DAY BRIGHT DEVELOPMENT LTD AND OTHERS v. THE PERSONAL REPRESENTATIVES OF WONGBING (DECEASED）AND OTHERS

LDCS 16000/2012

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LAND COMPULSORY SALE APPLICATION NO. 16000 OF 2012

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J U D G M E N T

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Background

1.  This is an application for compulsory sale of all the undivided shares in Section D of Inland Lot No. 5099 and the Remaining Portion of Inland Lot No. 5741 (collectively “the Lot”), with a building erected thereon known as Nos. 217 & 219 Tsat Tsz Mui Road (“No. 217” & “No. 219”) and Nos. 16 & 18 Nation Street (“No. 16” & “No. 18”), North Point, Hong Kong (“the Building”), for the purposes of the redevelopment pursuant to Section 3(1) of the Land (Compulsory Sale for Redevelopment) Ordinance, Cap. 545 (“the Ordinance”).

2.  The Building is a block of 9-storey commercial/residential building served by 2 common staircases. The front elevation of the Building is facing Tsat Tsz Mui Road and the rear elevation is facing Nation Street, a private right of way. There are 4 units at each level comprising 4 shops on Ground Floor and altogether 32 residential units from 1/F to 8/F. Each of the shops and residential units is given 1 of 36 undivided shares of the Lot. The occupation permit (which covers the Building and other adjacent buildings, collectively known as Kut Cheong Mansion) was issued on 8 September 1960, more than 50 years before the date of the present application on 1 February 2012 (“the Application”).

3.  When the 1^st Applicant, the 2^nd Applicant and the 3^rd Applicant (hereinafter collectively referred to as “the Applicants”) commenced the present proceedings, the corresponding ownerships of the respective units of the Building are shown in the table below:

Floor	No. 217	No. 219	No. 16	No. 18
Ground Floor	1st Applicant	5th Respondent & 8th Respondent (mortgagee)	2nd Applicant	1st Applicant
1st Floor	2nd Applicant	2nd Applicant	2nd Applicant	2nd Applicant
2nd Floor	2nd Applicant	2nd Applicant	2nd Applicant	2nd Applicant
3rd Floor	2nd Applicant	2nd Applicant	1st Applicant	2nd Applicant
4th Floor	1st Applicant	1st Applicant	1st Applicant	3rd Applicant
5th Floor	2nd Applicant	2nd Applicant	1st & 2nd Respondents*	2nd Applicant
6th Floor	3rd & 6th Respondent	3rd Applicant	1st Applicant	2nd Applicant
7th Floor	4th, 7th & 9th  Respondent	2nd Applicant	2nd Applicant	2nd Applicant
8th Floor	1st Applicant	1st Applicant	1st Applicant	1st Applicant
Total	9 shares	9 shares	9 shares	9 shares

* The 1^st Applicant owns 3/5 of the 1 undivided share of this unit while the 1^st & 2^nd Respondents own the remaining 2/5.

4.  Thus as at the date of the Application, the Applicants together owned 90.5556% equal undivided parts or shares in the Lot.  By the time of the filing of the witness statement of Hui Lok Shan (“Hui’s Statement”), the representative of the Applicants, dated 29 July 2013, the Applicants had further purchased the interests owned by the 3^rd, 5^th, 6^th & 8^th Respondents. The Applicants then owned 96.1111% of all the undivided shares of the Lot, i.e. not less than 90% of the undivided shares in the Lot. The Applicants contend that they are entitled to make the Application by virtue of Section 3(2) of the Ordinance.

5.  At the time of the filing of Hui’s Statement, there were outstanding undivided shares in 2 units as follows:

(1)   5/F, No. 16 (“the 1st Unit”), which is co-owned by the 1st Respondent, the 2nd Respondent and the 1st Applicant. The 1st Respondent and the 2nd Respondent are missing owners who cannot be found, each owning 1 undivided share allotted to the 1st Unit.

(2) 7/F, No. 217 (“the 2nd Unit”) which, according to the Applicants, suffered a title problem:

(a) The 4th Respondent is the registered owner of the 2nd Unit. By a Conditional Provisional Agreement for Sale and Purchase and a Supplemental Agreement both dated 28 March 2011 (collectively referred to as “the Provisional Agreement”), the 4th Respondent agreed to sell the 2nd Unit to the 2nd Applicant for $3,037,500.

(b) Indeed, the 4th Respondent obtained his title from the deceased 7th Respondent, Chow Choi Chi, by a Power of Attorney dated 11 November 1989 whereby the 4th Respondent executed an assignment of the 2nd Unit in favour of himself for $1.

(c) Unfortunately, the assignment executed by the 4th Respondent was dated 5 December 1989 after the death of the 7th Respondent on 30 November 1989. Accordingly the title of the 4th Respondent should prima facie be void because of the death of the 7th Respondent or voidable at the instance of the estate because of the assignment was for nominal consideration of $1.

(d) When the Application was started, there was no grant of probate or letters of administration issued in respect of the estate of the deceased and therefore the 7th Respondent was identified as “the personal representatives of the estate of Chow Choi Chi, deceased”.

(e) The 9th Respondent, i.e. Mr. Lui Man Kam who is the elder brother of the 4th Respondent was/is the occupier of the 2nd Unit and hence joined as a party to cover the event that he could claim an interest over the 2nd Unit.

(f) On 21 November 2012, the 9th Respondent himself was appointed as the administrator of the estate of Chow Choi Chi, deceased, by a Letter of Administration and therefore by an Order granted on 1 August 2013, Mr. Lui Man Kam becomes named as the 7th Respondent.

(g) The 4th Respondent then acting and acted by the 9th Respondent as his authorised representative, filed a Notice of Opposition dated 22 March 2012.  His reason for objection was “英資地產代買家一年多交由此合約給與 Kitty So 余先生處理到目前還未能完成法律程序直至29/3/2012 …現已交由Kitty So 余先生律師行處理將所有權承繼合法人員出黎簽名處理” which is supposed to mean that “he had already entered into the sale and purchase agreement the legal process of which had not been completed and all those who have right to succeed in the estate would join in the sale”.

(h) No Notice of Opposition has been filed by or on behalf of the 7th Respondent or the 9th Respondent.

6.  In view of the above, Mr Mok simply called the witnesses to prove the Applicants’ case. The Applicants contend that all the requirements of the Ordinance have been satisfied and ask for an order for sale in terms of the draft order submitted. 

Section 3 of the Ordinance – Ownership of the Applicants

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

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

9.  Pursuant to Section 3(5) of the Ordinance, the Notice was gazetted on 22 January 2010 and tabled at the Legislative Council meeting on 27 January 2010.  It came into operation on 1 April 2010.  Section 3 of the Notice lowered the threshold for compulsory sale, insofar as it is applicable, from 90% to 80%.  Section 4(1)(b) of the Notice specified one of the classes for the purposes of Section 3 as “a lot with each of the building erected on the lot issued with an occupation permit at least 50 years before the relevant date (which is the date of the application)”.  The occupation permit in respect of the Building was issued on 8 September 1960, which is more than 50 years as at the date of application.  The Building is therefore covered by the Notice and the applicable percentage is 80%.

Determination of the existing use values (“EUV”) of all units in the Building

10.  Pursuant to section 3 of the Ordinance, the Application was accompanied by a valuation report (“Application Report”) prepared by Mr. Charles Chan of Savills Valuation and Professional Services Limited (“Mr. C. Chan”), the Applicants’ valuation expert witness, containing the assessments of the values of all units (which are conveniently termed as the existing use values, the “EUV” of all units) in the Building on the Lot as at 28 November 2011.

11.  Under section 4(1)(a)(i), if there is a dispute between the parties on the EUV of the units in the Building on the Lot, the Tribunal has to determine the values. Section 4(1)(a)(ii) further provides that, in the case of any minority owner of the Lot who cannot be found, for instance, the 1^st and 2^nd Respondents as submitted by the Mr. Mok, the majority owner of the Lot is required to satisfy the Tribunal that the value of the minority owner’s property, i.e. the 1^st Unit as assessed in the application is “(A) not less than fair and reasonable; and (B) not less than fair and reasonable when compared with the value of the majority owner’s property as assessed in the application.”

12.  Mr. Mok on behalf of the Applicants invites the Tribunal to do the same for the 2^nd Unit notwithstanding that strictly the EUV of the 2^nd Unit has not been disputed.

13.  In the Application Report of 28 November 2011, Mr. C. Chan explained the method of valuation and the process of his assessment to arrive at the EUV of each unit of the Building.

14.  In his valuation of the EUV of the domestic units of the Building, Mr C. Chan adopted the following methodology :

(a) He selected 4/F, No. 217 Tsat Tsz Mui Road (“the Reference Domestic Unit”), which was situated on the middle floor of the domestic portion as the reference unit for the purpose of valuing its unit price. 

(b) The unit price of the Reference Domestic Unit was first assessed by making reference to market comparables.  He took into account 7 comparable transactions all in different buildings nearby.  After making what he regarded as the necessary adjustments (for time, location, age, floor, quantum, aspect and noise effect) for all these comparable transactions, he took the average of the adjusted unit rate of the comparables to arrive at the unit price of the Reference Domestic Unit.

(c) He further considered the floor difference, view, quantum, lighting & ventilation and internal conditions of the Reference Domestic Unit and the remaining domestic units within the Building and made adjustments to arrive at the EUV of all the domestic units.

15.  In assessing the EUV of all the 4 Ground Floor units, Mr C. Chan selected GF, No. 219 Tsat Tsz Mui Road and G/F, 16 Nation Street respectively as the Reference Shop Units for shops facing Tsat Tsz Mut Road where pedestrian flow is moderate to high (“the 1^st Group”) and for shops facing Nation Street where pedestrian flow is only moderate (“the 2^nd Group”).  He then took into account 7 comparable transactions in 6 different buildings nearby for the 1^st Group and 5 comparable transactions in 3 different buildings nearby for the 2^nd Group. After making what he regarded as the necessary adjustments (for time, location, visibility, quantum, building age, layout and headroom) for all these comparable transactions, he took the average of the adjusted unit rate of the comparables to come to the unit price of the respective Ground Floor Units.

16.  Mr. C. Chan updated the Application Report by a supplemental report dated 24 July 2013 (“Supplemental Report”) in which he revised the EUV of all the units in the Building after taking into account the inspection of more units in the Building and the updated property index prepared by the Rating and Valuation Department. In the Supplemental Report, Mr. C. Chan repeated the exercise he did in the Application Report with the new information and set out his revised assessments of the EUV of each unit as at 28 November 2011.

17.  The EUV of all units in the Building, including the 1^st Unit and the 2^nd the Unit, as at the relevant date of valuation of 28 November 2011, are as shown in paragraph B3.5 of the Supplemental Report: see the table at Bundle B1/ 5-6 which is reproduced below:

	Tsat Tsz Mui Road		Nation Street
Floor	No. 217	No. 219	No. 16	No. 18
Ground Floor	$13,140,000	$14,560,000	$6,060,00	$5,310,000
1st Floor	$2,580,000	$2,650,000	$2,010,000	$2,180,000
2nd Floor	$2,540,000	$2,600,000	$2,080,000	$2,140,000
3rd Floor	$2,490,000	$2,550,000	$2,040,000	$2, 100,000
4th Floor	$2,440,000	$2,380,000	$2,000,000	$2,060,000
5th Floor	$2,510,000	$2,450,000	$1,960,000	$2,020,000
6th Floor	$2,320,000	$2,260,000	$1,900,000	$1,860,000
7th Floor	$2,220,000	$2,050,000	$1,920,000	$1,970,000
8th Floor	$1,770,000	$1,920,000	$1,550,000	$1,590,000
Total	$108,180,000

18.  I am satisfied, insofar as it is necessary, that the values of the 1^st Unit and the 2^nd  Unit as assessed by Mr. C. Chan respectively are not less than fair and reasonable; and not less than fair and reasonable when compared with the value of the Applicants’ properties:

(a) the 1st Unit - assessed at $1,960,000  whereby

the 1st Respondent’s 1/5 share = $392,000 (representing 0.362% of the total EUV of all units);

the 2nd Respondent’s 1/5 share = $392,000 (representing 0.362% of the total EUV of all units); and

the 1st Applicant’s 3/5 share = $1,176,000

(b) the 2nd Unit - assessed at $2,220,000 (representing 2.052% of the total EUV of all units);and

(c) the total EUV of all units - assessed at $108,180,000.

Section 4(2) of the Ordinance - Justification and Reasonable Steps

19.  The second determination under Section 4(1)(b) of the Ordinance is whether an order of sale should be made.  According to Section 4(2) of the Ordinance, this would involve 2 considerations, namely :-

(a) is the redevelopment justified due to age or state of repair of the Building; and

(b) has the Applicant taken reasonable steps to acquire all the undivided shares in the Lot.

20.  The Applicants have to satisfy this Tribunal that the above statutory requirements were met, otherwise, an order of compulsory sale ought not be granted.

21.  Firstly, for the requirement under (a) above, I have taken into consideration the expert evidence of Mr. Benson Wong (“Mr. Wong”), the building surveyor and Mr. So Kin Shing (“Mr. So”), the structural engineer adduced by the applicants. 

22.  Mr. So had conducted a structural assessment of the Building and prepared a report dated 24 July 2013. He found the following defects in the Building:

(a) visual inspections showed many defects in the form of spallings  and cracks in some 55 structural members of the Building;

(b) covermeter survey revealed that the concrete covers of a beam and some slabs are not sufficient to (1) protect the embedded steel reinforcement bars against corrosion, (2) protect the bars against fire, and (3) provide sufficient depth of concrete for the safe transmission of bond forces;

(c) carbonation depth test results revealed that carbonation has penetrated pass the concrete cover of beam samples and slab samples; this means the alkaline environment in many of the concrete covers, at least in the beams and slabs, which gives protection to the reinforcement bars in the structural members against corrosion have been destroyed and steel bars in these structural members must have been caused to corrode;

(d) chloride content tests showed an increased risk of corrosion of the embedded steel reinforcement bars, at least in the columns and slabs;

(e) corrosion (open up) surveys revealed columns, beams and slabs exhibit rust of various magnitudes and suffered from reduction in their cross-sectional areas due to corrosion;

(f) the structural frames of the Building are deteriorating and they need to be repaired, the deterioration will continue steadily due to extensive carbonation of the reinforced concrete structural members;

(g) the design and construction of the structural frames were based on an obsolete design, there are at least 9 structural design and construction aspects where the Building cannot meet the current structural engineering design requirements and the Building may not process adequate robustness to prevent it from damages arising from accidents or misuse.

23.  Based on the above findings, Mr. So concluded that the structural frames of the Building are in need of repair and the Building, completed 52 years ago, has exhibited signs that the structural frames have deteriorated to the final stages of its design working life. The deterioration will continue steadily due to extensive carbonation of the concrete.  It is inevitable that new defects will occur and previous defects though repaired will recur readily, requiring substantial repairs or even partial demolition and re-construction of some defective structural members in the future.  Repair works will need to be carried out regularly in the future and such repairs will be more and more extensive.  Although the cost of repair may be relatively modest, such costs will escalate in the future as the extent and seriousness of the deterioration of the structural members increases with age.  He recommended that hammer tapping works be carried out to all structural members and any defects as a matter of urgency.

24.  Mr. Wong, in his Condition Survey Report dated 23 July 2013 stated that :

(a) the Building is in a poor state of repair due to general wear and tear;

(b) infrared thermographic survey carried out on the external rendering has revealed hollow spots scattered throughout the external walls facing Tsat Tsz Mui Road and Nation Street and are potentially dangerous;

(c) the building envelope is not external seepage resistant as evidenced by damp penetrations through the external walls, the main roof coverings and the original mild steel windows;

(d) the two staircases are unsatisfactory means of fire escape for the upper floors because no improvement was made to the fire resisting construction and fire service installation in the Building;

(e) unauthorized building works of enclosed front balconies adversely affected the structural safety of the Building;

(f) the conditions of the internal doors, finishes, bathrooms and kitchens fitments are poor, the most common defects in the flats are missing or defective bedroom, bathroom and kitchen doors, dampness and spalling to the internal floors, walls and ceilings;

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

(h) original  mild steel windows have generally corroded and should be replaced with new aluminum units;

(i) internal electrical installations inside 16 flats have been haphazardly altered and are in poor condition;

(j) internal inspection of flats found equipotential bonding connections are not provided for exposed and extraneous conductive parts;

(k) flushing water supply system  for the Building have been abandoned from use;

(l) condensate drainage system with drain inlets provided for all AC units needs to be installed in order to avoid creating water dripping nuisance;

(m) closed circuit television survey carried out to the underground drainage has revealed defective drainpipes and manholes requiring replacements;

(n) defects in electrical installation that require repair and maintenance;

(o) fire service systems required to be added in compliance with the requirements of the Fire Safety (Buildings) Ordinance.

25.  Mr. Wong assessed the total cost of repair works at $11,214,919 which amounts to 46% of the construction cost of a new similar superstructure.  He came to the conclusion that the Building has deteriorated to a state which is beyond reasonable economic repair as signified by the high repair cost.  As more rapid deterioration will occur in the future, the necessary maintenance and repairs will inevitably be more frequent and extensive, making the continued occupation of the Building not economical and even unsafe, to both occupants and third party.  He recommended the owners to redevelop rather than repair given the Building does not possess any historical value or architectural merit. 

26.  The Applicants also rely upon two economic tests, i.e. the age test and the repair test, conducted by Mr. C. Chan in his Supplemental Report.

27.  For the repair test, Mr. C. Chan adopted the findings by Mr. Wong that the total estimated cost to restore the Building to tenantable standard is $11,214,919.  If the unauthorized building works related items are excluded, the net repair cost for the remedial works is about $9,695,998. The enhancement by the repairs (the difference between the After EUV and the Before EUV) is $2,870,400; it is not economically justified to carry out the proposed repair works. 

28.  For the age test, Mr. C. Chan assessed the total existing use value (“EUV”) can be enhanced to $155,340,400 if a net repair cost of $7,109,349 is spent. He assessed the redevelopment value (“RDV”) at $163,000,000.  Given the RDV is much higher than the EUV, Mr. C. Chan opined that the redevelopment of the Lot is warranted.

29.  There is no contrary expert evidence andI accept the applicants’ evidence in whole.  In particular, I am satisfied that based on the evidence of Mr. So and Mr. Wong, redevelopment of the Lot is justified due to the age and the state of repair of the Building :

(a) the Building is over 52 years old;

(b) the Building is in very poor physical conditions and disproportionate cost is required to repair and maintain the Building; and

(c) the obsolete design of the Building does not suit the present requirements of a building.

Reasonable Steps to Acquire All the Undivided Shares in the Lot

30.  The Applicantsare under an obligation to negotiate on terms that are fair and reasonable in a situation when the whereabouts of a minority owner are known. This obligation is not a mandatory requirement for the Applicants in respect of the 1^stRespondent and the 2^nd Respondent who are missing.Nevertheless, the Applicants submitted that they have taken reasonable steps including making an offer to purchase their 2/5 share in the 1^st Unit at $1,080,000 enclosing an advice letter of Mr. C. Chan dated 16 December 2011 which only assessed the statutory proportion of the then assessed redevelopment value at $927,896, making reasonable efforts to try to locate the 2^nd Respondent and any person who might be interested in the estate of the deceased 1^st Respondent upon learning that the 1^st Respondent had died.

31.  In respect of the 2^nd Unit, the Applicants submit that the 4^th Respondent did enter into the Provisional Agreement to sell it to the 2^nd Applicant, completion of which was only held up because of the title problem referred to in paragraph 5(2) above. After the 9^th Respondent was appointed administrator of the estate of the 7^th Respondent, the parties with legal assistance kept exploring how to overcome the title problem. It was agreed in early 2013 that (a) the 4^th Respondent, (b) the other beneficiaries of the estate of the 7^th Respondent including the 9^th Respondent in his own capacity as a beneficiary and (c) the administrator of the estate on the one hand and (d) the 2^nd Applicant on the other hand would remove the title problem by way of a Confirmatory Assignment to enable the 4^th Respondent to execute the Assignment to assign the 2^nd Unit to the the 2^nd Applicant. The solicitors agreed the forms of the Confirmatory Assignment and the Assignment and the Applicants were given to understand that they were waiting for the 4^th Respondent’s signatures.

32.  The Applicants submit, on 23 July 2013, they learned for the first time that there might have been complications leading to the Confirmatory Assignment and the Assignment not being signed and returned to the conveyancing solicitors of the Applicants.

33.  By an e-mail of 31 July 2013, via Messrs. Kitty So and Tong, Solicitors, the 4^th Respondent proposed to increase the purchase price of the 2^nd Unit to $5,800,000. This was rejected by the Applicants who on 6 August 2013, through their solicitors, Messrs. Mayer Brown JSM, made a counter-offer of $3,600,000 in which it was pointed out that:

(a) according to the EUVs as at 28 November 2011 and the Redevelopment Value as at 16 July 2013 as assessed by Mr. C. Chan in his Supplemental Report, the 2^nd Unit’s share is $3,344,981;

(b) if an order of compulsory sale is granted, the expenses of the public auction will have to be deducted from the sale proceeds before distribution; and

(c) the new offer was without prejudice to the Applicants’ right to revert back to the original price agreed with the 4^th Respondent under the Provisional Agreement in the event the new price of $3,600,000 was not accepted

34.  Meanwhile, the original solicitors handling the Provisional Agreement on behalf of the 2^nd Applicant, Messrs. Iu, Lai & Li sent a letter dated 13 August 2013 to Messrs. Kitty So and Tong stating that, inter alia, the agreed Confirmatory Assignment to remove the title problem had been executed by all save the 4^th Respondent and various steps to facilitate completion of the sale and purchase of the 2^nd Unit had been taken by the parties involved, in so far as the 2^nd Applicant was concerned the agreement to sell and purchase the 2^nd Unit remained binding.

35.  By an e-mail of 16 August 2013 from Messrs. Kitty So and Tong, Solicitors, the 4^th Respondent revised the selling price to $5,300,000 which was also rejected by the Applicants.

36.  For instance, the Applicants relied on this Tribunal’s judgment in Good Faith Properties Limited & others v. Cibean Development Company Limited, LDCS 42000 of 2011, dated 31 May 2013:

“64. The applicants, relying on the case of Intelligent House Ltd v Chan Tung Shing & Ors, submitted that the first step of reasonable steps is “the process of communicating to the minority owner an indication of the majority owner’s willingness to purchase their shares”

…….

66. We accept the submissions of the applicants and agree that the reasonable communication involved is for the majority owner to convey its intention to acquire the respondent’s property and nothing more.  The Ordinance required the majority owner to take reasonable steps to acquire the minority interest on terms that are fair and reasonable.  The steps to acquire must be to make offers for the minority owners to consider.  And we do not agree that the majority owner had the onerous obligation to answer all queries from the minority owners and/or to satisfy them that its offers are justified and are fair and reasonable at the time when the offers are made.  If the minority owners are not so sure about the offers, they are entitled to seek independent valuation advice or turned down the offers and leave it to the Tribunal to consider if they are fair and reasonable at trial.

………..

71. It is not in dispute that in assessing the reasonableness of the offers, Ribeiro PJ had found in Capital Well Ltd that :

“the Tribunal is not conducting a valuation exercise. It does not need to adjudicate upon any disputes about the correct valuation principles to be applied. It does not itself arrive at any conclusion as to what figure represents the correct valuation. It merely needs to be satisfied that, on the evidence available, the offer falls within the range of what may broadly be regarded as fair and reasonable compensation for the interest in question.”

This Tribunal will bear this in mind in assessing the reasonableness of each offer made by the applicants in this case.

……..

75. There is no evidence before this Tribunal to demonstrate that the preliminary assessment by Mr. Chan can in any way be faulted.  In Intelligent House Limited v Chan Tung Shing & Ors., the Tribunal is asked to rule on the reasonableness of the terms offered.  The Tribunal in Intelligent House had said the followings :

“Savills is a reputable firm of valuers. In our view, it is also reasonable for Intelligent House to rely on Savills’ expert opinion to formulate the purchase prices offered to the minority owners. There is also no reason for us to believe, nor is there such evidence to suggest, that the advices from Savilles were not properly made based on professional valuation of the EUV and RDV of the minority owners’ units.”

We totally agree with such observation which should also be applicable to Knight Frank who is the valuer involved in this case.

76. In this case, we cannot see how, by merely presenting the valuation by way of a brief statement, the format of the valuation can render the valuation not properly made.  And there is nothing to show that failure to conduct a site inspection of all the units can have any bearing in Mr. Chan’s valuation at the time the 1^st Offer was made.  Neither is there any evidence to support the contention that the valuation conducted by Mr. Chan is in any way not based on professional valuation and should not be relied upon by the applicants.

77. The 1^st Offer made is in a sum more than the valuation of the Shop as assessed by Mr. Chan.  We are satisfied that the 1^st Offer made by the applicants to the respondent to purchase the Shop fall within the range of what may broadly be regarded as fair and reasonable.”

37.  The Applicants submit that, in the circumstances, the Applicants have taken reasonable steps to acquire all the undivided shares of the Lot including negotiating for the purchase of the shares of the 2^nd Unit on terms that are fair and reasonable.

38.  During trial, the 9^th Respondent, either on his behalf or on behalf of the 4^th Respondent or the 7^th Respondent, explained that the offers of $5,800,000 or the revised offer of $5,300,000 as the case may be were based on his discovery of the recent acquisition by the Applicants of 6/F, No. 217 Tsat Tsz Mui Road[1] , i.e. one floor below the 2^nd Unit, in March 2013 for $5,000,000. The 9^th Respondent submits that it should be reasonable for the Applicants to make a similar offer.

39.  When Mr. Hui was cross-examined by the 9^th Respondent, Mr. Hui explained that the offer for the purchase of 6/F, No. 217 Tsat Tsz Mui Road was made after consulting legal advice on the competing claims between members of the family of the registered owner of 6/F, No. 217 Tsat Tsz Mui Road, i.e. the 6^th Respondent as the occupier and the 3^rd Respondent as the registered owner of 6/F, No. 217 Tsat Tsz Mui Road in legal action HCA No. 1106 of 2011. The apparent high offer was made with a view to settling the competing claims of ownership or interests.

40.  The 9^th Respondent queried why such a high offer could be made departing from the principle or formula as determined by Mr. C. Chan pursuant to the requirement of the Ordinance but not similarly for the purchase of the 2^nd Unit. The 9^th Respondent remarked that the market price of a unit should not be affected by disputes on ownership within a family; he argued that his family may end up in dispute in similar regard.  Mr. Hui responded that the Applicants would not take the risk of purchasing the wrong interest and therefore made the decision to secure both the competing interests for 6/F, No. 217 Tsat Tsz Mui Road.

41.  Nevertheless, Mr. Justice Ribeiro PJ’s comment in Capital Well Limited v Bond Star Development Limited(2005) 8 HKCFAR 578 at paragraph33 as cited by the Tribunal in Good Faith Properties Limited (supra) is binding on this Tribunal. The Tribunal “merely needs to be satisfied that, on the evidence available, the offer falls within the range of what may broadly be regarded as fair and reasonable compensation for the interest in question”.The offer by the Applicants to acquire 6/F, No. 217 Tsat Tsz Mui Road was, according to evidence from Mr. Hui, to serve its particular purpose of buying out the competing interests. I cannot find there exists similar competing claims for the 2^nd Unit though I point out that by virtue of section 8(1) of the Ordinance[2], the Applicants may not be so required to sort out the competing claims of ownership for 6/F, No. 217 Tsat Tsz Mui Road if the Applicants can secure the order for sale under the Ordinance anyway. Remember as at the date of the Application, the Applicants together already owned90.5556% equal undivided parts or shares in the in the Lot.  In any event, reliance on any evidence not susceptible to any logical nor reasonable assessment to determine the reasonableness of the offers would defeat the intention of the legislation.

42.  In those circumstances, I am satisfied that the Applicants have taken reasonable steps to acquire all the undivided shares in the Lot including both the 1^st Unit and the 2^nd Unit. 

Reserved Price for the Auction

43.  The Applicants submit that the reserve price for the auction of the Lot should be fixed at $163,000,000, based on the assessment by Mr. C. Chan of the RDV of the Lot as at 16 July 2013 in his valuation report of 24 July 2013.

44.  I have carefully considered Mr. C. Chan’s valuation of the RDV of the Lot.  I note Mr. C. Chan had considered several land sale transactions in the past years including, for instance, the sale of 14-20 Merlin Street in North Point in August 2011. I agree with him that they are all not suitable for direct comparison purpose because “of the substantial disparity in development potential due to different attributes on location, development scale and development restrictions” between the Lot and the land sale comparables. 

45.  I also agree with Mr. C. Chan that as a last resort, the residual method has to be employed as the method of assessment of the RDV of the Lot. This is done by deducting development costs (including construction costs, professional fees, finance costs etc) and developer’s profit from the estimated gross development value of the completed development.

46.  Mr. C. Chan opined that the optimum development on the Lot comprised a block of 26-storey hotel with entrance lobby and retail shops on G/F, back of house on 1/F and hotel guest rooms on the upper floors with details of the hypothetical development and residual valuation set out in Appendix 3.4 (Bundle B1/69-71), and details of the comparables with adjustments in Appendix 3.6 (for shops at Bundle B1/80) and Appendix 3.7 (for hotels at Bundle B1/82).  Mr. C. Chan also adopted the Development Cost Pro-forma recently promulgated by the Hong Kong Institute of Surveyors to facilitate consideration of construction costs in land value assessments in Appendix 3.5 (Bundle B1/73-74). I have gone through his valuation in details.  I am satisfied with his valuation, including the valuation assumptions he has adopted, the values and the costs parameters that he has used in his valuation. 

47.  Based on Mr. C. Chan’s valuation, I decide that the reserve price for the auction of the Lot should be HK$163,000,000.

Trustees

48.  The Applicants proposed to appoint Mr. Ma Ho Fai(馬豪輝) and Ms. Tsang May Ping (曾美萍) who are senior partner and partner respectively of Messrs. Woo Kwan Lee & Lo, Solicitors, Notaries, Agents for Trademarks & Patents, as the sale trustees.  Based on the information on their background and experience as set out in the letter dated 20 August 2013 from their firm, I am satisfied that they are proper persons to be appointed.  Their remuneration at the rate of $5,500 per hour (exclusive of disbursements) as mentioned in the letter dated 20 August 2013 is also reasonable and will be allowed accordingly.

Particulars and conditions of sale of the Lot

49.  Mr Mok has submitted a set of draft particulars and conditions of sale by public auction for my consideration.  While I understand these are the usual terms used for compulsory sale, Mr. Mok points out he has particularly taken care to draft the interest of the 4^th Respondent in relation to the queries on his title. I approve the draft particulars and conditions of sale accordingly.

Costs

50.    Since the 1^st and the 2^nd Respondents are missing owners, and both the Applicants and the 4^th Respondent, the 7^th Respondent and the 9^th Respondent do not ask for costs, I will give a costs order that there be no order as to costs.

Conclusion

51.    For the above reasons, I am satisfied that the redevelopment of the Lot is justified due to the age and the state of repair of the existing building on the Lot and that the Applicants (as the majority owner) have taken reasonable steps to acquire all the undivided shares in the Lot. I therefore make an order that all the undivided shares in the Lot, the subject of this application, be sold by public auction for the purposes of development. The reserve price for the auction of the Lot shall be $163,000,000. I appoint Mr. Ma Ho Fai (馬豪輝) and Ms. Tsang May Ping (曾美萍) as the sale trustees to discharge the duties imposed on them under the Ordinance in relation to the Lot and authorized their remuneration for their service as trustees as provided in their letter dated 20 August 2013. I approve the particulars and conditions of sale of the Lot placed before me and grant liberty to the parties and to the trustees to apply for further directions if necessary.