BOND STAR DEVELOPMENT LTD. v. CAPITAL WELL LTD.

LDCS 2000/2001

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

Land (Compulsory Sale for Redevelopment) Ordinance Application No. LDCS 2000 of 2001

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J U D G M E N T

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Background

1. By early 1997, the Applicant had completed the acquisition of all the premises of the properties known as Nos. 24, 26, 28, 30 and 32 of Ming Yuen Western Street (respectively referred to as "No. 24", "No. 26", "No. 28", "No. 30" and "No. 32"). Nos. 24, 26, 28, 30 and 32 respectively occupied Section A of Sub-Section 1 of Section B of Inland Lot No. 897 and Section A of Sub-Section 5 of Section B of Inland Lot No. 897, The Remaining Portion of Sub-Section 5 of Section B of Inland Lot No. 897, The Remaining Portion of Sub-Section 8 of Section B of Inland Lot No. 897, Section A of Sub-Section 8 of Section B of Inland Lot No. 897, and Sub-Section 9 of Section B of Inland Lot No. 897 (hereinafter collectively referred to as "the Lots"). The Applicant acquired all these properties for the purpose of redevelopment, and the buildings thereon were demolished.

2. Before the Applicant acquired the tenement unit of the 3rd Floor of No. 28 ("the Premises") in 1995, the estate of Lo Yin owned half-share of the Premises. The beneficiaries of the estate of Lo Yin were 3 old ladies, who all had the surname Lo. The letters of administration of the estate of Lo Yin was granted to one Cheung Chan Ka, who then sold the half-share interest of the 3 Lo sisters in the Premises to the Applicant. The Applicant also acquired the other half-share of the Premises, which was owned by one Pon Mok Yuet Ming.

3. On 18 January 1997, the 3 Lo sisters commenced High Court Action No. 618 of 1997 against Cheng Chan Ka and the Applicant to set aside the sale and purchase of their half-share in the Premises on the ground that it was on unconscionable bargain. After trial, Waung J set aside the sale and purchase of the half-share of the Premises. The Judgment of the case was given on 9 June 2000 and reported as Lo Wo & Others v Cheung Chan Ka & Another [2000] 2 HKLRD 370. The Respondent, a BVI company incorporated on 22 June 2000, then acquired the half-share of the Premises on 10 July 2000 at a price of HK$2,400,000 by executing a Memorandum for Sale and Purchase and an Assignment on the same day.

4. The Applicant appealed against Waung J's Judgment and the appeal was dismissed by the Court of Appeal on 31 May 2001 (Lo Wo & Others v Cheung Chan Ka & Another, unreported, CACV 217 of 2000). In the circumstances, the Applicant tried to purchase the half-share of the Premises from the Respondent. The initial offer price of $1,969,000 to the Respondent was made by Messrs. So, Lung & Associates, solicitors for the Applicant on 16 June 2001 to Messrs. William Sin & So, solicitors for the Respondent. The Respondent and its solicitors did not make any response. The Applicant later revised its offer a number of times: to $2,050,000 on 6 July 2001, to $2,100,000 on 24 July 2001 and then to $2,500,000 on 26 July 2001. The only counter-offer made by the Respondent was by way of a letter from Messrs. William Sin & So to Messrs. So, Lung & Associates asking for a price of $15,000,000.

5. Shortly afterwards, the Applicant commenced the present application ("the Application") on 14 August 2001 for an order to sell all the undivided share of the Lots pursuant to Section 3(1) of the Land (Compulsory Sale for Redevelopment) Ordinance, Cap.545 ("the Ordinance"). The building plans at Exhibit "A-2(2)" for redevelopment of the properties, prepared by Messrs. T. K. Tsui & Associates Ltd., were already approved by the Building Authority on 16 July 2001, before the date of the filing of the Application.

The Applicant's Notice of Application

6. On 14 August 2001, the Applicant filed the Notice of Application (Form 32) and stated that: -

(a) The Applicant owned, otherwise than as a mortgagee, not less than 90% of the undivided shares in the Lots. The Applicant actually owned 100% of the undivided shares of Section A of Sub-Section 1 of Section B of Inland Lot No. 897, Section A of Sub-Section 5 of Section B of Inland Lot No. 897, The Remaining Portion of Sub-Section 5 of Section B of Inland Lot No. 897, Section A of Sub-Section 8 of Section B of Inland Lot No. 897, and Sub-Section 9 of Section B of Inland Lot No. 897, and 91.67% of The Remaining Portion of Sub-Section 8 of Section B of Inland Lot No. 897;

(b) A valuation report as specified in Part 1 of Schedule 1 of the Ordinance setting out the assessed market value of each property on the Lots had been prepared and was attached to the Application.

7. The Applicant asked for an order that:-

(a) All the undivided shares in the Lots for the purposes of redevelopment of the Lots, pursuant to Section 4(1)(b) of the Ordinance be sold in such manner pursuant to the Ordinance as the Tribunal considers just and appropriate;

(b) Trustees be appointed to discharge the duties imposed upon them under the Ordinance in relation to the Lots, pursuant to Section 4(1)(c) of the Ordinance, on such terms and at such remuneration as the Tribunal thinks just and appropriate; and

(c) Such directions as the Tribunal thinks fit, pursuant to Section 4(6) of the Ordinance.

The Respondent's Notice of Opposition

8. The Respondent filed a Notice of Opposition (Form 33) on 7 February 2002, which was later amended on 19 June 2002, to oppose the Application. The grounds of opposition are as follows: -

(a) The value of some or all units of properties as assessed in the Application were disputed for the following reasons:

(i) the basis of valuation and valuation assumptions indicated at pages 1 and 2 of the valuation report, which accompanied the Notice of Application (Form 32), was not in accordance with the criteria set out in Part I of Schedule 1 to the Ordinance;

(ii) the Applicant's said valuation report wrongly valued the units of properties on the Lots by reference to usages stated on the plans of the demolished building structures approved in the 1950s;

(iii) the Applicant's said valuation report wrongly valued the units of the properties on the Lots using the comparable method;

(iv) the Application and the Applicant's said valuation report both wrongly identified the "lot", the subject matter of an appropriate application;

(v) even if the Applicant correctly applied the comparable method, the value so assessed were erroneous in that wrong comparables were used; adjustments were made by applying inappropriate factors; and it was erroneous to apply "saleable unit rate(s)" in respect of different units of the properties on the Lots;

(vi) the valuation wrongly calculated the area of the site or sites by excluding therefrom a portion thereof known as "road area".

(b) The Applicant failed to show, by evidence or otherwise, that the redevelopment of the lot to which the Application related was justified on the ground stipulated under Section 4(2)(a) of the Ordinance.

(c) The Applicant had not taken reasonable steps to acquire all the undivided shares in the Lots, contrary to Section 4(2)(b) of the Ordinance. In particular, the Applicant had not been negotiating for the purchase of the undivided shares owned by the Respondent on terms that were fair and reasonable.

Site details and ownership of premises in the properties

9. Although the properties had already been demolished before the date of the Application, the parties did not have any dispute over the site details or the ownership of all the premises formerly found in the 5 properties, Nos. 24 to 32. According to the Applicant's 2nd Report (page 531 of Exhibit "A-1(2)") prepared by the expert surveyor witness of the Applicant, Ms. Winnie Koo ("Ms. Koo"), the 5 properties comprised 6 contiguous building lots forming a rectangular-shaped site and having a frontage of approximately 43.03 m. onto Ming Yuen Western Street. The remaining boundaries of the combined site abutted onto neighbouring lots and a lane. The combined site sloped upwards in a southerly direction. The registered site areas of the constituent lots are as follows: -

10. In pages 533 and 534 of Exhibit "A-1(2)", Ms. Koo set out the respective shares of each premises in the 5 properties, Nos. 24 to 32. It was also mutually agreed by the parties that apart from the half-share of the Premises which was owned by the Respondent, the Applicant owned all the other undivided shares of the various lots of the 5 properties, as follows: -

# This was the % of undivided share of No. 24 for "the 3rd Floor and Roof of No. 24"

^ This was the % of undivided share of No. 26 for "the Garage of No. 26"

* This was the % of undivided share of No. 32 for "the 3rd Floor and Roof of No. 32"

11. Before demolition, Nos. 28 and 30 were a pair of properties sharing a common staircase whilst Nos. 24 and 26, and No. 32 were buildings on either side of Nos. 28 and 30.

The Issues before the Tribunal

12. Mr. Chain, Counsel for the Respondent, summarized in his final skeleton submission that there were 7 issues to be decided by the Tribunal before it could make an order for sale of the Lots. They are reproduced as follows: -

(a) Was the Applicant qualified?

(b) What is the subject matter of the application?

(c) What are the values of the properties?

(d) Whether redevelopment was justified?

(e) Whether reasonable steps had been taken by the Applicant to acquire the Respondent's property?

(f) If and only if both (d) and (e) are answered in the affirmative, whether to order a sale?

(g) In the event of ordering a sale, what should be the reserve price?

13. We find that the above summary covers all the major disputes of this case. We shall therefore consider in this Judgment all these issues, although not in the same sequence as summarized above. We shall also consider the other issues including the correctness of the valuation report that accompanied the Application, the site area of the Lots, the marriage value attributable to the Premises, the "last unit premium", the Partition Ordinance and the 10% marginal difference in valuation.

Was the Applicant qualified?

14. Both the Applicant and the Respondent agreed that the Applicant was qualified as "a majority owner" within the meaning of Section 2 and Section 3 of the Ordinance. Therefore, it was not disputed that the Applicant, as a majority owner, could make an application to the Tribunal under Section 3(1) of the Ordinance "for an order to sell all the undivided shares in the lot for the purposes of the redevelopment of the lot."

15. In addition, although there was a dispute between the parties as to what the subject matter of the Application was, it appears to us that regardless of how the lot was defined, the Applicant could still qualify as "a majority owner". From the ownership of the premises formerly found at the 5 properties, Nos. 24 to 32, as set out above, we find that the Applicant owned 11/12 or 91.66% of the undivided shares of No. 28. So, even if No. 28 alone was to be treated as "the lot", as submitted by the Respondent, the Applicant was still "a majority owner" of "the lot".

16. On the alternative basis as submitted by the Applicant, i.e. the subject matter of "the lot" should encompass all the lots of the 5 properties, Nos. 24 to 32, it is apparent that the Applicant satisfies the said test of "a majority owner" as set out in Section 3(2)(a) as well.

17. Hence, in either one of these 2 scenarios, the Applicant could satisfy the test of "a majority owner" as stipulated by Section 3 of the Ordinance.

What should be the subject matter of the Application?

18. The Applicant submitted that the lot, the subject matter of the Application could extend to all the lots covered by the 5 properties, Nos. 24 to 32, i.e. to all the lots collectively described earlier in this Judgment as the Lots. The Applicant's submission was based on the wordings of Section 3(2)(a) of the Ordinance, which allows an application under Section 3(1) of the Ordinance to cover 2 or more lots.

19. On the other hand, the Respondent submitted that the subject matter of the Application must be No. 28 only. The Respondent argued that Section 3(2)(a) of the Ordinance was not applicable because the Applicant was the sole owner of the other lots, i.e. Nos. 24, 26, 30 and 32, and as an owner of 100% of the undivided shares of these other lots, there was no need for the Applicant to seek for an order for sale at all, the Applicant could sell these lots at any time it wished. The Respondent further argued that the ownership of each lot should be considered separately and the Ordinance allowed ownership of 2 or more lots to be considered together only if it fell within the situation in Section 3(2)(b), i.e. where there was one building connected to another building by a common staircase on these lots.

20. Section 3(2) of the Ordinance reads as follows:-

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

(a) 2 or more lots where the majority owner owns not less than the percentage specified in subsection (1) of the undivided shares in each lot; or

(b) 2 or more lots-

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

(ii) where the average of -

(A) the percentage of the undivided shares owned by the majority owner in the lot or lots on which one of the buildings stands; and

(B) the percentage of the undivided shares owned by the majority owner in the lot or lots on which the other of the buildings stands,

is not less than the percentage specified in subsection (1)."

21. We are of the view that Sections 3(2)(a) and 3(2)(b) respectively cater for two situations where 2 or more lots can be covered in a single application. The wordings of Section 3(2)(a) clearly allow 2 or more lots to be covered in a single application if the majority owner was not less than 90% of the undivided shares in each lot. We therefore agree that the Applicant can rely on Section 3(2)(a) to make an application for sale in respect of 2 or more lots. We do not accept the Respondent's argument that Section 3(2)(a) does not apply to an owner of 100% of the undivided shares of a lot. The only qualification in Section 3(2)(a) is that the majority owner must own not less than 90% of the undivided share in each lot. There is nothing in that section suggesting that an owner who owns not less than 90% of the undivided shares of one of the lots cannot make an application for sale in respect of that lot together with some other lots where he has 100% of the undivided shares of these other lots. The purpose of an application under Section 3(1) is to enable redevelopment of the lot or lots. Redevelopment would not necessarily be confined to one particular lot. Very often, 2 or more lots will be redeveloped together. So the Tribunal has to consider whether the redevelopment concerning 2 or more lots as a whole is justified before granting the order for sale. Thus, it is necessary to include in the application for sale those other lots where the majority owner has 100% of the undivided shares.

22. Section 3(2)(b) does not concern us as the Applicant did not rely on the situation in Section 3(2)(b) to make this Application. Although we accept the Respondent's argument that the ownership of the undivided shares should be considered separately for each particular lot except as provided in Section 3(2)(b)(ii), we fail to see how this argument could prevent the Applicant from relying on Section 3(2)(a). The Respondent tried to use an example to illustrate its point: where there was a sole owner of a large development on a lot and on the adjacent lot there was an old building in which this owner did not own any share at all, if the ownership of these two lots could be considered together, it would mean that the owner could ask the Tribunal to sell the land in which he had no share at all. We do not see how this example could assist the Respondent at all. If an owner does not own any share in a particular lot, of course he would not be entitled to rely on Section 3(2)(a), since Section 3(2)(a) requires the owner to own at least 90% of the undivided shares in each lot. The Applicant, however, does fulfil the requirement in Section 3(2)(a) as it owns not less than 90% of the undivided shares in each of the 6 lots of the 5 properties in question. So the example used by the Respondent is not relevant at all.

23. We therefore find that the Application can cover 2 or more lots by virtue of Section 3(2)(a) of the Ordinance, and hence the subject matter of the Application includes all 5 properties, i.e. the Lots.

Whether redevelopment was justified?

24. It was the Applicant's case that due to the age or state of repair of the existing development on the Lots, the redevelopment of the Lots was justified. The Applicant adduced evidence from two witnesses, Mr. Tang and Mr. Yeung regarding the age and state of repair of the buildings on the Lots before their demolition. That included the following: -

(a) The buildings on the Lots were old buildings having been erected and certified for occupation in 1954 and 1955.

(b) The number of building orders against the buildings is cogent evidence of the state and conditions of the buildings (pages 298-301, 353-357, 302-306 and 307-310 of Exhibit "A(1)2").

(c) The buildings were the out-moded tenement blocks type, situated in a location interspersed with private residential developments, and were considered ripe for redevelopment.

(d) The buildings had no lift and no facilities.

(e) The total saleable area of all the buildings on the Lots was found to be about 1,787 sq.m., which could be developed to 4,239 sq.m. as shown in the building plans for the proposed new development on the Lots, as approved by the Building Authority.

25. Although the buildings had been demolished, the Applicant adduced some photograph prints of the buildings formerly standing on the Lots. They clearly show the poor condition and state of repair of the buildings.

26. The relevant section of the Ordinance setting out the criteria under which the Tribunal should be satisfied before making an order for sale is Section 4(2) of the Ordinance, which reads:

"The Tribunal shall not make an order for sale unless, after hearing the objections, if any, of the minority owners of the lot the subject of the application under section 3(1) concerned, the Tribunal is satisfied that -

(a) the redevelopment of the lot is justified (and whether or not the majority owner proposes to or is capable of undertaking the redevelopment)-

(i) due to the age or state of repair of the existing development on the lot; or

(ii) on 1 or more grounds, if any, specified in regulations made under section 12; and

(b) the majority owner has taken reasonable steps to acquire all the undivided shares in the lot (including, in the case of a minority owner whose whereabouts are known, negotiating for the purchase of such of those shares as are owned by the minority owner on terms that are fair and reasonable)."

27. The Respondent produced a letter from the Secretary for Planning and Lands who confirmed that up to the time of writing the letter, there was no regulation made under Section 12 of the Ordinance. So, the Respondent submitted that the only consideration, insofar as Section 4(2)(a) was concerned, should be the age or state of repair of the existing development.

28. Notwithstanding its general allegation that the Applicant failed to show by evidence or otherwise that the redevelopment of the Lots was justified on the grounds stipulated under Section 4(2)(a) of the Ordinance, the Respondent did not adduce any evidence to rebut the evidence produced by the Applicant regarding the aged and dis-repair state of the properties on the Lots, nor did the Respondent conduct any cross-examination of the two witnesses Mr. Tang or Mr. Au-Yeung.

29. However, the Respondent submitted that since the buildings on the Lots had been demolished before the Application was lodged by the Applicant pursuant to Section 3(1) of the Ordinance, there was simply no "existing development on the lot". These word, "the existing development on the lot", given their general meaning, should be taken to mean the development that was found existing on the lot at the time of the Application.

30. The Respondent further submitted that insofar as the Applicant relied on the definition of the word "redevelopment" in Section 2 of the Ordinance, "a definition section ought to be construed as not cutting down the operative provisions of an Act unless there is absolutely clear language having the opposite effect" (Jubbins v Middlesex County Council [1949] 1 K.B. 142 at p. 160 per Scott L.J.) The Respondent submitted that in the Ordinance, the operative section should be Section 4(2)(a). Therefore, when there was a difference between an operative section and an interpretative section, the former prevailed.

31. In other words, the Respondent construed Section 4(2)(a) in such a way that no applicant could apply for an order for sale under Section 3(1) if the building formerly existing on the lot no longer existed at the time of application. To put it simply, the Ordinance would not allow any majority owner of the undivided shares of any vacant lot or lots to apply for an order for sale. Therefore, the Respondent submitted that although future regulations to be made by the Secretary for Planning and Lands under Section 12 might prescribe that a vacant lot should be brought within the Ordinance, but until then, the Ordinance would have no application.

32. The Respondent added that the Applicant did not merit any sympathy from the Tribunal. It was due to their own mistake that resulted in the demolition of the building of No. 28.

33. The Applicant disagreed with the Respondent over the construction of Section 4(2)(a) of the Ordinance. Firstly, the Applicant submitted that the provisions in the Ordinance should be construed with the intent and purpose of the Ordinance, as an enabling legislation, in mind. The Applicant referred us to take note of the Preamble of the Ordinance, which stated that the Ordinance was:

"An Ordinance to enable persons who own a specified majority of the undivided shares in a lot to make an application to the Tribunal for an order for the sale of all of the undivided shares in the lot for the purposes of the redevelopment of the lot: to enable the Tribunal to make such an order if specified criteria are met; and for matters incidental thereto or connected therewith."

34. Next, the Applicant submitted that the Ordinance plainly covered the situation where the building or buildings on the lot or lots for redevelopment purpose had already been demolished at the time of the application by a majority owner, as the definition of "redevelopment" in Section 2 of the Ordinance actually stipulated that:-

""redevelopment", in relation to a lot, means the replacement of a building on (or formerly on) the lot".

35. The Applicant also submitted that Section 3(3)(c)(i)(B) actually made clear reference to the situation "where there is no building on the lot". This section is reproduced below:

"3(3) The majority owner of a lot who has made an application under subsection (1) shall-

(a) ...

(b) ...

(c) cause a notice, as specified in Part 2 of Schedule 1 and in the Chinese and English languages-

(i) to be affixed-

(A) upon a conspicuous part of the building on the lot (or, if there is more than one building on the lot, upon a conspicuous part of each building); or

(B) where there is no building on the lot, upon a conspicuous part of the lot (or, if the application relates to 2 or more lots, upon a conspicuous part of each lot); and

(ii)..." (underline added)

36. In view of all the above quoted provisions of the Ordinance, the Applicant submitted that the scope of the Ordinance should cover the situation where the building was no longer standing on the lot. If the Respondent's construction of the Ordinance was correct, it would mean that the Ordinance could not cover the situation where the lot was a vacant site. But this would run contrary to the above quoted provision of the Ordinance, which provided for the situation "where there is no building on the lot". Hence, the Applicant found that the Respondent's construction of the Ordinance was absurd.

37. As an illustration, the Applicant further submitted that, if the Respondent's construction was right, it would mean that no one could invoke the Ordinance for the purpose of developing a lot if a dangerous building previously standing on the lot had been demolished even as a result of complying with a building order. When questioned by the Tribunal on the meaning of "existing development" in Section 4(2)(a)(i), the Applicant submitted that it could simply mean, for the purpose of the Ordinance, "a building which last stood on a lot which is the subject matter for re-development".

38. After considering the parties' submission on the construction of Section 4(2)(a)(i), we decide that we do not accept the Respondent's submission. Although the wordings of Section 4(2)(a)(i) may give rise to the ambiguous situation as submitted by the Respondent, after taking into account the other provisions of the Ordinance as submitted by the Applicant, i.e. the Preamble, Section 2 (the section on interpretation of the term "redevelopment") and Section 3(3)(c)(i)(B) (the section on the affixing of notice in case "where there is no building on the lot"), we find that these provisions provide unequivocal support in favour of the Applicant's construction of Section 4(2)(a)(i) of the Ordinance, as set out above.

39. Although we decide that the Ordinance applies to the situation where there is no building on the lot, we however disagree with the Applicant over the applicability of Section 4(2)(a)(i) when the lot is a vacant site at the time of Application. We find that in such instances, we simply do not have to take into account the age and state of repair of the "existing development", because there was no such "existing development". Just like the case in Section 4(2)(a)(ii), we do not have to take into account the regulations made by the Secretary under Section 12 when no such regulation has been made. Insofar as Section 4(2) is concerned, when there is no "existing development", we only need to consider the provisions of Section 4(2)(b) and to decide whether we are satisfied that the majority owner has taken reasonable steps to acquire all the undivided shares in the lot. For the above reason, we find that since the buildings on the Lots have been demolished prior to the Application, we do not have to satisfy ourselves that the redevelopment of the Lots is justified according to Section 4(2)(a).

40. We should add that even if our interpretation of the requirement of Section 4(2)(a) is incorrect, we find that on the basis of the evidence adduced by the Applicant regarding the age or state of repair of the buildings formerly standing on the Lots, the redevelopment of the Lots is justified, and have the requirement of Section 4(2)(a)(i) would have been satisfied.

Whether the Applicant's valuation report complied with Section 3(1) of the Ordinance?

41. It was the Applicant's case that the Application was accompanied by a valuation report as specified in Part 1 of Schedule 1 of the Ordinance ("the Statutory Report"). The Statutory Report was Ms. Koo's 2nd report, which was produced as pages 525 to 562 of Exhibit "A-1(2)".

42. Ms. Koo's evidence was that she had prepared her 2nd report in accordance with the provisions of Part 1 of Schedule 1 of the Ordinance, which stipulated the following: -

"A valuation report, prepared not earlier than 3 months before the date on which the application under section 3(1) of the Ordinance is made, setting out the assessed market value of each property on the lot-

(a) on a vacant possession basis;

(b) assessed as if the lot could not be made the subject of an application for an order for sale; and

(c) not taking into account the redevelopment potential of the property or the lot."

43. Ms. Koo also gave evidence that although the properties were cleared sites at the time of preparing her 2nd report, she held the view that according to the provisions of Part 1 of Schedule 1 of the Ordinance, she was required to prepare a valuation report of the existing use values of all the premises of the properties Nos. 24 to 32 previously standing on the Lots prior to their demolition. For the purpose of assessing the open market value of each constituent premises of each tenement building previously standing on the Lots, she had made reference to the approved building plans of each tenement building from the Buildings Department. She measured the saleable area of each premises from the approved building plans and set out these areas in her 2nd report (pages 535 and 536 of Exhibit "A-1(2)".

44. Since Ms. Koo adopted the comparison method of valuation for the purpose of assessing the open market value of each said premises, she identified and analyzed comparables sales transactions of garages and domestic units within the locality of the Lots. After making appropriate adjustments to her comparables, she arrived at the appropriate unit rates for the valuation of the said premises, being $1,100 per sq.ft. (or $11,840 per sq.m.) and $1,500 per sq.ft. (or $16,146 per sq.m.) respectively for basement garage and ground floor premises of the tenement buildings which were originally erected on the Lots. She also allowed for minor adjustments to the upper floor units for being on a higher level of a tenement building without lift facilities. Her valuation of the open market value, as at the date of valuation of 19 July 2001, of each premises in the properties Nos. 24 to 32 formerly standing on the Lots was set out in the schedule at page 539 of Exhibit "A-1(2)". This is summarized below:

45. Ms. Koo valued the unit of the Premises, a half-share of which was owned by the Respondent, in the sum of $1,186,000. As the Premises, according to Ms. Koo, has a saleable area of 815 sq.ft. (75.72 sq.m.), this estimate of open market value is equivalent to $1,455 per sq.ft. ($15,663 per sq.m.). This represents about 4.31% of $27,515,000, the sum of values of all the premises in the properties Nos. 28 to 32. Alternatively, this represents about 9.01% of $13,170,000, the sum of values of all the premises in the properties Nos. 28 to 30 only (see Exhibit "A10").

46. Since the Respondent owned a half-share of the Premises, we assess the value of its half-share in the Premises as 50% of $1,186,000, or $593,000. This represents about 2.16% of the sum of values of all the premises in the properties Nos. 28 to 32, or about 4.50% of the sum of values of all the premises in Nos. 28 and 30. In working out the above calculations, we assume that the estimated open market value of a half-share interest in a unit of an existing building to be 50% of the estimated open market value of that unit. In real life situation, this may not be the case. A discount is usually warranted for the assessment of the market value of a half share interest in any domestic unit in Hong Kong. However, in this case, since neither party submitted that we should take any other figure, we adopt the above assumption.

47. The Respondent submitted that the Applicant had failed to comply with Section 3(1) of the Ordinance in that there was no proper valuation report. The crux of the Respondent's argument was that according to the agreed evidence of both expert witnesses, the true market value of any vacant site was always the "redevelopment value" on its own but not the summation of the hypothetical market values of all the units in the demolished buildings previously standing on the site. For the same reason, the assessed market value of the Respondent's half-share interest in the Premises, at the date of valuation by Ms. Koo, could not be the estimated market value of the said Premises using the comparison method of valuation and assuming that the tenement building of Nos. 28 and 30 of which the said Premises formed part had not been demolished but was still in existence as at the date of valuation. On the contrary, the Respondent said that the market value of the Respondent's interest in the Premises should be assessed as 1/12 of the true market value, or the redevelopment value of the land of No. 28 on its own.

48. On the above basis, Mr. K. T. Liu ("Mr. Liu"), the expert surveyor called by the Respondent set out to estimate the open market value of the Lots in his first valuation report dated 15 January 2002 (Exhibit "R-2(1)"). He stated his assumptions in the section titled "Instructions" of his report, as follows: -

"It is understood that the applicant has filed in a valuation report prepared by DTZ Debenham Tie Leung Limited who has valued the former buildings unit by unit on the assumption that the former buildings had not been demolished and without taking into consideration of the redevelopment potential.

It is however my opinion that as the former buildings are no longer in existence, the market value of each property on the lot would be represented by the value of its interest in the land and the value of land in my opinion no doubt reflects its redevelopment potential.

As instructed I hereby prepare a valuation of the land taking into consideration of the redevelopment potential for the consideration of the Lands Tribunal notwithstanding the Ordinance has stipulated otherwise.

Should my opinion be found erroneous and the valuation of the Property should be made on the basis as what DTZ Debenham Tie Leung Limited did, I would recommend acceptance of the report."

49. The Applicant submitted that the Respondent's arguments were unsupported by the actual wordings of the Ordinance. The Applicant said that first of all, we should again take note that the Ordinance covered the situation where the building on the lot had already been demolished. However, in prescribing for the Statutory Report, submitted the Applicant, the Ordinance drew no distinction between the situation where a building was still standing on the lot or where the building on the lot had been demolished. That is, no other criteria had been laid down for the Statutory Report in case the building had gone. As such, the Statutory Report for both situations must be the same, as stated in Part 1 of Schedule 1 of the Ordinance.

50. The Applicant further submitted, "this is indeed so as the purpose of the statutory report is to assist this Tribunal in deciding the relative value of the properties in the lot ("the ratio") for compulsory sale purpose." The Applicant opined that it was not a requirement of the Ordinance that the Statutory Report as produced under Section 3(1)(a) of the Ordinance must be accurate as it would at the end of the date be decided by the Tribunal. Also, from Section 10 and Schedule 3 of the Ordinance, it was apparently clear that the ratio as stated in the Statutory Report, or as decided by the Tribunal, would be used for the apportionment of the expenses and the proceeds in the sale of the lot by public auction or other means. Since the said ratio was chosen to be the fairest method of apportionment of expenses and proceeds of sale, the same should be employed whether the building was standing on the lot or had been demolished.

51. The Applicant further submitted that as the valuation date of Ms. Koo's valuation was 19 July 2001 while the date of the Application was 14 August 2001, there was less than one month between these two dates, and hence the Applicant had complied with the requirement of not more than 3 months between these two dates as stipulated in Part 1 of Schedule 1 of the Ordinance.

52. We agree with the submissions of the Applicant regarding the requirements of the Statutory Report. We are satisfied that the basis of valuation of the properties and the Lots as shown in Ms. Koo's 2nd report dated 13 August 2002 which accompanied the Notice of Application compiled with the requirements of Part 1 of Schedule 1 of the Ordinance. She had valued all the premises on a vacant possession basis and without regard to the development potential of the properties or the Lots. Since the Ordinance is silent as to the basis of valuation of the property on the lot in the situation where the building formerly erected on the lot has been demolished, we agree that the most reasonable conclusion will be, as what the Applicant had made, to assume that the Ordinance requires the Applicant to prepare a valuation report which assesses the existing use value of each premises in the building which was formerly found on the lot prior to the date of Application. We also find that this assumption will not conflict with the other provisions of the Ordinance. We further agree with the Applicant that if one does not adopt the apportionment ratio as shown in Ms. Koo's 2nd report, then there will be no other proper basis. As submitted by the Applicant, "it cannot be something based on the number of undivided shares of the Lots as it is trite law that the number of undivided shares of each lot has no scientific basis, but can be fixed arbitrary by the first developer."

53. On the other hand, we do not agree with the Respondent's contention that, in the situation such as for the present case where the former buildings on the Lots had been demolished, the Ordinance requires the preparation of a valuation report giving the open market value of the vacant land; and in estimating the open market value of an individual unit of the former buildings (owned by either a majority owner or a minority owner), the Tribunal shall resort to use the ratio of the undivided shares of the particular unit and multiply that with the open market value of the vacant land occupied by the former buildings. The reason for our disagreement with the Respondent is simple: Part 1 of Schedule 1 of the Ordinance clearly stated that in assessing the market value thereunder, no account shall be taken of "the redevelopment potential of the property or the lot". Since the Respondent's and Mr. Liu's assumptions were obviously contradictory to this clear requirement of the Ordinance, they must be wrong and should not be accepted. Therefore, we find that the Respondent's ground of opposition in this aspect fails.

54. In the valuation process, we find that Ms. Koo had extracted from the approved building plans the area data of the units in the buildings that formerly existed on the Lots. She had taken all the necessary steps in her valuation before arriving at her opinion of values. Although the Respondent stated in their Notice of Opposition several grounds (i.e. ground (a)(ii), (a)(iii), (a)(v) of Form 33) which related to Ms. Koo's 2nd valuation report, the Respondent did not adduce any evidence in support of their allegation. On the contrary, we heard evidence from Mr. Liu that he would recommend acceptance of Ms. Koo's valuation on existing use basis if the Tribunal decides against his assumptions as to how the statutory report under Part 1 of Schedule 1 of the Ordinance should be prepared. Therefore, we find that the Respondent's said grounds of opposition all fail. In the circumstances, we accept the estimated figures regarding the assessed market values of the various units of the former existing buildings in the Lots as shown in Ms. Koo's 2nd valuation report attached to the Application.

Whether reasonable steps had been taken by the Applicant to acquire the Respondent's interest in the lots?

55. The Applicant submitted that it had taken reasonable steps to acquire the Respondent's property. It was undisputed that the Applicant had, before the filing of the Application on 14 August 2001, made the following offers, in chronological order, to the Respondent regarding its interest in the Lots, i.e. the half share of the Premises:-

16/6/2001	6/7/2001	24/7/2001	26/7/2001
$1,969,000	$2,050,000	$2,100,000	$2,500,000

56. The Applicant said that the only counter-offer made by the Respondent was a letter from its solicitor to the Applicant's solicitor asking for a price of $15,000,000. However, there was no explanation as to how the sum was estimated or based upon.

57. The Applicant submitted that its last offer of $2,500,000 far exceeded the estimated open market value of the Respondent's half-share interest in the Presmises, which, according to Ms. Koo's 2nd Report, had a value of $1,1860,000 as a whole. Since the Respondent's interest was only a half-share interest, and adopting 50% of the value of the whole Premises, its value would be $593,000. Hence, the Applicant's last offer was over 4 times of the estimated market value of the Respondent's interest in the Premises.

58. In addition, the Applicant said that although it did not agree that its offer to the Respondent should be based on the market value of the Lots which reflected the redevelopment potential of the Lots, its offer to the Respondent prior to the lodging of the Application in fact exceeded the proportionate share of the open market value of the Lots, estimated at $106,000,000 by Ms. Koo in page 506M of Exhibit "A-1(2)". In that valuation, she assumed that the proportionate share to the Respondent in respect of the latter's interest in the Lots should be based upon the ratio of the value of its interest in the Premises to the values of all the premises in the former buildings found on the Lots, both on existing use basis, in accordance with Part 1 of Schedule 1 of the Ordinance. We have estimated, in an earlier section of this Judgment, that the ratio is 2.16%. We therefore arrive at the following comparative figures:

59. The Applicant said that the above calculation show that its offer exceeded the Respondent's proportionate share of the site value of the Lots as a whole. Moreover, even if Ms. Koo's estimate of the site value was to be substituted by Mr. Liu's estimate of $113,750,000, the proportionate share of the Respondent's interest, calculated at $245,700 ($113,750,000 x 2.16%) would still be marginally below that offered by the Applicant. Therefore, the Applicant submitted that it had taken reasonable steps to acquire the Respondent's interest in the Lots.

60. On the other hand, the Respondent submitted that the Applicant failed to take reasonable steps since the Applicant had not made any reasonable offer to the Respondent for the acquisition of the latter's interest in the Lots. The main argument from the Respondent was that in assessing the ratio of the value of the Respondent's interest in the Lots to the total site value of the Lots, the Applicant and the Tribunal must have had regard to the marriage value attributable to the Respondent's Premises. In this connection, the Respondent drew our attention to Mr. Liu's 2nd report, which attempted to assess the worth of Nos. 28 & 30 to the Applicant, as the owner of Nos. 24 & 26 and No. 32 upon merger of all the properties Nos. 24 to 32, bearing in mind that Nos. 28 & 30 were in the middle of the terrace of these properties.

61. Mr. Liu prepared his 2nd valuation report (Exhibit "R-2(2)") on 5 February 2002. He explicitly set out in section 2 of his report the following "valuation criteria":

"It is my opinion that without Nos. 28 & 30 Ming Yuen Western Street, the owner of No. 24 & 26 and No. 32 can redevelop the property into two portions, namely Nos. 24 & 26 as one lot and No. 32 on its own as another lot.

The difference between the value of No. 24, 26, 28, 30 & 32 Ming Yuen Western Street as one lot, which as stated in my earlier report dated 15th January, 2002 is in the sum of HK$113,750,000.00, and the individual value of Nos. 24 & 26 as one lot and No. 32 as another would represent the worth of Nos. 28 & 30 for the merger development."

62. Mr. Liu went on to estimate, by residual method, the site value of Nos. 24 & 26 as one lot and the site value of No. 32 as another lot. In the conclusion, he worked out the worth of Nos. 28 & 30 as follows: -

63. Hence, it was the Respondent's case that the highest offer made by the Applicant, at $2,500,000 was far too short of the value of the Respondent's half-share interest in the Premises, if the total worth or value of Nos. 28 & 30, as found by Mr. Liu, was $81,060,000. This was so because the Respondent owned a half-share of the Premises, representing 1/12 of the undivided shares of the land of Nos. 28 & 30, and the Premises should worth 1/12 of $81,060,000, or $6,755,000. The Respondent's half share interest in the Premises should therefore worth 50% of $6,755,000, or $3,377,500.

64. In response, the Applicant submitted that firstly, it was erroneous to estimate the value of Nos. 28 & 30 using the methodology adopted by Mr. Liu, which was both incorrect when considered in the context of the Ordinance as well as against the general principle of valuation of open market value of land; secondly, it was erroneous to value the Respondent's half share interest in the Premises by using the ratio of half of 1/12 of the value of Nos. 28 and 30 since the latter method was against the requirement of Part 1 of Schedule 1 of the Ordinance, the basis for apportionment of the proceeds and expenses of the sale of the Lots. The Applicant said that although the Respondent's method would give the Respondent a lesser proportion of the value of No. 28 and hence would be beneficial to the Applicant as the majority owner, the Applicant still objected to it since it was against the statutory provisions of the Ordinance.

65. The Applicant took strong issues with Mr. Liu's 2nd Report. The Applicant said, "Liu's 2nd report is a contrived and artificial attempt to augment the value of No. 28 and No. 30.... The very fundamental assumption of Liu's 2nd report is that it assumes a particular developer who has acquired Nos. 24, 26 and 32 and bents on developing Nos. 24, 26, 28, 30 and 32 together. As admitted by Liu, this runs contrary to the elementary concept of open market value which does not assume the existence of any prospective purchaser with a special interest."

66. In this regard, the Applicant produced two professional guidance documents (Exhibits "A-12" and "A-13") of the recognised professional surveyors institutes in Hong Kong and in the U.K. which set out the definition of the "open market value" of an interest in a property.

67. The HKIS (Hong Kong Institute of Surveyors) Guidance Notes on the Valuation of Property Assess provides the following definition at page 130:

"Open Market Value" means "an opinion of the best price at which the sale of an interest in the property would have been completed unconditionally for cash consideration on the date of valuation, assuming:

(a) a willing seller;

(b) that, prior to the date of valuation, there had been a reasonable period (having regard to the nature of the property and the state of the market) for the proper marketing of the interest, for the agreement of the price and terms and for the completion of the sale;

(c) that the state of the market, level of values and other circumstances were, on any earlier assumed date of exchange of contracts, the same as on the date of valuation;

(d) that no account is taken of any additional bid by a prospective purchaser with a special interest; and

(e) that both parties to the transaction had acted knowledgeably, prudently and without compulsion.

68. Further, paragraph 1.2 of the same Guidance Notes provided the following:

"The HKIS stress that if a Valuer considers it appropriate to apply any qualifying words to Open Market Value the meaning of those words should be discussed and agreed with the client before instructions are finally accepted. The Valuer should incorporate in her/his report the agreed meaning of the qualifying words. It is emphasised that this definition can in no way override the definition of market value which have to be adopted for the purpose of valuation under any law."

69. The same definition of the term "open market value" appeared in the RICS (Royal Institution of Chartered Surveyors)'s Appraisal & Valuation Manual- Practice Statement 4.

70. Hence, the Applicant concluded that the valuation of the value of Nos. 28 & 30 in Mr. Liu's 2nd Report was wrong in principle because it was entirely dependent on the bidding by a special purchaser who already owned the surrounding properties of Nos. 24, 26 and 32. This assumption of the sale to and purchase by a special purchaser runs contrary to the above definition of the term "open market value" by recognised professional institutes in valuation. Since the term 'market value" was used in the Ordinance, it should connote the usual common meaning for "open market value" as defined by these institutes. Therefore, Mr. Liu's valuation in his 2nd valuation report was wrongly based and could not be right.

71. Also, more fundamentally, the Applicant challenged that the concept of marriage value as expounded in Mr. Liu's 2nd report was not apt in the context of the Ordinance. The Applicant said that it would virtually annihilate the mission set out by the Ordinance in the first place. If the Respondent were right, any majority owner who wished to invoke the Ordinance would have to offer and to pay the minority owner "a special premium arising out of the nature of the development scheme". Therefore, submitted the Applicant, "The contention is objectionable, for if it applies, what purpose can be served by LO (the Ordinance)?"

72. The Applicant also referred us to the decision of Keith J.A. of the Court of Appeal in Wong Tak Woon v Secretary for Planning, Environment and Lands (unreported judgment dated 11 January 2000, case reference CACV39/1999 at pp 3-4) in which the applicant applied for leave to apply for judicial review of Cheung J's judgment in Wong Tak Woon v Secretary for Planning, Environment and Lands (unreported High Court case, reference HCAL No. 143 of 1999). The Court of Appeal held that in assessing the compensation for land resumed pursuant to a recommendation to the Chief Executive under the Land Development Corporation Ordinance (Cap.15), no account shall be taken of the value of such property as would be built on the land under any proposed development. Keith J.A. said,

"In my view, the answer is contained in the advice which the Secretary sought from leading counsel as to how the value of the Applicant's land should be assessed. Leading counsel's view was unequivocal. I cannot improve on the language in which he unambiguously expressed his advice to the Secretary, namely

'.... Where any increase in value is the product exclusively of the scheme which gives rise to the acquisition, that increase should not inflate the owner's compensatory reward. That element in the value of the property was an element which the owner was incapable of exploiting on his own behalf. To take it into account, therefore, would be to credit the owner with a benefit which never attached to the property while it was in his hands."

73. Summing up, the Applicant submitted that in accordance with the Ordinance, in valuing the Respondent's half-share interest in the Premises, we should not take into account the redevelopment potential and / or the alleged marriage value of the Lots. The redevelopment potential of the Lots would be relevant only when we decide to set the reserve price of the Lots.

74. In addition, the Applicant submitted that, even if, which was denied, the concept of marriage value was applicable to this case, there was simply no logic or reason as to why the marriage value should not be spread amongst all the constituent properties of the Lots but should instead be entirely attributed to Nos. 28 & 30. The Applicant submitted that it had carried out an analysis to find out, on various combinations of development one could think of but on the basis that the marriage value should not be attributed to Nos. 28 & 30 alone, the value of the half-share interest of the Premises owned by the Respondent. This was found to be invariably less than the sum of $2,500,000 offered by the Applicant. The results of the Applicant's analysis was produced as Schedule 3 of the written submission.

75. After considering all the evidence of the two expert surveyors and the parties' submissions, we decide that we do not agree with both the Applicant and the Respondent regarding the principle for the valuation of the Respondent's interest in the Lots, for the purpose of deciding whether the Applicant satisfies the test of Section 4(2)(b) of the Ordinance. Before coming to that, we reiterate here what we have decided earlier, that the subject matter of the Application should comprise the Lots, i.e. the land of the 5 properties Nos. 28 to 32, but should not, as contended by the Respondent, be restricted to No. 28. Next, we note that the Ordinance was not specific as to how the terms offered by the Applicant should be measured against.

76. We find that Section 15(4) of the Land Development Corporation Ordinance (Cap. 15) prevents the Secretary from making the recommendation to the Chief Executive in Council the resumption of land under the Lands Resumption Ordinance (Cap. 124) "unless he is satisfied that the Corporation has taken all reasonable steps to ... acquire the land including negotiating for the purchase thereof on terms that are fair and reasonable." This is similar to the provision of Section 4(2)(b) of the Ordinance in this case.

77. However, we must distinguish the different situations under the Land Development Corporation and the Ordinance in the present case. Under the former situation, there must be a scheme approved by the Chief Executive in Council and the aggrieved party, if not satisfied with the compensation offer of the Land Development Corporation, could have the compensation determined by the Lands Tribunal. The resumption of land under that Ordinance will in fact be made under the provisions of the Lands Resumption Ordinance (Cap. 124). Therefore, in considering the terms that were offered by the Corporation, we must have regard to the principle of compensation set out under the Lands Resumption Ordinance. Since it is trite law that any enhancement due to the resumption scheme must be ignored and that there will be no chance of redevelopment without the stepping in of the Corporation, it follows that the market value of the land within the scheme shall not have reflected the redevelopment value if we ignore the scheme.

78. The situation is quite different for the Lots, which is the subject matter of the Application under the Ordinance. No resumption will be envisaged and no rules of compensation under the Lands Resumption Ordinance will be applicable here. Therefore, we decide that the judgment of Wong Tak Woon v Secretary for Planning, Environment and Lands (unreported, reference CACV 339/1999) on the criteria for deciding on whether the terms offered for the acquisition of the land are fair and reasonable does not apply to the Ordinance.

79. We also do not agree with the Applicant that in principle, in deciding whether the Applicant had satisfied the test of Section 4(2)(b), no account should be taken of the redevelopment potential of the lot. The Applicant suggested that the test for Section 4(2)(b) should be the value of the minority owner's interest in the Lots on existing use value basis, as set out in the Statutory Report of Section 3(1)(a). However, if the intention of the legislature was that the majority owner must have at least offered the same amount of value to the minority owner for his interest in the lot, as indicated in the Statutory Report required by Section 3(1)(a) and Part 1 of Schedule 1 of the Ordinance, it would be much simpler to state explicitly these requirements in Section 4(2)(b). Instead, the test in the latter section was whether the majority owner had "taken reasonable steps to acquire all the undivided shares in the lot (including, in the case of a minority owner whose whereabouts are known, negotiating for the purchase of such of those shares as are owned by that minority owner on terms that are fair and reasonable."

80. Therefore, we find that as a common yardstick, it would be sufficient if an applicant, as a majority owner in an application under this Ordinance, has made an offer to a minority owner based on firstly, the open market value of the lot in the application (which invariably reflects the development potential of the lot); and secondly, the ratio of the value of the minority owner's interest to the values of all the interests in the lot, in accordance with the existing use value basis as laid down under Part 1 of Schedule 1 of the Ordinance. This is because eventually, if the application for an order for sale is approved, the ratio as set out in the valuation required by Part 1 of Schedule 1 of the Ordinance will be used for the apportionment of the proceeds and expenses of the sale. Therefore, there is no reason that the same ratio should not be used for the calculation of the value of the minority owner's interest before the application, in the test for assessing whether the applicant as the majority owner has taken reasonable steps to acquire the minority owner's interest and to negotiate for the purchase of the interest, on terms that are fair and reasonable.

81. As to the issue of assessment and the sharing of the marriage value due to the merging of the lot with other land, we agree with the Applicant's submission. We note that it was precisely because of the difficulties of assembling run down properties by private initiatives that the Government had enacted the Ordinance with a view to enabling a majority owner to apply for an order for sale of all the interests in the lot. Thus, it does not make sense to us at all that the same statute requires the majority owner to make, prior to have their application approved by the Lands Tribunal, an offer to the minority owner on the assumption that the minority owner (of Nos. 28 & 30) will reap all the marriage value of the lot, as demonstrated by Mr. Liu's 2nd report. This is, however, theoretical only because in this case we have already decided that the subject matter of the present Application is the Lots of the properties Nos. 24 to 32. Therefore, the test of whether the Applicant satisfied Section 4(2)(b) must be whether he had offered to pay at least the Respondent's share of the assessed value of the Lots as a whole (being the subject matter of the Application), but not on whatever ratio of the assessed market value of Nos. 28 & 30. As we shall see later, between Ms. Koo and Mr. Liu, there is very little difference in their assessed values of the Lots as a whole. So, it makes our task much easier.

82. Moreover, even putting aside the context of the Ordinance for the time being and judging Mr. Liu's assessment from the valuation point of view, we cannot agree with the Respondent that the value of the properties Nos. 28 & 30 was in the sum of $81,060,000, as computed by Mr. Liu in his 2nd report. We note that he had simply assumed that the owner of Nos. 28 & 30 would reap by himself entirely the marriage value of the merger of the interests in Nos. 24 to 32. We find that Mr. Liu's computation might help, for the information of a prospective vendor who owned Nos. 28 & 30, to gauge the highest value the neighbours could afford to pay to the owner of Nos. 28 & 30. However, if all these merging of interests would put the owners of the neighbouring interests in exactly the same position as before, why should they be bothered to acquire the interest of Nos. 28 & 30 in the first place?

83. In this respect, we find that the assumption of Mr. Liu is also against the meaning of "marriage value" commonly agreed in the valuation profession. We understand that marriage value is generally intended to mean the additional value generated by the merging of two or more interests in land, for example, the merging of two or more lots together to form a combined, larger site with greater redevelopment potential in terms of plot ratio, site coverage, lesser height restrictions, more flexibility in designing the development, lesser site constraints and so on. That being the case, we cannot understand at all why, the financial gains generated by such a merger of interests should, as assumed by Mr. Liu, be attributable entirely to a party in the merger, i.e. the owner of Nos. 28 & 30.

84. We further agree with the Applicant that Mr. Liu's valuation was against the definition and general assumption of open market value or market value, which were used interchangeably by valuation profession in Hong Kong and elsewhere.

85. Hence, in the final analysis, we agree with the Applicant that looking at the term of the offer made by the Applicant, in particular, the amount of the last offer of $2,500,000, the Applicant had satisfied the test of Section 4(2)(b) of the Ordinance. We disagree with the Respondent that the evidence of Mr. Lung that "negotiating will be going on while the Court action is going on, as well" and his exact wordings in Punti of "yat bin da, yat bin king" were evidence that the Applicant's attitude was not to acquire the Respondent's interest and that the Applicant had plainly failed to take reasonable steps to acquire the Respondent's interest. We find that even Section 4(2)(b) of the Ordinance contains the word "negotiating", so it is not a requirement of that section and the rest of the Ordinance that a majority owner cannot try to negotiate for a better term. The key words, we decide, are whether the majority owner had, before the Application, offered to the Respondent, on "terms that are fair and reasonable". Therefore, on the basis of the similar estimates of the open market value of the Lots made by Ms. Koo and Mr. Liu and the ratio of the value of the Respondent's interest in the Lots as shown in the Statutory Report stipulated by Part I of Schedule 1, we find that the Applicant had satisfied Section 4(2)(b).

Whether the valuation by Ms. Koo had wrongly calculated the area of the site or sites, by excluding the road area?

86. The Respondent also opposed the Application on the ground that the valuation wrongly calculated the area of the site or sites by excluding therefrom a portion thereof known as "road area", which ground of opposition was added as a result of an amendment of Form 33 at the beginning of the hearing. However, the Respondent expressly stated that it was not advancing a positive case on this issue of the road area. The Respondent said that the burden of proof clearly rested on the Applicant and questioned the necessity for the Respondent to incur costs to carry out professional studies on the matter. Counsel for the Respondent submitted that he did not say that Ming Yuen Western Street was not a private street. He only took exception to the lacking of evidence from the Applicant as to why at least part of the 22 ft. 6 in. private street could not be built upon as part of the redevelopment of the Lots.

87. The Respondent raised this issue with the Applicant's witnesses, Mr. Tang and Mr. Au Yeung before seeking amendment of Form 33. Later, the Respondent, in cross examination of the expert witness, Ms. Koo, spent sometime in finding out the reason of Ms. Koo in excluding the portion of the road area of Ming Yuen Western Street when computing the net developable site area of the Lots.

88. Ms. Koo answered that the road area was a private street within the meaning of Regulation 23 of the Buildings Planning Regulations of the Buildings Ordinance, Cap. 123. Her opinion was based on the various assignments of the constituent lots of the Lots (Exhibit "A-1(2)", pages 820 to 851), the approved building plans (Exhibit "A-2(2)") and her professional expertise.

89. The Respondent submitted that the fact that the Applicant's architect Messrs T.K. Tsui & Associtate Ltd. had excluded the road area from calculation of the site area of the Lots was "a very telling piece of evidence that the same is street area and must be excluded." This was because "no developer in his right sense will agree to forgo any area which can be part of the site area."

90. The Respondent also pointed out that in Mr. Liu's 1st report, he had also excluded the road area in the calculation of the site area of the Lots, even though he later said that he realized that the matter was a legal issue.

91. The Respondent added that after examination of the 5 assignments of the properties comprised in the Lots, the site plan and the approved building plans, it was clear that the road area was indeed part of the private street of Ming Yuen Western Street. Therefore, Ms. Koo was definitely right in her opinion that the road area being part of a private street should not be included in the calculation of the site area. (Hing Well Co. Ltd. v Attorney General [1988] 1 HKLR 32 at 34D-H, 35F, 43B-44B and Sonnix Ltd. v Kaifull Investments Ltd. [2000] 3 HKC 102 at 110E-F refer.)

92. In the final submission, the Respondent complained that it was difficult to understand the Applicant's case. Following the formal amendment by the Respondent of Form 33, by the addition of a new reason for opposing the Application - that Ms. Koo had wrongfully excluded the road area from the calculation of the site area, the Applicant had expected the Respondent to adduce positive evidence in support of the new assertion. However, the Applicant found that the Respondent did not seek to support the newly amended ground of opposition by introducing any evidence. Instead, the Applicant found that all the evidence, including the evidence of Mr. Liu, was against the Respondent's contention. Therefore, the Applicant asked for the costs of and occasioned by the Respondent's amendment of Form 33 and even if in the event that the Respondent would only succeed because of this point on road area, the Applicant would ask for the costs incurred up to the time of amendment (See Hong Kong Civil Procedure 2002 Vol. 1 par. 20/8/12 at WB 337).

93. Regulation 23(2) of the Building Ordinance (Cap.123) states:-

"In determining for the purposes of regulation 20, 21 or 22 the area of the site on which a building is erected -

(a) no account shall be taken of any part of any street or service lane; and

(b) these shall be included any area dedicated to the public for the purposes of passage."

94. We find that Ms. Koo was correct to exclude the "road area" from the site area of the Lots as it is the common evidence that the said road area has been used as a private street by the owners of the Lots and the adjoining owners for the purpose of passage for a long time.

95. On the evidence adduced, we have no reason to disagree with Ms. Koo that the said road area should be excluded for the purpose of calculation of the site area of the Lots.

Other disputes - issues of the "last unit premium", the Partition Ordinance, and the 10% marginal difference in valuation

96. Mr. Liu gave evidence that in assessing the open market value of Nos. 28 & 30, one should have regard to the location of the properties, which were in the middle of a terrace of properties Nos. 24 to 32. Also, in assessing the open market value of the Premises, one should take into account "the last unit premium" that was normally payable by the majority owner who managed to acquire ownership of all the units in the building or buildings under consideration. When questioned by Mr. Chain whether the situation had changed since the enactment of the Ordinance, Mr. Liu said that he was not aware of any change.

97. On the other hand, Ms. Koo said that the situation described by Mr. Liu might be true before the enactment of the Ordinance. However, after the coming into force of the Ordinance, a majority owner who owned 90% or more of a lot or lots could apply to the Tribunal for an order for sale of all the undivided shares in the lot or lots. This has changed the situation so that the owner who owned the last unit in a lot was no longer expected to get the "last unit premium" as suggested by Mr. Liu, or the "ransom price" as suggested by the Applicant. Instead, it could be that a minority owner, who offered to sell a unit that triggered off the 90% ownership threshold of the majority owner, might be able to get a premium from the sale of that unit.

98. We find that the Preamble of the Ordinance clearly stated that it was the intention of the Ordinance to enable redevelopment of a lot. In the past, one of the most common reasons that a majority owner could not redevelop a lot is that a minority owner might be asking for a huge sum of money as the "last unit premium". The Ordinance sought to overcome this type of hurdle by enabling a majority owner to apply to the Tribunal for an order for sale of all the undivided shares in a lot. The clear intention of the Ordinance was that in distributing the proceeds and expenses of the sale, the trustees must follow the ratio of the values of the various units of the lot according to the valuation accompanying the application or in case of a dispute, according to the decision of the Tribunal on the said valuation. This is set out in Section 10(3) of the Ordinance, as follows: -

"(3) The apportionment between the majority owner and minority owner of the lot the 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.

99. And Part 3 of Schedule 1 reads,

"BASIS OF APPORTIONMENT OF PROCEEDS OF SALE OF LOT

On a pro rata basis in accordance with-

(a) subject to paragraph (b), the value 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 so valued."

100. So, one may ask, since the Ordinance provides the mechanism for a majority owner to apply to the Tribunal, why will a majority owner still agree to pay a minority owner the same amount of the "last unit premium" as before? However, in our view, there may still be instances that a majority owner agrees to pay a certain premium above the proportionate share of the assessed market value of the lot, which could form the subject matter of an application under the Ordinance, since the procedure of the Ordinance will certainly take some time. The reason being that a majority owner is aware that under the Ordinance, a minority owner will be entitled to the sharing of the proceeds on the formula set out in Section 10(3). If a majority owner has already acquired over 90% of undivided shares in a lot, the interest accrued on his total costs of acquisition can be quite considerable. He may therefore consider that he can be better off financially if he acquires the unit of a minority owner without resorting to seek the Tribunal's order for the sale of all the undivided shares in the lot. This is also the reason that as far as this Ordinance is concerned, the Tribunal in the past has only given an order for sale in one case. In most of the other cases, the parties all consented before the Tribunal made any ruling to grant the necessary orders.

101. In the Application, we find that it is not necessary for us to decide whether following the enactment of the Ordinance, the last unit premium is payable to the last owner, as suggested by Mr. Liu; or the second last unit premium is payable to the second last owner, or the owner who triggers the 90% threshold of a majority owner. We only need to decide on what was applied, the grounds of application and the grounds of opposition. However, since the parties have given evidence and debated on this issue, we decide to set out our opinion above.

102. The Respondent also submitted that "contrary to popular belief, the Ordinance is not the only means by which an owner (not necessarily a majority owner) can obtain an order for sale of a piece of property under co-ownership; that same can be achieved under the provisions of the Partition Ordinance, Cap. 352 (except where the owners had agreed not to partition)". The Respondent said that the Ordinance therefore only gave an extra statutory "remedy' to a majority owner, that is, the Applicant in this case. We do not understand the logic of this submission. Under the Ordinance, we have a statutory duty to hear and decide on its Application, regardless of whether the Applicant may have other remedies.

103. The Respondent also submitted that there could be a marginal difference of say 10% in valuation. This point may be relevant when the valuation figures are in dispute and the Tribunal has to a make a determination. However, in the present case, we find that the major difference between the parties' experts is over the basis of valuation, rather than on the actual valuation figures adopted. Mr. Liu also gave evidence that in case his basis was judged to be wrong, he was prepared to accept Ms. Koo's figures.

Statutory provisions for the determination of the Application

104. The provisions of the Ordinance regarding the determination of the Application are mainly set out, step by step in Section 4(1) of the Ordinance, as follows: -

"4. Determination of application

(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 disputes;

(ii) in the case of any minority owner of the lot who cannot be found...

(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; or

(ii) refusing to make such an order; and

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

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

(ii) authorizing the trustees to charge such remuneration for their services as the Tribunal thinks fit and specified in the order."

Whether to grant an order for sale?

105. We have found in the forgoing that the Applicant had complied with the applicable provisions of the Ordinance. We have found that the Applicant was, at the time of the Application on 14 August 2001, qualified as "a majority owner" of the Lots in accordance with Section 3 of the Ordinance. Although the Respondent disputed that the Application should only cover No. 28, we have decided that the Applicant was entitled to include all the 6 lots of the 5 properties Nos. 24 to 32, i.e. the Lots, as the subject matter of the Application under Section 3(1)(b). There was no dispute over the procedure of service of the Application to the Respondent, the sole minority owner of the Lots. Although the Respondent disputed that Ms. Koo's 2nd report accompanying the Application was not a proper Statutory Report as required under Section 3(1)(a) and Part 1 of Schedule 1 of the Ordinance, we have found that the said report did comply with the stated requirements of the Ordinance.

106. We have also heard the grounds of opposition to the Application raised by the Respondent but we have decided above that all the Respondent's grounds of opposition fail.

107. Regarding the provisions of Section 4(2)(a) of the Ordinance, we have decided that those provisions are not applicable in the Application because there was no "existing development" and no regulation had been made by the Secretary at the time of Application.

108. As to the provisions of Section 4(2)(b) of the Ordinance, we have satisfied ourselves that the Applicant as "a majority owner" has taken reasonable steps to acquire all the undivided shares of the Respondent in the Lots, and in negotiating for the purchase of such shares of the Respondent on terms that are fair and reasonable.

109. In the final submission, the Respondent submitted that even if the Applicant satisfied the conditions set out in Sections 4(2)(a) and 4(2)(b), we still had the unfettered discretion to decide as to whether we should make an order for sale. The Respondent suggested that in exercising our discretion, we should consider all the circumstances including the history of any dealing between the parties. We do not agree that the Respondent's submission reflects the true intention of the Ordinance. We find that in exercising our jurisdiction, we must have regard to the provisions of the Ordinance only. If the Applicant as "a majority owner" has properly followed the procedure in making the Application for an order for sale of the Lots, the grounds of opposition raised by the Respondent all fail, and the Tribunal is satisfied with the specific requirements of the Ordinance as set out in Sections 4(2)(a) and/or 4(2)(b), we shall accordingly make the order as sought.

110. Moreover, we do not agree with the Respondent that in deciding whether the Applicant had taken reasonable steps to acquire all the undivided shares of the Lots, we should look at the very unusual history relating to the acquisition of the Premises by the Applicant in the past. We find that the history of the acquisition of the Premises had no direct effect on the merits or otherwise of the Application, which is just an application for an order for sale by the Applicant as a majority owner in the Lots. On the other hand, it was the Respondent, not the 3 Lo sisters, or any other former owner, who was the one owning a minority interest in the Lots and entitled to oppose the application. Hence, although the Applicant in the submission analysed at lengths how unreasonable the Respondent had been and how unreasonable and unreliable Mr. Cai's oral evidence was, we find all these to be irrelevant in the Application.

111. Therefore, we decide that as all the grounds of opposition of the Respondent fail, and there is no justification to refuse an order for sale of the Lots, we shall grant the order for sale as sought in the Application.

Whether the sale of the Lots should be by way of public auction?

112. The Respondent complained that one of the main drawbacks of the Ordinance was that the lot in an application under the Ordinance would be sold by way of public auction, unless it was agreed by each minority owner and the majority owner in writing. They said that since the sale of the lot by public auction would benefit a majority owner, there was no chance that a majority owner would agree to the sale of the lot by other means.

113. The Respondent therefore submitted that even if an order for sale would be granted, the sale of the Lots should not be done by way of public auction. The Respondent argued that the sale by public auction would invariably be favourable to the Applicant. The Applicant, as the majority owner, would only have to pay a modest sum of money for the acquisition of the Respondent's interest in the Lots. As such, the Applicant would surely have an upper hand when bidding against all the other bidders, including the Respondent. Because of that advantage and the lacking of a competitive environment since all the bids would be known, there would be no need for the Applicant to pay a fair and reasonable price for the Lots. The Respondent suggested that the Lots should be sold by other means such as by way of tender.

114. The Respondent also complained of the high expenses that would be incurred for the sale of the Lots by public auction. In response, the Applicant said that it was prepared to foot all the expenses of an auction sale, despite of the requirements to apportion the expenses under the Ordinance.

115. The Applicant disagreed with the Respondent's submissions and pointed out that the sale by public auction was agreed by most to be one of the fairest methods of disposal of real property. The Applicant further dismissed the Respondent's contention that as the Applicant would be most likely to be the only interested party who would bid in the auction, the method of sale would not protect the minority owner's interest. The Applicant said that since there was no restriction as to the potential bidders, it failed to understand why the Applicant would be the only intending purchaser of the Lots.

116. We disagree with the Respondent that the sale by public auction will benefit the majority owner. We further find that the sale of the Lots in this case will have to be done by way of public auction, unless the parties can agree otherwise. This is because Section 5 of the Ordinance, which governs the manner in which the lot in an application shall be sold, contains the following provisions:

"5(1) Where an order for sale is granted and the trustees under the order have complied with section 7(1) in respect of the lot the subject of the order-

(a) subject to paragraph (b), the lot shall be sold by public auction in accordance with the conditions specified in Schedule 2; or

(b) if the whereabouts of each minority owner of the lot is known, the lot may be sold by any other means-

(i) agreed in writing by each minority owner and majority owner of the lot;

(ii) approved by the Tribunal in its absolute discretion; and

(iii) in accordance with such conditions, if any, as the Tribunal specifies in directions."

117. We do not find that the above provisions give us any discretion to change the mode of sale of the Lots, unless it was agreed by both the Applicant and the Respondent in writing. Since the Applicant already indicated in the final submission its preference of public auction, there is nothing further we can decide so far as the mode of sale is concerned.

What should be the reserve price and conditions of sale?

118. The Respondent submitted that the question of reserve price should be considered and decided later. On the other hand, the Applicant submitted that the Respondent had no entitlement to address the question of reserve price.

119. As the parties have not yet submitted on the conditions and arrangement for the sale of the Lots including the appointment of trustees and the setting of the remuneration for the trustees, we agree with the Respondent that these matters and any other ancillary and consequential matters should be dealt with at an adjourned hearing to be fixed by the Assistant Registrar after consultation with counsel's diaries. We also decide that at the adjourned hearing, the parties can make further submission on the reserve price.

Orders

120. In the circumstances, we make the following determination:-

(1) The values of all the premises of the Lots in the properties Nos. 24 to 32, including the value of the Premises of which the Respondent had a half-share interest, be as set out in Ms. Koo's 2nd report accompanying the Application.

(2) An order that all the undivided shares of the Lots be sold by way of public auction for the purposes of redevelopment of the Lots is hereby granted.

(3) The matters of reserve price, conditions of sale, appointment of trustees, costs and any other ancillary and consequential matters be adjourned to a date to be fixed by the Assistant Registrar, after consultation with counsel's diaries.

Remarks: