HARVEST TREASURE LTD AND OTHERS v. CHEUNG FAT ENTERPRISES LTD AND OTHERS

LDCS 8000/2014

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LAND COMPULSORY SALE MAIN APPLICATION NO. 8000 OF 2014

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NOTES OF REASONS FOR DECISION
APPLICATION FOR STAY

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1.  At the request of counsel for both parties, we make these notes in the hope that they are helpful to the Court of Appeal in hearing an urgent application for stay taken out by the 1^st Respondent (“R1”) this afternoon.

2.  R1’s took out an application for leave to appeal and stay of execution of our order for sale of the lot made on 31 December 2015.  R1 was the minority owner of two flats in Po Fat Building (“the building”).  After reading documents and hearing submissions of counsel, we refused both applications and the summons was dismissed.  We state here at the outset that some of the reasons we refused leave to appeal are:-

(i) Section 10 (6) of the Lands Tribunal Ordinance stipulated that:-
“The Tribunal may admit in evidence any statement, document, information or matter, whether or not it would otherwise be admissible in evidence and attach such weight to it as may be appropriate in the circumstances.”

(ii) This Tribunal was fully aware of the Charge, the Disciplinary Hearing and the Sentence at the time of the final submissions where parties were given an opportunity to argue on their respective stances and their submissions had been considered when the various issues were determined.

(iii) This Tribunal has expertise to examine expert reports and their opinions.  The Tribunal is not bound to accept the expert evidence tendered and may rely on its own experience in determining the disputes under section 4(1)(a) of Cap 545.

Stay

3.  In support of the stay application, Ms Eu submitted that as the auction is scheduled for 19 February 2016 at 10 a.m., an appeal on the related Sale Order would be nugatory without a stay.

4.  The Applicants have given an undertaking and offered payment of $3,988,959 into the Tribunal to make up the difference between:

(1) R1’s shares of the RDV as calculated according to Mr Kwan's assessment of RDV and the EUV figures on Shops A-C and the EUV of other units he agreed to in the Joint Statement; and

(2) R1’s shares of the RDV as calculated on the figures found by the Tribunal.

5.  Leave to appeal has now been refused.  In our view there is no valid ground to stay execution of our order set out in paragraph 245(d) pending appeal.  We have however considered whether stay pending appeal to the Court of Appeal should be granted.  It would be a balancing exercise taking into consideration relevant factors including consideration whether without a stay an appeal on the related Sale Order would be nugatory and prejudice to be suffered parties.

6.  Ms Eu submitted that should the auction go ahead tomorrow, R1 would not be able to keep the two units owned by it even if the intended appeal was to be allowed by the Court of Appeal.  It was not money that R1 had wanted but the premises themselves.  The undertaking to make payment into court for a sum of 3.988m or otherwise could not be sufficient compensation for R1.

7.  On the other hand, Ms Eu commented that “the Applicants have failed to prove the damages it would suffer as alleged if the auction is postponed to another date after decision of the appeal.

8.  Lastly, Ms Eu said that it was immaterial even if there was no undertaking given by R1, because it is holding two units at the worth of $10 million at least.

9.  We say that the grounds in support of the stay application could not be considered in total disregard of the merit of R1’s appeal.

10.  It was the initial stance of R1 that the “age” and/or the “state of repair” of the Building is/are not justified for redevelopment under section 4(2)(a) of the Ordinance and took a neutral stance on the issue of valuation including therefore whether reasonable step had been taken.  R1 in fact called no expert evidence on the issue of valuation.  Nevertheless, the expert of the other opponent, R5-7, ie Mr D Kwan, agreed that the EUV of the units owned by R1 were, as at 29 May 2014, $3,470,000 (Flat 6, UG/F) and $3,520,000 (Flat 7, UG/F).  Neither Mr C Chan nor Mr D Kwan had been cross-examined on their evidence on valuation in this regard.

11.  We do not think that there was much force in Ms Eu’s argument put forward this morning for the first time that there might be conflict of interest when Mr D Kwan agreed with Mr C Chan on the EUV in the units held by R1.  We also accept the submission of Mr Mok that the argument could not stand because of the joint statement made by Mr C Chan and Mr D Kwan.  In response to Mr C Chan’s comment in his rebuttal report of 13 February 2015 at §5.1.2 at page 410 of Bundle D, Mr D Kwan had come down in his own figures so that the EUV assessments of all residential units became consistent.  Bearing in mind that both R1’s units and R5-7 unit are residential, any suggestion of conflict of interest between R1 and R5-7 might have been exaggerated or totally non-existent.

12.  This Tribunal has examined the expert evidence before arriving at our own conclusion on valuation.  Save that this Tribunal disagreed with the methodology adopted by Mr D Kwan in assessing the EUV of Shop A, B and C, most of he adjustments proposed by Mr D Kwan have been accepted.  On this basis, the proportionate value of R1’s units when compared with the total of the Buildings was determined at 1.3275%.  See §109 of the judgment.

13.  In the end, the Tribunal agreed and determined the RDV of the Lot at $750,000,000 which is the assessment of Mr C Chan in contrast to Mr D Kwan’s assessment at $987,000,000. Even if Mr D Kwan’s assessment is adopted without any adjustment or discount, the difference in value of R1’s interest is 1.3275% x ($987,000,000 - $750,000,000) = $3,146,175.  

14.  We are of the view that the reason why R1 does not want an order for sale is neither here nor there.  At the end of day, the consideration is whether the offers made before determination of all issues arising had been reasonable.  For reasons set out in the above, we say that the intended appeal on this issue has no merit.  We also consider $3,988,959 sufficient security.

15.  Mr Li Ting has filed an affirmation setting out the financial loss suffered by the Applicant if the auction is cancelled tomorrow.  He said that according to expert advice obtained, there would be a loss on interest for $3,544,121 to $14,176,484 assuming that the interest rate is 1.7% per annum if there is a delay for a period of 3 to 12 months.  Currently it is widely reported in the media that the property market has been and will continue to go down, which view is shared by the expert.  We agree with Mr Mok that even on the assumption that the market remains the same, the delay will still result in loss to the Applicants basing on the residual valuation model appended to the written Judgment dated 31 December 2015 as Appendix 1.  In this model, a discount rate or interest cost of 4% per annum was adopted to set the present values.  If the development period of 3.75 years is delayed or extended by 3 months to 12 months, ie a development period of 4 years to 4.5 years, the present value of the GDV would become 1,216,744,641 to 1,181,443,673 instead of 1,228,701,420.  When similar adjustment for the development period is applied to discount the construction costs (ie from 2.25 years to become 2.375 years or 2.75 years), the drop in RDV will range from something more than $7 million to $35 million (we do not accept calculation set out in §16 of Li Ting’s Affirmation).

16.  Further, advice had been obtained on the market trend projection.  Advice given was that if the public auction was to be postponed for 3 to 12 months the gross development value would be reduced by 5% to 20%, as a result, the RDV of the subject property will be reduced by $60m to $234m.  We accept these estimates.

17.  Mr Mok further asked us to take into account that there has not been undertaking given by R1. In reply Ms Eu said that R1 is holding two units and they should be good security to compensate the Applicant just in case.  In view of the estimated loss stated above, the worth of the units held by R1 is nowhere close to a meaningful security.

18.  In our view, in the balancing exercise, after weighing this potential loss of the Applicants in the event of an unsuccessful appeal against the effect of the appeal being rendered nugatory if a stay is not granted, coupled with our conclusion that there is no arguable appeal we come to the view that the discretion should be exercised in favour of refusing to grant a stay in the circumstances of this case.

19.  For the above reasons, in the exercise of our discretion, we refuse to grant an order to stay paragraph 245(d) of the Order dated 31 December 2015.