LUCK MOST LTD AND OTHERS v. GOOD MOVEMENT LTD

LDCS 11000/2020

[2023] HKLdT 14

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LAND COMPULSORY SALE MAIN APPLICATION NO 11000 OF 2020

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DECISION

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The Application and Background

1.  By a Notice of Application filed herein on 29 May 2020, the applicants apply under the Land (Compulsory Sale for Redevelopment) Ordinance (“Cap. 545” or “the Ordinance”) for an order for sale of Sub-section 3 of section A of Inland Lot No. 734 (“the First Lot”) (No. 10 Matheson Street, Hong Kong (“the First Building”)) and Sub-section 4 of Section A of Inland Lot No. 734 (“the Second Lot”) (No. 12 Matheson Street, Hong Kong (“the Second Building”)).

2.  The applicants claim to hold the average of over 90% in the First and Second Lots.

3.  There is only one respondent, who is the registered owner of 1 equal undivided 6^th part or share of and in the Second Lot together with the sole and exclusive right and privilege to hold, use and occupy the 5^th Floor of the Second Building.

4.  The respondent opposed the application. An Amended Notice of Opposition has been filed on 19 April 2021. According to the Amended Notice of Opposition, the particulars of opposition have been set out in paragraph 1 under section C.

5.  By a summons taken out by the applicants on 7 October 2022, the applicant sought to struck out paragraph 1(b), the plan marked A and the Schedule annexed to the Amended Notice of Opposition (collectively referred to hereinafter as “paragraph 1(b)”) under Order 18 Rule 19 of the Rules of High Court and/or under the inherent jurisdiction of the Lands Tribunal on the ground that they disclose no reasonable cause of action or defence, they are scandalous, frivolous or vexatious, or they may prejudice embarrass or delay the fair trial of the action, and/or they are an abuse of the process of the Tribunal. (The full text of paragraph 1(b) is set out in the Appendix I hereto).

Applicants’ case (Part I)

6.  As the background, I shall refer to an earlier summons by the applicants to expunge 3 of the expert reports filed by the valuation expert of the respondent and inadmissible for these proceedings. These 3 reports are on the RDV of the subject site developed with some adjacent lots. In the hearing on 29 July 2022, Mr. Chain, counsel for the respondent (in the earlier summons and today) argued that these reports were relevant to the argument of the respondent on the issue of merged site factor and/or special interest factor on the RDV of the First and Second Lots. And paragraph 1(b) set out the particulars to support the merged site factor and/or special interest factor as contended by the respondent.

7.  Mr. Mok, counsel for the applicants argued in the earlier summons that the merged site and special interest factor were not basis of valuation permitted by the relevant provision of Cap. 545, in particular paragraph 2 of Schedule 2. Hence he asked for the 3 expert reports be expunged for being irrelevant. Mr. Chain submitted that this would be a pleading point and if the applicants were to take this argument, they should also apply to strike the relevant parts in the Amended Notice of Opposition (including paragraph 1(b)) and which, the respondent would oppose.

8.  I accepted the submission of Mr. Chain and Mr. Mok asked to include an oral application to strike out paragraph 1(b), which I was prepared to entertain. And Mr. Chain had no objection but he asked for an adjournment to put in supplemental submission for the new oral application. Mr. Mok agreed to abandon the oral application and would not rely on the argument that the basis of merged site value and special interest value were not arguable at all for the summons to expunge the expert reports.

9.  While I have allowed the applicants’ summons to expunge the 3 expert reports for other reasons as set out in my Ruling dated 2 September 2022, Mr. Mok now returns seeking to strike out paragraph 1(b).

10.  Mr. Mok analyzed paragraph 1(b) and the argument of the respondent raised. I do not think this is disputed that Inland Lot 734 is sub-divided into sub-lots, making up of Nos. 5, 7, 9, 9A & 9B of Sharp Street East, and Nos. 10, 12,14, 16 & 18 of Matheson Street. And Inland Lot 734 is adjacent to Inland Lot 1451 with Leighton Centre erected thereon.

11.  Mr. Mok accepts that Cap 545 proceedings have been commenced for 10-12 Matheson Street (this action), 16 Matheson Street (LDCS 12000/2020), 9A-9B Sharp Street East (LDCS 13000/2020), 5 Sharp Street East (LDCS 10000/2020 with a sale order granted on 10 March 2021). No Cap. 545 application has been taken out for 14 & 18 Matheson Street, 7 & 9 Sharp Street East, and Leighton Centre.

12.  With this factual background, Mr. Chain submits that the respondent would argue at the trial that in assessing the reserve price if an order for sale would be granted, the merged site and special interest value should be taken into account. I would adopt the analysis of Mr. Mok on the case as pleaded by the respondent in paragraph 1(b) –

“(I) “In the premise” of what are pleaded in the proceeding paragraphs, some or all of the sub-lots in Inland Lot No.734, the Subject Lot included, “are at least potentially capable of being redeveloped together” and possibly together with Leighton Centre; and

(II) They “therefore are or will be of special interest to the current majority owners (including all the applicants in all the other applications under Cap 545 referred to above) irrespective of whether they (or some of them) are related to or beneficially owned or controlled by the Hysan Group”.

13.  It is not disputed that the applicants are related to or companies within the Hysan Group. It is therefore contended by the respondent that the First and Second Lots enjoy a special interest (or Clay Factor) of the potential to form part of a larger merged site redevelopment. And its RDV should be enhanced by a premium brought about by this special interest. And the applicants failed to take these into account when preparing the RDV expert report. And hence the respondent filed the other reports on the issue which I have expunged for other reasons. In any event, the respondent contends that these factors should be taken into account in valuing the redevelopment potential of the Lots and is relevant to the assessment of this Tribunal on the reserve price if an order for sale is granted.

14.  Mr. Mok argues that the merged site factor is excluded by Schedule 2 of Cap. 545, in particular paragraph 2, which reads –

“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); and

(b) approved by the Tribunal.

2. 屬拍賣標的之地段須設底價，而該底價須 ——

(a) 顧及該地段本身或(如屬上述拍賣標的之地段關乎2個或多於2個地段)該等地段本身的重新發展潛力；並

(b) 獲審裁處批准。”

15.  Mr. Mok submits that by section 5(1) of Cap. 545, in the event of the grant of a sale order, the subject lot(s) “shall be sold by public auction in accordance with the conditions specified in Schedule 2”. The conditions include the “on its own” formula. And the “on its own” formula as now set out in paragraph 2 of the Schedule 2 was not originally included in the draft Bill. It was only added to Schedule 2 during the vetting stage by the Provisional Legislative Council. Mr. Mok refers to Day Bright Development Ltd & Others v Choi Pak Ling & Others [2014] 4 HKC 364, when the records of the Provisional Legislative Council on this matter has been summarized at paragraph 53, which are set out in Appendix II.

16.  Mr. Mok further submits that as recorded in the minutes of 28 February 1998 of the Bills Committee, “… members considered this suggestion [namely the suggestion of introducing the ‘on its own’ formula to Schedule 2] fair as it would be difficult to assess the reserve price if other factors such as the potential of adjacent sites acquired by the majority owners were taken into account. Moreover, even if the majority owners owned a number of adjacent lots, they might not be the successful purchaser of the lot at the auction.”

17.  In Day Bright’s case, after analyzing the records of the Provisional Legislative Council, another panel of this Tribunal with HH Judge Wong and Member Pang observed at paragraph 54(i) that –

“(i) The controversy associated with the extent to which a minority owner can share in the redevelopment benefits was acknowledged by the legislature as early as 28 February 1998 and before the second reading. A consensus was reached by then: the minority owner was to share only up to the full redevelopment potential of the lot, not the entire site of the redevelopment. The “on its/their own” formula was agreed. This was reflected in the CSA (already in place as at 27 March 1998), subsequently adopted in full and ended up in the Schedule 2 paragraph 2 of the promulgated Ordinance. Although whether a minority owner should be allowed to have a larger share of the often lucrative development is debatable, or whether the reasons leading to the original consensus remain justifiable given the current socio-economical situation, the above clearly shows that when the Bill was at its early stage, a consensus had been reached between legislators and the administration to exclude the redevelopment potential arising from the majority’s ownership of adjacent lots from assessing the reserve price.”

18.  Mr. Mok submits that there could be no ambiguity that the proper interpretation of Schedule 2 is (a) to exclude, in the fixing of reserve price, any enhanced redevelopment potential that could be generated by the full ownership of the majority owner of adjacent lots and (b) to allow the auction to take care of whether, and if so, to what extent the difficult-to-assess factors, including inter alia the merged site and special interest factors, would affect the final bid.

19.  He also refers to a number of decision of this Tribunal by different panels, which adopt the “on its own” formula, including Day Bright’s case, First Kind Ltd v Yuet Loong investment Co Ltd [2018] 2 HKLRD 83, and other cases listed in paragraphs 12-14 of his written submission which I do not repeat.

20.  Mr. Mok also refers to the judgment of Le Pichon JA (as she then was) given in Fully H.K. Investments Limited & Others v Poon Vai Ching & Others, HCMP 591/2007, in particular paragraph 20 –

“18. I do not consider those authorities to be of assistance to the second respondent. As Mr Mok who appeared for the applicants rightly submitted, the Raja line of cases establishes assumptions for assessments and valuation purposes that apply in a context where there is absolutely no possibility of an actual auction. Where, as here, there is to be a public auction, the factors mentioned in the judgment of Swinfen Eady LJ quoted above would be matters that would be taken care of by the actual process of the public auction. To say that the Tribunal should seek to attribute a value to those factors so as to establish a valuation by reference to which the fairness and reasonableness of the offer is to be determined is little short of inviting the Tribunal, as it were, to second guess the outcome of the public auction. That is at odds with the principles set out in Capital Well.

19. It is clear from that decision that in assessing whether reasonable steps had been taken by the majority owners under section 4(2)(b) of the Ordinance, the role of the Tribunal is not to conduct a valuation exercise. Mr Smith SC sought to distinguish Capital Well on the basis that the Tribunal’s finding in that case was made on the basis of both sides’ valuation evidence on the open market value of all six lots, taking account of the composite sites redevelopment potential. He submitted that this was not the present case since what is in the issue is the Tribunal’s assessment of the lot’s redevelopment potential. But if Capital Well is properly understood, it is not distinguishable. What according to Mr Smith SC the Tribunal ought to have done is precisely what the Court of Final Appeal held a Tribunal should not do – to engage in a valuation exercise that decides what valuation principles ought or ought not be adopted such as ‘marriage value’ ‘strategic position’ ‘special interest’ and the like and how they are to be assessed.

20. The value of the lot on the basis of plot ratio 5 is not in dispute. As to the question how the court is to “decide what figure to put on top” of the plot ratio 5 to reflect the Clay factor, the second respondent’s stance below was that that was a question of quantum. Yet, it is clear from the transcript of the evidence of the second respondent’s expert that he could not tell what the quantum was except that it should be somewhere between the levels of plot ratio 5 and plot ratio 9. As I have said, that is a matter that is to be resolved as part of the actual auction process.”

[passages in bold are relied on by Mr. Mok]

21.  In gist, Mr. Mok submits that I am bound by the decision of Fully’s case, which ruled that merged site or special interest factors are excluded by paragraph 2 of Schedule 2. And there is no unfairness as the issues of any enhanced value would be taken care of by the process of auction.

22.  Leaving aside the question of constitutionality which Mr. Chain relies on and which I shall deal with in the later part of this ruling, Mr. Mok submits that there is no reasonable cause of action for the respondent to rely on these matters for valuation and they should be struck out.

Legal Principles on Striking out in Lands Tribunal Applications

23.  I do not think the legal principle for striking out is in dispute and no submission has been made. I do not go into details. In fact, I have discussed the application of striking out in the Lands Tribunal in my decision dated 2 September 2022 at paragraph 20, which I do not repeat.

24.  I remind myself that an order to strike out should only be made in the plain and obvious cases.

The Respondent’s case (Part I)

25.  Mr. Chain responds to the submission of Mr. Mok, saying: -

“Insofar as A submits the legal point is clear, it can only be on the basis that, as A submits, the “on its own” formula in Schedule 2 was a deliberate choice, and is meant to, and does have the effect of excluding the minority owners from having a share in the “marriage/hope value” which is an intrinsic part of the value of the properties.

“So submitted, that is: (a) wrong in law/fact, and (b) if indeed to be so construed, plainly unconstitutional.”

26.  I take the first responses from Mr. Chain first. On interpretation, Mr. Chain submits that the “on its own formula” does not have the effect as contended by the applicants. I believe he is arguing that the applicants seek to argue that the minority owners are being deprived of their shares or benefit derived from merged site or special interest factors. I do not think that is the position taken by the applicants from the above analysis.

27.  While the respondent complains that the reserve price usually results in the sale price, Mr. Chain accepts that the respondent’s complaint is irrelevant on the question of interpretation of paragraph 2 of Schedule 2.

28.  Mr. Chain submits that the formula under paragraph 2 only requires the Tribunal when setting a reserve price, which by its very nature is, and is meant to be, a minimum, to “take into account (in Chinese 顧及) the redevelopment potential of the lot but on its own.” The Tribunal must have regard to the redevelopment potential on its own. It does not follow that the Tribunal may not have regard to other factors in fixing the reserve price. He submits that the merge site or special interest factors may be considered and taken into account in setting the reserve price.

29.  It is his submission that the merged site factor and special interest factor are intrinsic value of the property of the minority owners and they should not be deprived of. They should be allowed at least to argue the point. It is opened to this Tribunal after hearing all evidence to reject the argument. But it is wrong to deny the respondent the right to argue the point.

30.  Mr. Chain complains that in some of the cases cited by Mr. Mok, the Tribunal in setting the reserve price is not concerned with what is the value of the property, and held it would be a matter for the market. He moves on to argue that by so doing, the minority owners would be deprived of a portion of the intrinsic value of their property when the same were to be taken against their will.

Discussion and Ruling on Interpretation

31.  I believe it is clear that Cap. 545 only requires this Tribunal to set a reserve price for the auction. This Tribunal would not fix the sale price of the lot or lots to be sold, or the compensation of the minority owners. Even at the debate at the Provisional Legislative Council, the concern is on fixing of the reserve price.

32.  Mr. Chain submits that Day Bright relies heavily on the minutes of the Bills Committee. And there is no sufficient information on what exactly was the suggestion made by the Law Society and what the debate was about. But I believe what has been included in the judgment is sufficient for the consideration, in particular that paragraph 2 of Schedule 2 is an amendment at the vetting stage and consideration has been placed on the difficulty of setting the reserve price. I would not go as far as Day Bright to suggest that the minority owners were to share only up to the full redevelopment potential of the lot, not the entire site of the redevelopment (paragraph 54 of the judgment). And indeed, Day Bright’s conclusion is that “a consensus had been reached between legislators and the administration to exclude the redevelopment potential arising from the majority’s ownership of adjacent lots from assessing the reserve price.” To that I agree.

33.  And as Mr. Chain submits, the reserve price is the minimum and is not meant to be the final sale price. I thought it must follow that the ultimate sale price, as determined by the market, is the fair compensation for the minority owners, and would reflect when appropriate, other factors that the lot or lots would enjoy including merged site or special interest factors.

34.  And as Mr. Mok submitted, the enhanced price by merged site factor, or indeed any reason why someone in the market is prepared to put up a higher price would be reflected in the auction proceedings. And that is also the ruling of Court of Appeal in Fully’s case. By employing the auction proceedings, it would reflect the market price, which must include all realizable value of the lot(s), including any merged site or special interest factors. I would refer to a passage in the judgment given by the Court of Appeal in Good Faith Properties Limited & Others v Cibean Development Company Limited, CACV 35/2014 (dated 22 September 2014) :

“32. We appreciate there are differences in the inherent nature and special features of the proceedings when one compares [Cap. 545] proceedings with resumption cases:

(a) The Tribunal has to decide whether an order for sale should be made in [Cap. 545] proceedings whereas in resumption cases it only has to decide the quantum of compensation;

(b) When the Tribunal ordered a sale under [Cap. 545], it would be conducted by a trustee in an auction with a reserve price and the purchaser may not be the majority owner;

(c) Unlike ss 6(2A),8(4) and 10(2)(e)(ii) of the Lands Resumption Ordinance Cap 124, there is no statutory provision in [Cap. 545] prescribing that reasonable costs of the proceedings of the minority owner shall be borne by the applicant; and

(d) As explained above, the minority owner may obtain the benefit of the hope value if this is reflected in the sale price achieved in an auction ordered under the [Cap. 545].”

[my emphasis]

35.  The above judgment is on whether the respondents in a Cap. 545 application should be entitled to costs on compensation approach. But the above passages shed light on the way how Cap. 545 should be interpreted.

36.  The Court of Appeal accepts that the minority owners may obtain the benefit of the hope value if this is reflected in the sale price achieved in the auction, and this must include any realizable enhanced value attributable to merged site or special interest factors. The function of the Tribunal is to decide if an order for sale should be granted, and if so, the reserve price.

37.  I fail to see why the fixing of a reserve price on the redevelopment value on its own would deprive the minority owner of a share in the merged site or special interest factors. These are hope value, and as considered by the above ruling in the Court of Appeal, they may be reflected in the sale price.

38.  Public auction is a known mean to obtain the market value. Clearly, the provision under Cap. 545, in particular section 5(1) has only required the subject lot(s) to be sold by public auction in accordance with the conditions as set out in Schedule 2. And in Schedule 2, paragraph 2 provides that the reserve price shall take into consideration the redevelopment potential of the lots on its own. If I would read in this way, the minority owners are compensated by a market price of the property obtained by auction. The reserve price is fixed by taking into account the redevelopment potential of the lots on its own. In setting this mechanism of fixing the reserve price, it is clear that the legislature intends to protect the “minimum compensation” receivable by the minority owners with a surplus. At the same time, there is a clear guidance that is workable to fix a reserve price for the auction to take place. The maximum return must be determined by the market.

39.  A reserve price is a protection. Yet it is part of the scheme for redevelopment under Cap. 545. There could be many potential elements that may increase or decrease the value of the subject lot. If there is no limit to the factors to be taken into account in assessing the reserve price, the auction could not take place and the order of sale would not be effective. That appears from the minutes of debate in the Provisional Legislative Counsel to be the concern of stakeholders, which was adopted by the legislature and hence the additional amendment of the “on its own” formula.

40.  Even if the applicant may own adjacent lots, there is no guarantee that he is the successful buyer, and that he must develop the subject lot with his own lot. And looking it this way, if the minority owners who may be so wealthy as able to acquire the subject lot, there is no guarantee that he could acquire the lot of the applicant for a joint development. Hence the possibility of a merged site or special interest is afterall a probability of extended development, or market reality. I agree with Madam Justice Le Pichon that this may, if there is such potential factor to enhance the value of the subject lot, be reflected in the sale price of the subject lot. It is fair to let the market determine the correct final sale price. The intrinsic value of the property of the minority owner, if could be realized in the market would has been taken into account in the final sale.

41.  Mr. Chain also raised a point for argument with a hypothetical case. If there are 2 adjacent lots and the applicant is the owner of lot A. the applicant is applying for an order for sale against the minority owners in lot B. And the applicant being a big developer has made known to its shareholders and the public that its plan is to redevelop both sites together, and has indeed been submitting building plans for a joint redevelopment of the 2 lots. The applicant also makes known to its shareholders that it would definitely bid at the auction. On the fact of such an extreme case, Mr. Chain submits that “one is left wondering why: - (a) the legislative should, and if so, why it is constitutional, make provision to deprive the minority owners of their fair share of the auction price, and (b) how [Cap. 545] can have that effect?”

42.  At first glance, the argument of Mr. Chain is very attractive. It appears that it is unfair for the applicant/buyer would benefit from the merged site value, while he only pays for the value of the subject lot with a price valued on its own.

43.  But if the law does set the reserve price taking into account the merged site factor, one would wonder who would be the interested parties to bid at the auction? In his example, one wonders if the only interested party would be the applicant. An outsider would not bid up to the enhanced value without first obtaining the understanding from the applicant that they may develop together, or the applicant is happy to sell the adjacent lot to him/it. Otherwise, upon buying the subject lot, the new purchaser has no guarantee of receiving the enhanced redevelopment value and could suffer loss by bidding at a higher than market value of the subject lot on its own.

44.  Cap. 545 has been discussed at length by the Court of Appeal in Pacific Base Holdings Limited & Others v Lee Hop Biu & Others [2021] HKCA 780. While the issue is on feasibility, the discussion is still useful in our analysis of the consideration of reserve price.

45.  The Court of Appeal accepts that the making of a compulsory sale order can interfere with the private ownership of the minority owners. And yet the Court of Appeal found that the scheme under Cap. 545 serves legitimate aims (and which I shall refer to again in the discussion on constitutionality later).

46.  I refer to paragraphs 40-42 of the judgment –

“40. Mr Mok quite rightly reminded us that it is a matter for the legislature to strike the balance between different interests amongst the majority owners, the minority owners and the public interest in urban renewal. In essence, it is a policy judgment. Whilst the court can entertain judicial review based on constitutional ground in respect of a balance embodied in a statute, given the high policy contents of such judgment in balancing and the competing interests, we firmly believe that the legislature should have a great margin of discretion in devising the scheme under the [Cap. 545]. Thus, in accordance with the considerations discussed by Ribeiro PJ in Hysan Development Co Ltd v Town Planning Board, supra, at [105] to [107] the standard of review should be that of “manifestly without reasonable foundation”.

“41. As we said, the statutory scheme leaves it to the market to decide if redevelopment is feasible instead of requiring the Tribunal to reach a conclusion on this matter. Bearing in mind that the applicant majority owners may not be the redeveloper, and that if the market does not perceive redevelopment to be feasible no sale would be achieved, we do not find the balance struck by the statutory scheme to be manifestly without reasonable foundation. As it is most unlikely that a purchaser would take the enormous risk of acquiring the lot without taking account of the feasibility of redeveloping the same in light of the implied condition imposed by the Government lease, the legitimate aim of redevelopment is achieved without requiring the Tribunal to rule on the same. There is a rational connection between such aim and the mechanism under the [Cap. 545] which is not manifestly without reasonable foundation in order to achieve the aim.

“42. Further, as Mr Mok submitted, it is difficult to define the scope of the inquiry into feasibility in the proceedings before the Tribunal. There is no reason in principle to confine the concept of feasibility to structural engineering feasibility. On the other hand, Section 4(2)(a) makes it clear that financial ability of the majority owners to undertake the redevelopment is not relevant.”

[my emphasis in bold]

47.  It is clear that it is a policy decision on how to strike the balance between the interest of majority owners, minority owners and the public interest in urban renewal. And most important, the statutory scheme leaves to the market to decide if redevelopment is feasible, instead of the Tribunal. I see no reason why the same rationale should not apply to fixing of reserve price which leaves the fixing of the final sale price to the market, and there would be a fair scheme to fix the price taking into the interest of the majority owners, the minority owners and the public interest.

48.  And for pure interpretation, reserve price is the reserve price. The wordings of paragraph 2 of Schedule 2 give this Tribunal the guideline on how to assess the reserve price. The “on its own” formula is clear to set the reserve price with reference to the redevelopment potential of the subject lot on its own. I can only accept that we may consider any factor as suggested by the experts for valuation as long as this is not in conflict with the clear wordings of Cap. 545. And the provision of “on its own” is so clear that there could be no alternative to fix the reserve price taking into account the redevelopment potential of the subject lot on its own. The Chinese version of Cap. 545 would not assist Mr. Chain but if there is any conflict, having considered all the argument, I would rule under Cap. 1 Rule 10B that the English version best reconciles the texts.

Constitutionality (Part II of Parties’ Case)

49.  Mr. Chain submits that the reserve price is the minimum sale price. A formula of setting the reserve price to take into account of the redevelopment potential of the lot on its own would be unconstitutional. I shall now move on to his second argument and the response from Mr. Mok.

50.  With my analysis above, I do not agree with Mr. Chain that the provision in Cap. 545 deprived the minority owners of any value in the proprietary interest they hold. The scheme of arrangement for a sale by auction is to take into account all possible realizable value of the property and I disagree with Mr. Chain’s submission.

51.  And if the “on its own” formula does have an adverse impact on the value of the property, I note the argument of Mr. Chain that any provision to such effect has to comply with the proportionality test laid down by the Court of Final Appeal in Hysan Development Co. Ltd. & Others v Town Planning Board (2016) 19 HKCFAR 372. I do not think Mr. Mok has any disagreement to the principle. And I set out paragraph 52 of the judgment of Court of Final Appeal –

“52. In subsequent authorities, after a finding that the invoked right is engaged, the two questions referred to by Sir Anthony Mason NPJ have tended to be expressed as a three-step inquiry. Thus, in Mok Charles v Tam Wai Ho,[1] Ma CJ formulated the approach as follows:

“The proportionality test, which is a well known test in our courts, consists of the following analysis in respect of any restriction or limitation:

(a) The restriction or limitation must pursue a legitimate aim.

(b) The restriction or limitation must also be rationally connected to that legitimate aim.

(c) The restriction or limitation must also be no more than is necessary to accomplish that legitimate aim.”

52.  The Court of Final Appeal further comes to the ruling that a fourth test should be added. I refer to paragraph 135 of the judgment: -

“135. A fourth step should be added. In line with a substantial body of authority, where an encroaching measure has passed the three-step test, the analysis should incorporate a fourth step asking whether a reasonable balance has been struck between the societal benefits of the encroachment and the inroads made into the constitutionally protected rights of the individual, asking in particular whether pursuit of the societal interest results in an unacceptably harsh burden on the individual.”

53.  Mr. Chain does not seek to rely on the first 2 steps/tests. He submits that it is not accepted that there is any legitimate aim why on a compulsory sale, which he argues is the same as a compulsory purchase, an owner should not be fully compensated for the full value of his properties. If the “on its own” formula is as contended by the applicant, fall foul of the 3^rd and 4^th tests. It would not be “no more than is necessary”. It would also not be proportionate.

54.  Mr. Mok first refers to the judgment of this Tribunal given in Intelligent House Limited v Chan Tung Shing & Others [2008] 4 HKC 421 which ruled that even if Basic Law Article 105 (“BL105”) did apply, it did not exclude a law permitting and requiring a private individual to sell his property to another private individual in accordance with the law. Cap. 545 does not breach BL 105. I do not think Mr. Chain challenge this ruling.

55.  If we take a look at Cap. 545 again, the scheme of redevelopment starts off with the requirement that the applicant has to satisfy this Tribunal that the subject lot shall be redeveloped due to age or state of repair. And when we are so satisfied, then an order for sale shall be granted, the property shall be put on auction.

56.  Mr. Mok has no objection to the 4 tests principle as aforesaid set by the Court of Final Appeal. And on tests/steps 3 & 4, he seeks further assistance from a judgment given by the Court of Appeal in Pacific Base Holdings Ltd & Others v Lee Hop Biu & Others [2021] 5 HKC 214, in particular paragraphs 40 and 41 which I have referred to above. He submits that it is constitutional to exclude the Tribunal from considering whether the redevelopment of the subject lot is feasible, and the same would apply to any provision to require the Tribunal to consider the redevelopment value of the subject lot on its own. I agree.

57.  Mr. Mok adds that “the ‘on its own” formula of Schedule 2, in excluding the difficult-to-assess factors in the assessment of the reserve price, serves the useful function of providing the Tribunal with a well-defined working formula when fixing the reserve price. That would facilitate the smooth resolution of Cap. 545 proceedings to facilitate urban renewal.” I agree.

58.  In summing up, I am confident to say the scheme of Cap. 545 in getting the best price by auction does cover all factors that may affect the price. We have to accept that any factor is just a probability to enhance the value of the subject lot(s). The applicant may not be the successful bidder. He may have an adjacent lot, yet he is not obliged to develop with the subject lot. And in no case the owner of a lot may compel the owner of the adjacent lot to develop their property together. Hence it is a reasonable balance between all interest parties to leave how these probabilities would affect the final sale price to the market, and the realizable value would be reflected from auction result. (And I would repeat the analysis by the Court of Appeal in Pacific Base which I set out in paragraph 42-44 above.)

Conclusion and Order

59.  And hence I repeat that Cap. 545 provided this Tribunal is to fix the reserve price with regards to the redevelopment potential of the subject lot(s) on its(their) own. This would not deprive the minority owners of an enhanced value. I rule against Mr. Chain and do not find that the “on its own” formula is unconstitutional.

60.  It follows that the merged site factor or special interest factor would not be relevant and any reference to evidence thereof shall be irrelevant. The part in the Amended Notice of Opposition suggesting that these would be raised and evidence to be adduced on such factors should be struck out. Having considered all matters raised before me, I found this is a clear case that the issue raised in paragraph 1(b) should be struck out.

61.  Mr. Chain also submits that the issue should be determined by way of trial of a preliminary issue instead of striking out. Yet when an issue is clearly unarguable, I fail to see why this Tribunal should not strike out the issue. This is within our jurisdiction, and should be so exercised for case management and for saving of Court’s time and costs.

62.  In conclusion, I would allow the application and struck out paragraph 1(b) together with the plan marked A and the Schedule annexed to the Amended Notice of Opposition.

63.  As for costs, I believe that this may be one of those situations in a Cap. 545 application when the applicants should be entitled to costs of the summons. So I give an order nisi in favour of the applicants that they should have costs of this summons with certificate for counsel which should become absolute within 14 days unless directed otherwise.

64.  I have also reserved the costs of the 3 expert reports mentioned above in the prior application and to be determined after this ruling. I have reserved the costs to be determined after I have decided on this striking out summons. As I rule against the respondent, the reports which are for the merged site and special interest factors would not be relevant at all. I believe the correct order is that the applicants shall have the costs of and occasioned by these reports with certificate for counsel and an order nisi to that effect is granted and shall become absolute within 14 days unless directed otherwise. All the costs are to be taxed at High Court Scale if not agreed.

65.  Finally, I thank counsel for their able assistance.

Appendix I page 1

Appendix I page 2

Appendix I page 3

Appendix II

“53. The following can be gleaned from the records of the Provisional Legislative Council placed before the Tribunal:

(i)  21 January 1998: According to the Official Record of Proceedings, the then SPEL moved the Bill to be read for the second time in the Council. The debate was adjourned and Bill referred to the House Committee. The following 2 areas of the Bill in its original drafting are worth mentioning:

(a) Section 3(1) of the Bill was drafted similar to the current section 3(1). The current section 3(2) is non-existent;

(b) Schedule 2 §2 is drafted differently, and is as follows. It is noted that the “on its own” formulation of the reserve price was not there.

“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; and

(b) approved by the Tribunal”

(ii)  28^th February 1998: The Bills Committee under the House Committee of the Council held a meeting for examination of the Bill. From subsequent speeches/reports the said meeting was one of at least 12 meetings held by the Bills Committee. According to the meeting minutes (BC127-08/97-98), members examined the Bill clause-by-clause in accordance with a list of their concerns. It is recorded in §13 of the meeting minutes:

“Referring to the LS’s (“Law Society”) suggestion that the reserve price should take into account the redevelopment potential of the lot “on its own”, members considered this suggestion fair as it would be difficult to assess the reserve price if other factors such as the potential of adjacent sites acquired by the majority owners were taken into account. Moreover, even if the majority owners owned a number of adjacent lots, they might not be the successful purchaser of the lot at the auction. The Administration agreed to introduce CSAs [Committee Stage Amendment] to Schedule 2 to specify that the reserve price should take into account the redevelopment potential of the lot “on its own” (or, where two or more lots were the subject of the auction, on their own).”

(iii)  27 March 1998: A House Committee meeting was held and a paper entitled “Report of the Bills Committee on Land (Compulsory Sale For Redevelopment) Bill” was prepared and annexed to meeting minutes. It is noted that a list of Committee Stage Amendments (“CSA”) was annexed to the report as appendix. In the concluding paragraphs of the report, it was stated:

(a)  Subject to the CSA to be moved by the government as per the appendix, the Bills Committee supported the Bill;

(b)  The Bills Committee recommended the resumption of the second reading debate of the Bill on 7^th April 1998.

(iv)  §9 of the said report addressed concerns of some members on the “pencil” effect of the Bill which was not ideal from redevelopment perspective. While the then Committee supported the concept of comprehensive development, from what has been recorded it appears that the majority members of the Committee were more concerned with a situation where a developer might bundle lots which it had already acquired the threshold percentage together with lot it had no undivided shares at all, thus oppressively acquiring the latter against the owners’ will. The report went on to say:

“… As the Bill does not prohibit the majority owners holding 90% of the undivided shares in each of the lots to make one application for the sale order in order to redevelop the lots together, the Bills Committee accepts that the minimum acquisition percentage should apply to a lot per se.”

(v)  The committee went on to say that it would deal with the technical problem in respect of buildings connected to one and other by a common staircase. It also stated that the government had taken on board members’ suggestion that an average of 90% interest in each of the lots had to be acquired by the majority owners.

(vi)  It is noted from the CSA already annexed the following:

(a)  The current version of section 3(2)(a) & (b) was introduced as proposed additions (then as section 3(1A) under the CSA[2];

(b)  The words “on its own (or, where 2 or more lots are the subject of the auction, on their own)” were proposed to be added, and such formula subsequently became the current version of Schedule 2 §2(a).

(vii)  7 April 1998: This was the date on which the Provisional Legislative Council resumed the Second Reading debate of the Bill. The Chairman of the Bills Committee, the Hon Arculli, some legislators who were also members of the Bills Committee and the SPEL made their speeches. Some of their speeches were referred to in Bond Star and Supergoal. After their speeches the Bill was read for the second time. The Council immediately went into House Committee stage. The CSA were put to legislators almost clause-by-clause and were all accepted. Council then resumed and the Bill was read for the third time and passed. From these records, the second reading, amendment of the Bill by the CSA and the third reading all took place on the same day.

(viii)  According to the Record of Proceedings on 7 April 1998, Hon Arculli addressed the Council as the chairman of the Bills Committee on the report of the Committee before the second reading. Some paragraphs relevant to the present discussion are:

“[3]Another focal point of discussion in the Bill Committee was whether owners holding an average of 90% of aggregate undivided shares in contiguous lots should be allowed to make an application to redevelop the lots as a package. Whilst we fully support the concept of comprehensive redevelopment, our concern was that should such approach be adopted, there may be situations where an applicant did not own any undivided shares in one of the lots whilst holding 90% of the aggregate undivided shares. The Bills Committee considered that it could not be justified on the sole ground of comprehensive redevelopment to compel all the owners of such a lot to sell their properties against their will. We, therefore, agreed that the ownership percentage should apply to each lot except where two buildings served by a common staircase in which case it would be the average of the undivided shares of the lots on which the buildings stand.

…

[4]… The amendments to be moved later by the Secretary for Planning, Environment and Lands at the Committee stage are the product of concerted efforts on the part of deputations appearing before the Bills Committee, members of the Bills Committee and the Administration so as to ensure a fair and balanced new policy to expedite urban renewal in order to provide environmental improvement as well as much needed housing for the community, …” (emphasis added)

(ix)  The SPEL, when addressing the Council before the second reading, had also said through clause-by-clause discussion in a spirit of co-operation, the Committee examined the Bill and that in turn greatly helped the government draw up the amendments to improve the Bill. He went on to say:

“We have reached consensus with the Committee on these amendments which I will explain further when they were introduced at the Committee stage.”

(x)  When section 3(2)(a) and (b) (then as section 3(1A) and referred to as clause 3 in the minutes) was proposed to be added to section 3 of the Bill and put to the Committee for a vote, the SPEL said the following:

“Subclause (1A) [i.e. 3(2)(a) and (b)] specifies that if the majority owner makes an application covering two or more lots, he must own not less than 90% of the undivided shares in each lot. It also provides for the average to be taken for the purpose of calculating the percentage of the undivided shares of two or more lots on which there are two buildings joined by a common staircase.”