TOP SAIL INTERNATIONAL LTD v. WONG LAI WEI

LDCS 19000 of 2010

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LAND COMPULSORY SALE APPLICATION NO.19000 OF 2010

_________________

_________________

REASONS FOR RULING

_________________

 

1.  The Applicant, by way of summons dated 17 October 2011 (“the Summons”) is asking for parts of the expert report filed on behalf of the Respondent (“the Expert Report”) be ruled inadmissible.  The Expert Report was prepared by Mr. Wong Yung Shing (“Mr. Wong”) and filed on 8 September 2011.  The parts of the Expert Report sought to be excluded are those set out in the schedule (page 2 of Bundle E) attached to the Summons (“the Objectionable Parts”).

2.  The complaint of the Plaintiff is that the Objectionable Parts are irrelevant in the sense that they are either :

(a)     opinion formed on a wrong approach; or

(b)     opinion formed on question of law, i.e. whether the Applicant has taken fair and reasonable steps to acquire the Respondent’s premises; or

(c)     Mr. Wong purports to act as an advocate for the party. 

3.  The Respondent in reply denied the allegation of the complaint and also argued that the admissibility of the Objectionable Parts should be left to be decided at trial after this Tribunal had the opportunity of hearing evidence.  It is also the Respondent’s contention that there is an inordinate delay by the Applicant in taking out this application on the first day of trial in order to disguise a late submission of a supplemental expert report of the Applicant which was only served on the Respondent 5 days before trial.

Background

4.  This case involved an application made under the Land (Compulsory Sale for Redevelopment) Ordinance, Cap. 545 (“the Ordinance”) for an order of compulsory sale of all the undivided shares in Aberdeen Inland Lot No. 271 (No. 5 Tang Fung Street) and Aberdeen Inland Lot No. 272 (No. 7 Tang Fung Street) (collectively referred to as “the Lots”). 

5.  The existing building (“the Building”) on the Lots is a composite building consisting of 6 levels, namely the ground floor and the 1^st to 5^th floor.  The ground floor is for non-domestic use whilst the upper floors are residential units.  There are 2 units at each level, one unit at No. 5 and the other at No. 7 of Tang Fung Street, with 1 share allotted to each unit making a total of 12 undivided shares in the Lots.

6.  The Building is in fact located in the middle of a row of 6 contiguous building lots forming a rectangular-shaped site on No. 1-11 of Tang Fung Street, with No. 1-3 on the left of No. 5 and No. 9-11 on the right of No. 7.   Application for compulsory sale of No. 1-3 and No. 9-11 are taken out by the same Applicant in this case.  At the time of this hearing, trial for No. 1-3 (LDCS 18000/2010) had completed with judgment reserved and trial for No.9-11 will be heard in early 2012.  At the time of this judgment, an order for sale had already been made on 15 November 2011 for LDCS 18000/2010.

7.  The Applicant had acquired all the units of the Lots except the unit on 1/F No. 7 Tang Fung Street which is owned by the Respondent (“the Respondent’s Unit”).

8.  At trial, the Respondent does not oppose to the order for compulsory sale being made and had also agreed that the apportionment ratio attributable to the Respondent’s Unit based on the existing use value (“EUV”) should be 7.8485%.  The sole issue still in dispute is what should be the redevelopment value (“RDV”) of the Lots, hence what should be the reserve price set for the auction.

9.  The Tribunal has on 18 July 2011 given directions (page 42-44 of Bundle E) for the case to be heard on 24 October 2011 with 5 days reserved.  It is also directed that the Respondent is to file its expert report on or before 8 September 2011 and for the Applicant to file its report in reply on or before 22 September 2011. The Expert Report was filed on time whilst the Applicant’s supplement report in reply was served on the Respondent 5 days before trial.  On 10 October 2011, the Applicant’s solicitor raised the Objectionable Parts in the Expert Report by way of letter to the Respondent (page 16-18 of Bundle E).  The Respondent’s solicitor replied by letter dated 13 October 2011 denying the complaint.  The Applicant then took out the Summons on 17 October 2011 which was set down to be heard on the first day of trial.

Question of Admissibility to be left to trial

10.  Mr. Mak for the Respondent submitted that the Summons taken out by the Applicant is seeking to shut the mouth of Mr. Wong and is in breach of natural justice.  The Tribunal should not exclude the Objectionable Parts without hearing from Mr. Wong who is being deprived of the opportunity to justify if his opinion should be excluded or further elaborate on details of his opinion.  And given the fact that the Applicant only takes out the Summons to be dealt with at the first day of trial, this is most undesirable and cannot possibly be fair to the Respondent.  Furthermore, Section 10(6) of the Lands Tribunal Ordinance relaxes the rules of evidence and according to the case of Sin Ho Yuen v Fineway Properties Ltd (FACV 13/2010), “protection of minority of interest under the Ordinance becomes therefore a key factor … it behoves the tribunal to ensure that such protection be not diminished, or be whittled down through inefficiency and delay” (at paragraph 25).  Hence, this Tribunal should leave the question of admissibility to trial.

11.  Mr. Li for the Applicant contended that by considering the Ikarian Reefer guidelines ([1993] 2 Lloyd’s Rep 68), this Tribunal had jurisdiction to rule on the admissibility of expert evidence before trial if it is obvious and clear that it is irrelevant or do not assist the court, or for the expedient disposal of the matter (Ko Chi Keung v Lee Ping Yan [2001] 1 HKLRD 829 at 833 C-H; Wong Hoi Fung v American International Assurance Co. (Bermuda) Ltd. [2002] 4 HKC 225 at paras. 11 and 12; Re Chan Yu Nam & Anor [2006] 1 HKC 392 at paras 48-59).   The application in the Summons is to exclude part of Mr. Wong’s expert evidence and not to exclude Mr. Wong from giving evidence.  Mr. Wong should have included all analysis and basis of his opinion in the report and the suggestion to call Mr. Wong to explain and elaborate the missing parts in the Expert Report cannot be right.

12.  It is not in dispute that this Tribunal do have the power to rule on the admissibility of the Expert Report before trial if it is obvious and clear that the evidence is irrelevant.  This Tribunal do accept that should it find the expert evidence to be irrelevant, such evidence should be excluded as early as possible in order to facilitate an expedient disposal of the matter and should not leave it until after hearing evidence.  It will be a waste of time to allow some apparently irrelevant evidence to be admitted and further elaborated at trial.  Such a course of action serves no purpose except to incur extra time and costs lengthening the trial which should be discouraged.  To allow such expert evidence to be adduced and left the question of relevance to be determined after trial will result in unnecessary delay.  This is against the principle that protection of the minority interest should not be “whittled down through inefficiency and unnecessary delay”.

13.  Although Section 10(6) of the Lands Tribunal Ordinance do allow this Tribunal to admit evidence that may not be admissible under the rule of evidence, this does not mean that irrelevant evidence should in any event be admitted.  The fact that it is a late application at the doorstep of a 5 days’ trial is not a valid ground to prevent this Tribunal from ruling out such evidence as long as it is irrelevant to the issue in this case.

14.  And even if this Tribunal is to exclude the Objectionable Parts before trial, this does not prevent Mr. Wong to testify for and on behalf of the Respondent on issues relevant to this case.  This Tribunal cannot see how Mr. Wong can testify to justify the admissibility of apparently irrelevant evidence.

Inordinate Delay

15.  Mr. Mak submitted that a supplemental expert report prepared by the Applicant’s expert had been served shortly after the Summons was being taken out.  There is an inordinate delay in taking out the Summons in order to disguise such late filing of supplemental expert report.  In any event, Mr. Wong should be allowed to reply to the updated RDV report.

16.  In reply, Mr. Li submitted that the supplemental expert report is prepared to update the RDV with an upward adjustment which is to the advantage of the Respondent.  The Applicant had raised the issue of the Objectionable Parts with the Respondent by letter as early as 10 October 2011 upon seeking advice from the Applicant’s expert which had taken some time.  In any event, the Respondent had failed to establish what prejudice had been caused as a result of the delay.

17.  This Tribunal accepts that the Respondent had failed to establish prejudice as a result of the delay in taking out the Summons or the service of the supplemental expert report.  The Respondent would not be deprived of the right to have Mr. Wong to testify in answer to the supplemental expert report.  The fact that the Objectionable Parts may be excluded will not preclude the Respondent in calling Mr. Wong to give evidence.   

Merged Site Approach

18.  Mr. Wong has conducted a valuation of the RDV of the Lots based on a merged site basis, i.e. based on the redevelopment value of the entire row of lots of No. 1-11 of Tang Fung Street and not just for No. 5-7.  Relying on the Court of Appeal case of Bond Star Development Ltd v Capital Well Ltd [2003] 4 HKC 22, it is submitted by Mr. Li for the Applicant that there is no legal basis for Mr. Wong to adopt such an approach.  And the wordings of Section 3(2), Section 4(1)(b)(i) and Paragraph 2 Part 1 2^nd Schedule of the Ordinance all point to a valuation of the subject of the application.   Such merged site approach is apparently wrong given the uncertainty as to whether a compulsory sale order will be made for the other lots in No. 1-11.

19.  Mr. Mak in reply submitted that the legislation did not disallow the consideration of a merged site since the Tribunal had to consider whether the offer is fair and reasonable and the major objective of the Ordinance is for the protection of the minority. The minority should not be deprived of the benefit of a potential merged site development.  The Occupation Permit of the Building is one for No. 1-11 Tang Fung Street and the whole lot is very much the same building with the Lots located in the middle of it.  Given the physical layout of No. 1-11 and with only one Occupation Permit issued, all the lots must be merged in its development.  The decision of the Court of Appeal in the case of Bond Star (supra) had been overturned by the Court of Final Appeal which had left open the issue as to whether a merged site consideration should be adopted.  In any event, the Court of Appeal is only dealing with the order for sale and had not ruled that the value of the whole lot should not be taken into consideration in setting the RDV.  The wordings of Paragraph 2 Schedule 2 of the Ordinance do require the Tribunal to consider the redevelopment value of the whole lot which must mean a merged site basis.

20.  This Tribunal accepts the contention of the Applicant and do agree that in setting the RDV, only the value of the Lots should be considered and we should not adopt the merged site approach as suggested by Mr. Wong.  This is apparent from the wordings of the Ordinance and also the finding of the Court of Appeal in Bond Star (supra)which had not been overruled by the Court of Final Appeal.

21.  For easy reference, the relevant provisions of the Ordinance are copied herein :-   

Section 2  Interpretation

“lot” –

(a)  means –

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

(ii) … 

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

Section 3 (2)

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

(a)      2 or more lots where the building is connected to another building by a staircase intended for common use by the occupiers of the buildings; and

(b)     2 or more lots –

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

Section 4 (1)(b)(i) –

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

(a) first –

(i) 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;

(ii)           …

(b)  second -

(i)    Making an order that all the undivided shares in the lot the subject of the application be sold for the purposes of the redevelopment of the lot;

(ii) …

Paragraph 2 Schedule 2

(2)The lot the subject of the auction shall be sold subject to a reserve price -

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

22.  Section 3(2) of the Ordinance does cover the situation in the present case, i.e. the Building on the Lots is one building connected to another building by a staircase intended for common use by the occupiers of the buildings.  And the wordings of Section 4(1)(b)(i) provided for the Tribunal to make an order for sale concerning “all the undivided share in the lot the subject of the application” (our emphasis).  Furthermore, Paragraph 2 of Schedule 2 is the provision concerning the reserve price.  The Tribunal is specifically required to consider “the redevelopment potential of the lot on its own or where 2 or more lots are the subject of the auction, on their own” (our emphasis). From the wordings of these provisions, it is beyond argument that only the subject lot of the application itself should be considered when deciding on the reserve price as well as making an order for sale.  The wordings of the existing legislation is plain and without ambiguity and leaves no room for the contention that in cases of attached rows of lots, redevelopment value of the other lots not being the subject of the application should also be considered as suggested by Mr. Wong in his merged site approach.  If Mr. Wong’s approach was being accepted, one is not taking into account the potentiality of the Lots on their own.

23.  Furthermore, this Tribunal do agree with Mr. Li that the Court of Appeal had already found in Bond Star (supra) that even if the Applicant were to carry out a much greater scheme of redevelopment involving, not just the 2 lots in question, but also some other adjacent sites, this Tribunal is entitled not to take these adjacent sites into consideration (at paragraph 32-36).  Even though this case goes up to the Court of Final Appeal, this part of the ruling is not overturned. The Court of Final Appeal had in fact observed that this issue was not argued before them and expressly leave it open for possible future consideration (at paragraph 41).  The Court of Appeal decision is still binding on this Tribunal. 

24.  In any event, there is no evidence adduced by the Respondent to prove that there was a much greater redevelopment scheme involving the Lots in question with the other lots in the entire row of lots.  Even though the Applicant had become a majority owner of the remaining lots and had taken out application for the compulsory sale of the same and had obtained an order for sale in respect of No. 1-3, there is still an uncertainty as to whether such an order would be made as far as No. 9-11 is concerned. 

25.  The merged site approach adopted by Mr. Wong is against the requirement under the Ordinance and without basis.  The valuation based on such an approach is irrelevant and should be excluded.

Premium Ratio Approach

26.  Mr. Li pointed out that Mr. Wong had stated a formula and worked out an average premium ratio at 2.624 (page 37 of Bundle D1).  Yet there is nothing in the Expert Report to explain how to formulate the figure and the reasoning behind.  The analysis of this approach appeared in Appendix 8 of the Expert Report only showed a table with 5 comparables (page 176 of Bundle D1) and some land search document.  Mr. Wong had asserted a conclusion without basis or factual support.  And Mr. Wong takes the speech of the Secretary for Development made on 27 January 2011 (page 449-452 of Bundle D20) (“the Speech”) as supporting the premium ratio approach is without basis.  Not only that no approach had been advocated in the Speech, the building involved in the compulsory sale cases quoted in the Speech involved buildings of different location and characteristics. To rely on these cases to come to a generalised approach is unreliable and unrealistic. 

27.  Mr. Mak submitted that it is Mr. Wong’s opinion that the average acquisition price involved a premium on top of the market value reflecting the redevelopment potential.  This finding of premium is supported by the Speech which showed that from statistics obtained from actual sale cases, the auction price is about 2.66 times of the EUV assessed at trial.  It is submitted that there is nothing wrong to take into consideration the redevelopment value of the Lots.  And if Mr. Wong had not made it clear in the Expert Report as to how he worked out the premium ratio, Mr. Wong should be given the opportunity to testify in court for clarification and elaboration. 

28.  This Tribunal found that there is no justification in law for the application of this premium ratio approach.  Mr. Wong not only failed to establish how he comes up with the premium ratio with analysis, he had also failed to show the basis for putting forward such an approach.  The reliance on the Speech in establishing a premium ratio approach is wholly misconceived.  The Speech is only citing the result of auction sales for sites sold upon granting of a compulsory sale order.  From the detail figures provided by the Respondent (page 455-464 of Bundle D2), the average percentage was derived from a range of figures which varies from case to case ranging from 0.87 times to 6 times of the EUV.  The figures are rather fact sensitive in a sense that the type of site involved and time factor may all be different.  By taking an average figure from all these previous compulsory sale cases and concluded that a premium ratio of certain figure should be considered is unreliable.  This Tribunal failed to see how such a figure can be relied upon in the assessment of the RDV. 

29.  Last but not the least, the way Mr. Wong presented in Appendix 8 of the Expert Report to come up with the average premium ratio failed to demonstrate the basis and analysis adopted.  This is not right.  As an expert witness, Mr. Wong should have put forward his opinion with detailed analysis in the Expert Report and should not expect a chance to explain in the witness box.  This should not be allowed.

30.  This Tribunal found that the premium ratio approach is without basis, did not assist this Tribunal and should be excluded.

Whether the Applicant had taken fair and reasonable steps to acquire the Respondent’s Property

31.  The Applicant contended that this is a matter of law and a legal issue to be determined by the Tribunal.  Yet Mr. Wong goes beyond his expertise in valuation matter and had tried to advocate for the Respondent to answer the very legal issue.  Since the Respondent agreed to a compulsory sale order except disputing the RDV, the issue of fair and reasonable steps under Section 4 is no longer relevant.

32.  Mr. Mak submitted that the issue of fair and reasonable steps is a mixed question of fact and law which Mr. Wong is entitled to express his opinion on it.  Mr. Wong should not be restricted to give expert evidence on value only.  And Mr. Wong is entitled to give evidence as to the facts upon which his opinion is based and to set out the legal framework and applies his knowledge of that framework to the facts of the case.  This is not an opinion on law.  And the issue, though no longer relevant to the determination of the RDV, is still relevant under Section 4 of the Ordinance and to the question of costs at the end of the day.

33.  Mr. Justice Ribeiro PJ in the case of Capital Well Ltd v Bond Star Development Ltd (2005) 8 HKCFAR 578 had these to say concerning the issue of fair and reasonable offer.  “In making that assessment the Tribunal is not conducting a valuation exercise.  It does not need to adjudicate upon any disputes about the correct valuation principles to be applied.  It does not itself arrive at any conclusion as to what figure represents the correct valuation.  It merely needs to be satisfied that, on the evidence available, the offer falls within the range of what may broadly be regarded as fair and reasonable compensation for the interest in question” (at paragraph 33).  And at paragraph 36 of the judgment, it is also stated 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”.

34.  It is clear from the quoted paragraph above, the Tribunal should approach the question as to whether there is a fair and reasonable offer by reference to the assessment of the Respondent’s share in the RDV of the Lots and to determine whether it is within the range that broadly regarded as fair and reasonable.  This Tribunal found that this is a question of law to be answered by reference to the factual evidence of the Respondent’s share and the RDV.  Such a question of law is within the exclusive function of this Tribunal. Mr. Wong’s assistance is required on the value of the Lots but he should refrain from giving evidence on question of law.  Having said so, it is not to restrict Mr. Wong to be an expert on value, but it is not his function to express personal views on matter of law.

35.  Even if this is a question of mixed law and fact as submitted by Mr. Mak, it is still for the Tribunal to decide and cannot see how Mr. Wong’s opinion can be relevant or to require Mr. Wong to “independently investigate and examine the fairness and reasonableness of the terms of the offer price and conclude my independent opinion on the valuation of fair and reasonable acquisition price to the Lands Tribunal” (paragraph 2.4 of the Expert Report page 13 Bundle D1).  This Tribunal found Mr. Wong had strayed outside his area of valuation expertise.

36.  What’s more, this Tribunal agreed with Mr. Li that Mr. Wong, in assessing whether there is fair and reasonable offer made by the Applicant, had relied on factual assertions made by the Respondent which are in dispute.  It is for this Tribunal to rule on factual disputes and not the role of Mr. Wong.  This Tribunal found that Mr. Wong, in Section 12 of the Expert Report, by citing the factual assertions by the Respondent, commenting on the truthfulness of those assertions, applying the asserted facts to quoted case law, was giving evidence in a partisan manner as an advocate and not as an independent expert.

37.  This Tribunal found the issue as to whether there is a fair and reasonable offer is a question of law to be answered by this Tribunal and anything in the Expert Report usurping such a function should be excluded.

Conclusion

38.  This Tribunal found the Objectionable Parts are inadmissible and should be excluded from evidence.  We so ordered.