LDCS 5000/2013 and LDCS 6000/2013 have become consolidated, we adopt 4/F, No 68 as the Reference Domestic Unit for both cases.

[60] That owner only purchased these 2 floors at $3,000,000 each for less than 3 months before resale at $3,620,000, realising a profit of some 20%.

[61] Later in this judgment, we shall adopt a higher adjustment for location in respect of a comparable for non-domestic purpose because non-domestic use particularly for retail purposes is more sensitive to location.

[62] See Bundle D2/383 and 398.

[63] See Bundle D2/407.

[64] See Bundle D2/285.

[65] See Bundle D2/238-244.

[66] See Bundle D2/179 at §4.12.2.2.

[67] See Bundle G/94-108. For instance, all the upper floors of Kee Shing Centre at 74-76 Kimberley Road are permitted for offices though Mr Alnwick Chan adopted one of the office sales as his comparable for the EUV for the 1/F premises of the Buildings.

[68] See the photograph of the ground floor lift lobby at Bundle G/160 and the floor plans at Bundle G/180-185.

[69] See Bundle D2/333.

[70] See Bundle D2/407.

[71] See Bundle E/345 §1.5 and §2.2 and Bundle E/346 §2.5.

[72] See Lee Yun v Director of Lands, LDLR 12 of 2006, (unreported, dated 22 December 2010) at §15.

[73] Richard Hayward, Valuation: Principles into Practice, 5^th Ed. (2008), Estate Gazette, p 126.

[74] See §108 above.

[75] See §§95-106 above.

[76] See §107 above.

[77] According to the Technical Notes published by RDV, the rental and price indices are designed to measure rental and price changes with quality kept at a constant. The indices measure value changes by reference to the factor of rent or price divided by rateable value of the subject properties rather than by reference to the rent or price per square metre of floor area. Movement of indices may therefore differ from changes in the average rents and prices for the same period.

[78] During this period, the Private Retail Price Index published by RVD shows an increase of about 13.5% but Shop C, G/F, South Sea Apartment, 81 Chatham Road South shows no increase when compared with its adjoining Shop B. See §176 above; also Shop A & Shop C, G/F, Austin Mansion, 15A Austin Avenue shows an increase of mere 18% as opposed to the some 35% suggested by the index. See §180 above.

[79] See Bundle D2/255.

[80] See Myers v. South Lakeland District Council [2005] EWCA Civ 498; [2005] RVR 301 and Checkpoint Limited v. Strathclyde Pension Fund [2003] 14 EG 124; [2003] EWCA Civ 84.

[81] We agree with Mr Patrick Lai that the other adjustments proposed by Mr Alnwick Chan are not necessary.

[82] See Bundle D2/334-339.

[83] According to the footnote of Approximate Order of Construction Costs in Hong Kong and Selected Cities in China for the 3^rd quarter of 2014 compiled by RBL, construction floor areas are measured to the outside face of external walls of the building and include all lift shafts, stairwells and E& M rooms but exclude lightwells and atrium voids. Those areas are usually larger than Architect’s calculation of Gross Floor Area.

[84] See Bundle D2/339.

[85] Incidentally, the valuation expert in Ultra Alpha, supra, adopted 4% per annum.

[86] See Bundle G/15-16.

[87] The Court of Final Appeal stated further at §36 of the judgment that: “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.”

[88] However, the without prejudice offer made by the applicant to the Beneficiaries on 24 December 2014 at $14,000,000 was some 20% higher than our determination.

[89] See also K/S Lincoln v CB Richard Ellis Hotels Ltd [2010] EWHC1156 (TCC) per Coulson J.

[90] Lately the valuation expert in Titan Europe 2006-3 plc v Colliers International UK plc [2014] EWHC 3106 (Comm); [2014] PLSCS 262 was adjudicated negligence when his valuation of a shopping mall was some 31% above the valuation determined by the court.

[91] It appears that Mr Patrick Lai has adopted such an approach as per his report of 18 February 2015 at §6.6. See Bundle E/350.

[92] We have recited Part 3 of Schedule 1 to the Ordinance at §228.

[93] See Bundle F2/93-94, §7.

[94] See Bundle A2/375-399.