GREATMAX INTERNATIONAL LTD AND OTHERS v. LO SHA KAM HA TERESA AND OTHERS

LDCS 7000/2019

[2023] HKLdT 47

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LAND COMPULSORY SALE MAIN APPLICATION NO 7000 OF 2019

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BETWEEN

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J U D G M E N T

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BACKGROUND

1.  This is the applicants’ application for an order for sale, for the purposes of redevelopment under the Land (Compulsory Sale for Redevelopment) Ordinance, Cap 545 (“the Ordinance”), of all the undivided shares of and in Sub-Section 1 of Section A of Inland Lot No 1253, Sub-Section 3 of Section A of Inland Lot No 1253 and the Remaining Portion of Section A of Inland Lot No 1253 (collectively “the Lots”), together with a building erected thereon known as Yin Yee Mansion, Nos 63, 65, 65A and 67 Robinson Road, Hong Kong (“the Building”).

2.  The Building is an 8-storey residential block over a car park facing Robinson Road, and is served by two lifts and two common staircases. Access to the lift lobby of the Building is via a common staircase or a car ramp off Robinson Road. Occupation Permit No H305/67 was issued for the Building on 31 October 1967 granting permission to occupy its ground floor as covered car park and ancillary accommodation for non-domestic use and its 1^st to 8^th floors for domestic use. The Building was 52 years old at the time when the proceedings herein were commenced.

3.  According to the approved building plans and the records of the Land Registry, there are 4 flats per floor (ie Flat A of No 63 Robinson Road, Flat C of No 65 Robinson Road, Flat D of No 65A Robinson Road and Flat B of No 67 Robinson Road), and hence there are a total of 32 flats for the 8 domestic floors in the Building. According to the records of the Land Registry, there are also 4 roofs in the Building (ie Roofs A, C, D and B of Nos 63, 65, 65A and 67 Robinson Road respectively).

4.  There are discrepancies in the numbers and locations of car parking spaces as shown in the approved building plans and the assignment plans. Nevertheless, there are 32 car parking spaces on site in total, which match with the total number of car parking spaces in the records of the Land Registry.

5.  A total of 324 undivided shares are allotted to the Lots together with the Building. Each of the 32 flats is given 9 undivided shares, each of the 4 roofs is given 1 undivided share, and each of the 32 car parking spaces is given 1 undivided share (ie a total of 324 undivided shares).

6.  The applicants have discontinued the proceedings against the 5^th to 7^th respondents, leaving the 1^st to 4^th respondents remaining in the present proceedings. Except as otherwise stated, the reference to “the respondents” in the discussion below refers to these remaining respondents, and they own the following properties in the Building: -

Respondent		Properties
1st respondent	(“R1”)	Flat A on the 5th Floor and Car Parking Space No 23 (“R1’s Properties)
2nd respondent	(“R2”)	Flat A on the 7th Floor, Roof B and Car Parking Space No 17 (“R2’s Properties”)
3rd respondent	(“R3”)	Flat A on the 8th Floor, Roof A and Car Parking Space Nos 16, 20 and 24 (“R3’s Properties”)
4th respondents	(“R4”)	Flat B on the 5th Floor and Car Parking Space No 21 (“R4’s Properties”)

7.  The applicants are represented by Mr C Y Li, SC (“Mr Li, SC”) leading Mr Li Pak Hei. The respondents are represented by Mr Ross Yuen (“Mr Yuen”) who is instructed by 3 different firms of solicitors acting for the respondents.

8.  Mr Yuen submits that in gist, the respondents oppose the application herein for reasons that: (1) the redevelopment of the Lots is not justified due to the age or state of repair of the Building; (2) in respect of R2 and R3, the Tribunal should not make an order for sale in the light of the undue hardship on them; (3) the valuations of EUV and RDV are disputed; and (4) the applicant is put to strict proof in respect of the other statutory requirements under the Ordinance.

9.  The undue hardship allegedly to be suffered by R2 and R3 in the event of compulsory sale of the Lots are that: (1) R3, aged 92 years in 2021, has been living at the Lots since he was born; (2) R3 was the architect and structural engineer of the Building when it was erected; (3) the two units of the Building owned by R2 and R3 are the home of R3’s family since the Building was completed, and they are now occupied by R3, his daughter, his son and daughter-in-law and his granddaughter, 6 dogs and other pets, and there are 50 bonsai trees on the rooftop (being part of the two units); (4) there is no replacement home that could be found in Hong Kong with similar size and price as the two units; and (5) the family will be forced to leave their home, to live separately and to abandon the trees and pets, and the livelihood of the family, in particular that of the old aged R3, will be adversely affected.

ISSUES FOR DETERMINATION BY THE TRIBUNAL

10.  The parties have filed an Agreed List of Issues for Trial on 26 May 2021 stating 6 issues in dispute. However, the 6 issues can be rephrased as follows: -

(1)	Whether the applicants have fulfilled the prerequisites and are entitled to make the present application? (“Issue 1”)
(2)	Whether the redevelopment of the Lots is justified due to the age and/or state of repair of the Building in accordance with section 4(2)(a) of the Ordinance? (“Issue 2”)
(3)	Whether the applicants have taken reasonable steps to acquire all the undivided shares in the Lots on terms that are fair and reasonable in accordance with section 4(2)(b) of the Ordinance? (“Issue 3”)
(4)	Whether the Tribunal has discretion to refuse to make an order for sale in view of R2 and R3’s hardship? (“Issue 4”)
(5)	What was the respective EUV of all the units, including all the flats and car parking spaces in the Building as assessed by the Tribunal? (“Issue 5”)
(6)	If an order for sale is granted, what should be the reserve price for the purpose of auction sale? (“Issue 6”)

ISSUE 1 - PREREQUISITES FOR AN APPLICATION

Ownership of the Applicants

11.  At the time of the filing of the Notice of Application on 22 March 2019, the applicants owned 84.88% (ie 275/324) of the undivided shares in the Lots and there were 7 respondents who owned the remaining undivided shares.

12.  Section 3(1) of the Ordinance prescribes that the minimum percentage of undivided shares that an applicant or applicants should possess before making an application under the Ordinance is 90%.

13.  Section 3(5) of the Ordinance provides that the Chief Executive in Council may, by notice in the Gazette, specify a lower percentage in respect of a lot belonging to a class of lots specified in that notice.

14.  The Land (Compulsory Sale for Redevelopment) (Specification of Lower Percentage) Notice, made under section 3(5) of the Ordinance (“the Notice”), was gazetted on 12 January 2010 and came into operation on 1 April 2010. Section 3 of the Notice lowered the threshold for compulsory sale of specified classes of lots from 90% to 80%. Those classes of lots include “a lot with each of the buildings erected on the lot issued with an occupation permit at least 50 years before the relevant date”.

15.  Since the occupation permit of the Building was issued in 1967, which is more than 50 years before the date of the application (ie 22 March 2019 - the relevant date under the Notice), the applicable percentage is therefore 80%. Thus, the applicants (then owning 84.88% of the undivided shares of the Lots) have satisfied the requirement.

Valuation Report

16.  Section 3(1)(a) and Part 1 of Schedule 1 of the Ordinance stipulate that an application should be accompanied by a valuation report, prepared not earlier than 3 months before the date on which the application is made. In these proceedings, the accompany valuation report was dated 18 February 2019, which is not earlier than 3 months before the application. Thus, the applicants have complied with the requirement in respect of an accompanying valuation report.

17.  We are therefore satisfied that the applicants are entitled to make the present application under section 3 of the Ordinance.

ISSUE 2 – AGE AND STATE OF REPAIR

18.  Section 4(2) of the Ordinance provides that: -

“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 that minority owner on terms that are fair and reasonable).”

19.  Thus, the applicants have to satisfy the Tribunal that the redevelopment of the Lots is justified due to the age or state of repair of the Building (section 4(2)(a)); and that the applicants have taken reasonable steps to acquire the respondents’ undivided shares in the Lots (section 4(2)(b)). If not, the Tribunal shall not make an order for sale.

20.  Mr Yuen submits that section 4(2)(a) is a two-step process. The first step is the assessment of the age and state of repair of the subject building. The second step is the determination as to whether such age or state of repaMr So found in the first step justifies redevelopment.

21.  Mr Yuen also submits that section 4(2)(a) is a statutory protection which sets out the matters to be considered by the Tribunal, including “age”, “state of repair” and “justified”, but it does not spell out the threshold passing which the two criteria (or either one) are satisfied, ie at what age or at what state of repair a building is justified for redevelopment.

22.  However, as the Ordinance is expropriatory in nature in that a private entity is conferred the right to make an application to take away a minority owner’s private property, Mr Yuen submits that the Tribunal is not confined by the Ordinance alone but is entitled to apply the protection adopted under the common law approach.

23.  Referring to some common law authorities, Mr Yuen summarises the common law protection as follows: -

(1) The common law protection is not absolute but takes the form of interpretive approaches where statutes are said to affect the private property rights.

(2) It is manifested by way of a presumption, in the interpretation of statutes, against an intention to interfere with vested property rights.

(3) Where a statute is capable of more than one construction, that construction will be chosen which interferes least with private property rights. It is an aspect of the general principle that statutes are construed so that they do not encroach upon fundamental rights and freedoms at common law.

24.  Mr Yuen submits that the aforesaid common law protection is equally applicable to the Ordinance. As such, the Tribunal should apply the interpretive approach in that: (1) in case of ambiguity, the construction which interferes least with private property rights should be chosen; (2) the threshold is only satisfied when public interest decisively so demands; and (3) even when redevelopment is justified, the Tribunal may refuse to grant an order for sale for reasons such as undue hardship on minority owners.

25.  First of all, we do not agree that section 4(2)(a) is a two-step process in the way suggested by My Yuen, in that the Tribunal has to make finding of facts on the age and state of repair of the Building first. We are of the view that it is a mixed question of law and fact when the Tribunal determines what age or state of repair of the Building amounts to justification for the redevelopment of the Building.

26.  It is clear that the Ordinance does not define “the age” or “state of repair”, and hence the Tribunal has to decide what factors are relevant for the consideration of “the age” or “state of repair”. In deciding these factors, the Tribunal is determining on a question of law. Of course, there should also be factual basis to support that these factors are relevant for the consideration. Thus, it is a mixed question of law and fact, instead of just a fact finding process.

27.  For example, just making a finding of the physical age of the Building will not help the Tribunal at all, as the physical age alone will not indicate justification for redevelopment, and it is just one of the factors for the Tribunal to consider. Other factors such physical conditions and obsolete design of the Building are also relevant factors (see Top Sail International Limited v Cheng Kai Ming, LDCS 18000/2010).

28.  Of course, the factors are not exhaustive. Any factors that are related to “age” can be considered by the Tribunal. In not giving any definition or guidelines on the word “age”, it is clear that the Ordinance gives wide discretion to the Tribunal to determine what factors are relevant for consideration. It is up to the parties in compulsory sale cases to present such relevant factors and evidence in support to the Tribunal for it to make determination.

29.  Likewise, there is also no definition or guidelines for the words “state of repair” in the Ordinance. The Tribunal has the same wide discretion as in the case of “age” to consider what factors should be taken into account in determining what “state of repair” justifies for the redevelopment of the Building. The Tribunal has in many previous cases determine that “tenantable condition” is a consideration. This is determined within the discretion of the Tribunal. Again, this is not exhaustive. It is also for the parties to present such relevant factors and evidence in support to the Tribunal for its determination.

30.  We do not find that the reliance of the common law protection and the foreign authorities helpful or indeed relevant in the interpretation of the Ordinance. It is clear that the Ordinance is a statutory creature peculiar to the Hong Kong situation. The Ordinance has designed a mechanism to enable urban renewal and in so doing minority owners’ interests are affected for sure. However, the Ordinance has designed its own protection for minority owners in that the Tribunal has to be satisfied that the redevelopment is justified due to the age or state of repair of the Building and the majority owners has taken reasonable steps to acquire the minority owners’ interests on terms that are fair and reasonable. The minority owners will also get a fair share of proceeds of sale in public auction as their compensation. Thus, contrary to Mr Yuen’s submissions, we do not find it necessary to go beyond the statutory protection. It is also not right for Mr Yuen to suggest that the Ordinance is an instrument to enable private developers to reap profits, as it is a piece of legislation carefully considered and passed by the legislature to enable urban renewal.

The evidence on the age and/or state of repair of the Building

31.  The applicants have adduced the evidence of Mr K S So (“Mr So”), a structural engineer, of K S So & Associates Ltd and the evidence of Mr Benson Wong (“Mr Wong”), a building surveyor, of Benson Wong & Associates Ltd. The respondents have adduced the evidence of Dr C M Koon (“Dr Koon”) as their structural engineering expert and Ms Joy Leung (“Ms Leung”) as their building surveying expert.

32.  These experts give the factors and evidence concerning the age and state of repair of the Building. Having considered their evidence carefully, we are of the view that the evidence and expert opinions of the applicants’ experts, ie Mr So and Mr Wong, are more reliable than the respondents’ experts, ie Dr Koon and Ms Leung. Hence, we adopt Mr So and Mr Wong’s evidence and opinions as discussed below.

The age of the Building

33.  Mr Wong has identified 4 issues with respect to the age of the Building:-

(1) the physical age;

(2) the design working life of the structural frames;

(3) physical obsolescence; and

(4) functional obsolescence.

34.  He concluded that the redevelopment of the Building is justified on the ground of “age” alone.

35.  The respondents disagree with all four aspects of the assessment of the age of the Building. First of all, Mr Yuen suggests that the physical age “gives no clue” as to whether a building should be redeveloped. Secondly, Mr Yuen suggests that design working life is “merely a nominal figure and is irrelevant”. Thirdly, Mr Yuen dismissed Mr Wong’s consideration of both physical and functional obsolescence.

36.  However, Mr Yuen has not advanced any test for age. There was just opinion given by Ms Leung that the Building is not the oldest in the locality or that a building’s life can be extended by normal maintenance.

Physical age

37.  In terms of physical age, the Building was 52 years old at the time when the application was commenced. It is one of the oldest buildings in its neighbourhood even though it may not be the oldest. Such an old physical age is clearly one of the many factors that the Tribunal can take into consideration.

Design working life

38.  As to the design working life of the Building, Mr Wong is of the view that it should be shorter than 50 years, and given the Building’s physical age, the Building has already passed its design working life.

39.  Moreover, Mr So takes the view that the Building is both aging and of obsolete design in that the structural frames of the Building were designed and constructed more than 52 years ago and the then applicable standards were the London County Council Constructional By-laws 1952 (“the LCC By-laws”). Subsequent to the LCC By-laws, 3 new codes of practice for the structural use of concrete have been issued. They are the Code of Practice for the Structural Use of Concrete – 1987 (“the 1987 Concrete Code”), the Code of Practice for the Structural Use of Concrete – 2004 (“the 2004 Concrete Code”) and the Code of Practice for the Structural Use of Concrete – 2013 (“the 2013 Concrete Code”).

40.  Mr So referred to the 2004 Concrete Code and the 2013 Concrete Code as “the New Concrete Codes” because, insofar as the provisions relevant for the present purpose are concerned, those in the 2004 Concrete Code have not been superseded and hence, both codes are of equal relevance. The current standards for the design and construction of reinforced concrete buildings are those stipulated in the New Concrete Codes.

41.  There are 8 structural design and construction aspects where the Building does not comply with the current structural engineering design requirements specified in the New Concrete Codes, especially the requirement on robustness. As a result, the Building might not possess adequate robustness to avoid disproportionate collapse due to accidents. Mr So has prepared a comparison table between the LCC By-laws and the New Concrete Code. It shows the Building’s obsolete design in that it failed to take into account the requirements set out in the New Concrete Codes which enhances the structural safety of buildings.

42.  Mr So gave evidence that the notion of “design working life” was first introduced in the 2004 Concrete Code. It is defined as “the period of time during which a structure that has undergone normal maintenance is unlikely to require major repairs”. The design of buildings constructed under the New Concrete Codes is based on a design working life of 50 years. Given that the requirements laid down by the LCC By-laws are less stringent than those of the New Concrete Codes, Mr So considers that the design working life of the Building would not have been longer than 50 years. In other words, the structural frames of the Building had passed its design working life.

43.  In addition, Mr So also opines that the concrete covers for the walls, beams and slabs, and the widths of some beams do not comply with the requirements specified in the 2011 Fire Code.

44.  Insofar as the question of “age” is concerned, Dr Koon agrees that the Building was built in accordance with the LCC By-laws. He also accepts that the New Concrete Codes are the “more advanced and higher built-quality design codes”.

45.  Dr Koon maintains that the design standard and requirements stipulated in the LCC By-laws satisfied the safety requirements required by the then Buildings Ordinance Office. He said that there is no deficiency in the structural design for low-rise buildings. Nevertheless, Dr Koon does not dispute the fact that the New Design Codes impose more stringent requirements than the LCC By-laws.

46.  We accept Mr Li, SC’s submission that Dr Koon’s reliance on the alleged adequacy of the LCC By-laws really misses the point. In Century Supreme International Limited v Kam Chi Kit Charles and ors LDCS 24000/2018, the Tribunal held that:-

“To suggest that in the evaluation exercise under section 4(2)(a), the tribunal must strictly confine its scope of vision to the subject building and must ignore the current living standard as demonstrated by more up-to-date buildings is just like sticking to the beaten track and resting complacently on one's laurels.”

47.  Furthermore, the Tribunal in Harvest Treasure Limited & ors v Cheung Fat Enterprises Limited & ors, LDCS 8000/2014, also accepted the relevancy of comparing the structural design of the building in question with the modern construction requirements and said:-

“Further we accept Mr K S So’s explanation that his comparison between the structural design of the Building and the structural requirements of the current Concrete Codes (which were introduced after the construction of the Building for the purpose of making new buildings more safe and better structurally) where he identified 7 deficiencies for the purpose of providing assistance to the Tribunal in the Application. We are of the view that when we have to determine whether the design was obsolete, we have to make reference to modern construction requirements. The question is whether the obsolescence could be updated and the expected cost for such exercise. While Mr Lee or Dr S Chan suggested there is no evidence on the lack of robustness, we have to accept the evidence that robustness is a modern concept not addressed by LCC Bye-Laws at all.”

48.  Thus, as held in the above cases, we are also of the view that comparing the structural design of the building in question with the modern construction requirements is a relevant consideration for “the age” of the Building. It has in fact been consistently held by the Tribunal that it is relevant as a benchmark to check against the age of the Building. We are of the view that this is a correct approach in considering “the age” of the Building.

49.  Based on Mr So’s evidence, we accept that the Building can be regarded as old in terms of its design working life.

Physical obsolescence

50.  Mr Wong identifies 3 areas of physical obsolescence of the Building’s features and facilities as follows:-

(1) The appearance of the Building is a plain looking block with monotonous elevations;

(2) Although the external walls on the front and rear elevations are finished in tiling, the front walls of the podium; the soffits of all balcony slabs, window canopies and A/C hoods as well as the external walls on the two side-elevations are simply cement rendered and painted. The low-cost cement render and paint finishes, which were acceptable in the post-war era, have been out-classed by external wall finishes nowadays; and

(3) Replacement of the original mild steel windows was piecemeal, resulting in an overall untidy appearance.

51.  In this regard, Ms Leung appears to take the view that, whilst she disagrees with the aspects of physical obsolescence identified by Mr Wong, she would “leave it to be determined by the Tribunal as to whether it is relevant to the assessment under the age or state of repair criteria of the Ordinance”.

52.  Contrary to Ms Leung’s position, Mr Yuen takes a different position. My Yuen submits that Mr Wong is asking the Tribunal to gauge and value public expectation. However, Mr Wong is just giving his definition of obsolescence which includes inter alia the public expectation for a proper, safe and hygienic habitation and residence.

53.  Mr Yuen submits that there is no objective standard on building design as to what is an attractive design. However, Mr Wong is not really talking about attractive design, but just comparing monotonous design with modern design. Moreover, Mr Wong is referring to the piecemeal replacement of old steel windows resulting in an untidy appearance of a building, but one would expect a new building to have a uniform external appearance.

54.  We agree that the external appearance of a building in the context of what Mr Wong is suggesting can be regarded as a factor for consideration. However, the significance of this factor is low as it can be rather subjective and difficult to assess what is attractive or ugly appearance.

55.  We, however, disagree with Mr Li, SC’s suggestion that the finishing of internal units is a relevant factor, even though the units in a building are part of the development. It is clear that the internal finishing is a matter of personal choice of the owner or tenant and can be changed from time to time. In fact, the internal appearance can be changed to a very modern look even in a very old building. Thus, this factor should not be considered in terms of age.

56.  In Intelligent House Ltd v Chan Tung Shing & ors [2008] 4 HKC 421, the Tribunal held that:-

“we are satisfied with the submissions made before us that the proper construction of s 4(2)(a)(i) as a whole allows the Tribunal to consider anything directly or indirectly relating to the age of the building, which includes features of obsolescence.”

57.  We are also of the view that we can consider anything directly or indirectly related to age, but it is within our discretion to decide what are relevant or not and how much weight we should put on a certain factor. In this regard, we find that physical obsolescence can be a relevant factor but its significance is not high.

Functional Obsolescence

58.  In terms of functional obsolescence, Mr Wong identifies 10 areas where the Building fails to conform to modern standards regarding building safety and hygiene as follows:-

(1) The design and construction of the structural frames of the Building have become obsolete;

(2) The fire services installation in the Building fails to meet the current standard, viz. the current Code of Practice for Minimum Fire Service Installations and Equipment 2012 (“the FSI Code 2012”);

(3) The existing fire escape arrangement does not meet the requirement set out in the Code of Practice for Fire Safety in Buildings 2011 (“the Fire Safety Code 2011”);

(4) The fire resisting construction of the fire escape routes is outdated;

(5) The firefighting and rescue access to the Building is substandard because its internal driveway is not up to 6m wide, is steeper than 1:10 and has no turning circle of 26m in radius;

(6) The Building has no barrier free access facilities;

(7) There is no proper refuse disposal system;

(8) There is no lightning protection system;

(9) There are no proper overhangs at the roof and floor levels;

(10) There are no management office, IO meeting room and other recreational and amenity facilities.

59.  Mr Wong opines that some of these 10 aspects of functional obsolescence (including items (1), (3), (5), (6), (7), (9) and (10)) cannot be rectified unless the Building is demolished and redeveloped.

60.  He also opines that, whilst repairable, the rendering on the external wall surfaces and the waterproofing on the roof have also passed their effective life.

61.  On the other hand, Ms Leung only agrees to the following aspects of functional obsolescence:-

(1) The lack of automatic fire detection system (as part of fire services installation);

(2) The lack of emergency lighting at the lift lobbies and the two required staircases (as part of the fire escape arrangement);

(3) The lack of fire resisting doors to the flat entrances and staircase doors (as part of the fire resisting construction of the fire escape route);

(4) The lack of fire resisting enclosures for exposed electrical cables and installations (as part of the fire resisting construction of the fire escape route); and

(5) The lack of lightning protection system.

62.  The fundamental reason for Ms Leung’s disagreement with the other aspects of functional obsolescence is that she adopts “habitable condition” as the standard. She therefore opines that “the upgrading of construction and statutory standards does not render the existing Building becoming unsafe, unhygienic, or functionally obsolete”.

63.  This approach is clearly wrong. As held by the Tribunal consistently, “tenantable condition” should be considered instead of “habitable condition”. We also agree that “tenantable condition” should be considered. Thus, we prefer Mr Wong’s evidence instead of Ms Leung’s evidence.

64.  Mr Yuen makes various submissions to deal with the question of functional obsolescence. However, we agree with Mr Li, SC that these submissions do not address all the problems as pointed out by Mr Wong. We accept Mr Li SC’s submissions as follows:-

(1) Fire safety: Mr Wong points out the deficiencies on lack of automatic fire detection system, sub-standard fire hydrant/hose reel system. At the moment, the water actually comes from the illegal use of one of the two flushing water tanks constructed at the roof as agreed by Ms Leung. This is the UBWs mentioned in the letter of BD dated 5 March 2020. Hence, it would not be right to say that there is indeed legal and proper supply of fire water service for the Building.

(2) Protected lobby: The respondents do not dispute that there is no protected lobby. Mr Yuen contends that protected lobby is only required under the 2011 Fire Code and hence is not enforceable against the Building. However, it cannot be disputed that protected lobby is part of the design expected nowadays for the sake of safety of the residents of a building. Mr Yuen also contends that one can dispense with protected lobby by installing fire rated doors, “enclosure for services in staircases and windows in staircase”. However, fire rated doors and protected lobby are separate requirements under the Fire Code. It is unreasonable to suggest that one can dispense with protected lobby by having fire rated doors. The fact is that there is no concrete alternative solution ever spelt out by Ms Leung or the respondents and there is no evidence that such alternative solution is indeed workable or acceptable to the Building Department.

(3) EVA: The respondents insist that Robinson Road itself can serve as the EVA when Robinson Road is a public road, and the Building is situated on the podium which is of some considerable distance from Robinson Road. Indeed, Ms Leung’s evidence also suggests that the topographical features of the site make the requirement for Robinson Road to be the alleged EVA impossible, and she just hopes that there would be relaxation of the requirement by the Fire Services Department. Moreover, it is unreasonable to suggest that the podium is only 2 to 3 storey high and the time spent for fireman to walk up to the building is “negligible”, as every second wasted in a fire accident can mean great loss in life and property.

(4) The distance between the 2 staircases: Ms Leung does not dispute that under the Fire Safety Code 2011 there must be more than 6 meters distance between the 2 staircases on a floor and this requirement was not met by the Building. However, she alleges that the layout of the Building met the dead-end travel distance so that the Building Authority will accept the alternative solution. This suggestion does not solve the problem as the requirement is still not met.

(5) Width of staircase: As measured by Mr Wong, the width of the staircase does not satisfy the width requirement of 1,055mm for fire escape. The respondents measured it differently, but it is really a matter of common sense that the outer handrail and curb should not be included in measuring the width as the same reduces the width.

(6) Barrier free access: The suggestion that one can travel to the lift lobby at the podium and hence there is no need for barrier free access is too simplistic. This is the case only when the disabled person can travel by car to the podium. It does not mean that disable person who does not have the convenience of vehicular traffic can access the Building.

(7) The question of hopper room etc: The respondents allege that the hopper room, refuse chute, refuse collection and other matters are question of choice and costs. However, the point is that these facilities as mentioned by Mr Wong are present day requirements for a hygienic and comfortable living environment.

65.  Thus, the respondents cannot provide any reasonable answers to counter the applicants’ contention of functional obsolescence, which is clearly a factor that we should consider in respect of the age of the Building.

Conclusion on Age

66.  In the premises, we are satisfied that the applicants have satisfied the requirement for “age” under section 4(2)(a)(i) of the Ordinance, ie the redevelopment of the Lots is justified due to the age of the Building.

State of Repair – Building conditions

67.  As mentioned, Ms Leung’s adoption of “habitable condition” accounts for the difference between Mr Wong’s assessment and hers on the state of repair of the Building.

68.  Mr Wong opines that the Building is in a poor state of repair. Hence, the redevelopment of the Building is justified on the ground of “state of repair” alone. He explains in his report that:-

“The defective rendering found on the external walls of the Building and the shortfalls in the essential fire service systems have imposed threats to the safety of the residents. Generally speaking, the defects and deficiencies found in the structural frames, components, finishes and service installations of the Building, are of the nature and magnitude that cannot be easily rectified by simple and piecemeal repairs.”

69.  Whilst the extent of repair works differs, both experts agree that repair works are required for all 12 aspects of the Building, ie (1) Structural frames; (2) Building facades; (3) Main roof; (4) Staircases; (5) Car park; (6) Retaining wall; (7) Flats internally; (8) Plumbing; (9) Drainage; (10) Electrical installation; (11) Fire services installation; and (12) Lift.

70.  The experts estimate the repair costs as follows:-

		Mr Wong	Ms Leung
1.	Preliminaries	$3,176,104	$849,853
2.	Structural Frames	$843,300	$276,304
3.	Building Facades	$2,842,970	$1,241,120
4.	Main Roof	$805,550	$100,000
5.	Staircases	$1,068,880	$717,550
6.	Car Park	$789,900	$728,760
7.	Retaining Wall	$691,780	$45,000
8.	Flats Internally	$3,537,848	$1,776,400
9.	Plumbing	$190,000	$240,000
10.	Drainage	$625,000	$465,000
11.	Electrical Installation	$361,600	$321,600
12.	Fire Services Installation	$418,600	$392,600
13.	Lift	$3,476,000	$1,908,000
14.	Contingency	$1,882,453	$934,839
15.	Professional Fees	$1,550,000	$1,028,323
16.	Supervision Fees	$480,000	$0
	Total	$22,736,985	$11,282,447

71.  As mentioned above, we prefer Mr Wong’s evidence to that of Ms Leung. As submitted by Mr Li, SC, there are three examples which show that Ms Leung’s evidence is not reliable. First of all, in relation to the infrared testing, Ms Leung admitted that there is great limitation and suggested that the accuracy of the results was only about 70%. Ms Leung never explained the basis of the 70% accuracy. During cross-examination, she gave the answer that she was told about the accuracy some 20 years ago by one anonymous person. She did not even bother to ask the contractor, Stanger, to verify the accuracy. Whilst Stanger acknowledged that a steep angle of incidence would make an adverse impact on accuracy, no reservation was made on the findings.

72.  Secondly, Ms Leung confirmed that there was no water seepage at the lift machine rooms, but this is directly contradicted by her lift expert’s report, which observed “many cracks” and “water ingress along the cracks” inside the lift machine room.

73.  Thirdly, Ms Leung disagrees with the proposed installation of anti-slip nosing to the main staircases, but agrees that anti-slip nosing is a useful feature. She said that the current rectangular outline on the surface of the staircases would serve the same purpose. However, if one looks at the photo showing such “rectangular outline”, it appears quite unlikely that such outline would serve the purpose of anti-slip nosing.

74.  Furthermore, on a number of matters pertaining to the state of repair, such as external wall, movement joints, blistering and peeling of paintwork on external wall, covered walkway, windows sealant, air-conditioning frames and drying racks, asbestos, waterproof membrane, staircases and landings, staircase window replacement, external staircase and metal railing along the outer edge of car park podium, anti-slip nosings, roof door, driveway, removal of steel-framed structures, retaining structure, internal flats, roof UBWs and aboveground plumbing, aboveground drainage, underground drainage, electrical installations, fire safely installations and lifts, we accept Mr Wong’s evidence as more reasonable and reliable than those of Ms Leung.

75.  We also accept the estimated repair cost produced by Mr Wong instead of that of Ms Leung. Mr Wong’s the estimated cost of constructing a new similar superstructure is $71,226,000. The repair cost amounts to 32% of the construction cost. Mr Wong opines that the substantial repair cost indicated that the deterioration of the Building is very serious and reached a state which is beyond reasonable economic repair.

76.  On the other hand, Ms Leung disagrees. She takes the view that the repair cost would only amount to 10.66% of the construction cost. One primary reason for the difference is that while Mr Wong excludes the demolition and foundation costs in doing his apple-to-apple comparison (as the repair costs do not cover the sub-structure), Ms Leung’s estimation includes demolition and foundation costs notwithstanding that her repair costs also do not cover the sub-structure. As said by the Tribunal in Nice Beauty Limited, supra, Mr Wong’s approach is the usual theoretical comparison approach accepted by the Tribunal.

77.  Mr Wong was challenged as to why “ordinary quality” was adopted for compiling the construction cost of a new superstructure. We, however, accept that Mr Wong is justified in adopting the “ordinary quality”. The difference between “ordinary quality” and “high quality” finishes can be found in the Outline Specification for Residential Buildings of Exhibit R5:-

	Ordinary Finishes	High Quality Finishes
External wall finishes	Glass mosaic tiles	Ceramic facing tiles generally; granite/stone cladding with moulding to lower floors
Windows	Natural anodised aluminium	Curtain wall and window cleaning equipment
Bathrooms	Ceramic tiles to floor and wall; paint to ceiling	Marble/granite to floor and wall/dado; metal ceiling
Main lobby	Ceramic tiles to floor and wall; paint to ceiling	Marble/granite to floor and wall; gypsum board suspended ceiling with paint
Living rooms, dining rooms, bedrooms	Timber mosaic flooring	Engineered timber/ Timber strip flooring
Window sill boards, bay windows	Timber	Marble/granite
Bedroom closets	Not provided	Provided
Marble counter-tops in kitchens and bathrooms	Not provided	Provided
Kitchen cabinets	Minimal provision	Middle range proprietary product
Ironmongery	Ordinary quality [Bonco, Bauhaus or equivalent flat entrance lockset]	Good quality [Schlage, Baldwin or equivalent flat entrance lockset]
Sanitary fittings	Ordinary quality [Kohler / Roca / Vitra or equivalent major fittings with Hansgrohe / Zucchetti or equivalent mixer]	Good quality [Duravit / Flaminia / Villeroy & Boch or equivalent major fittings with Dombracht / Fantini / Grohe / Gessi or equivalent mixer]
M & E provision	Basic provisions	Enhanced lift speed and capacity Provision of more sock outlets and TV / FM outlets More advanced security system

78.  Judging from the table above, it is clear that neither of the experts were proposing to repair the Building to high quality finishes. The most obvious example would be the external wall finishes and windows. Both experts agree on partial repair of the external wall by repairing the tiling and re-painting. The external wall of the repaired Building is quite far from having high quality finishes, which consist of ceramic facing tiles generally and stone cladding with moulding to lower floors. For the windows, the repaired Building will not have curtain wall panels.

79.  Thus, we are of the view that Mr Wong’s evidence is reasonable and cannot be faulted.

State of repair – Structural assessment

80.  Mr So opines that the Building’s structural frame have deteriorated extensively and are in need of repair. He also took the view that the defects are propagating – it is inevitable that new defects will occur and previous defects though repaired will recur readily.

81.  Dr Koon’s view is different. He considers that the overall appearance and structural condition of the Building is good, and that the building conditions are overall good and durability is not a concern.

82.  On this, we accept that Mr So’s evidence should be preferred to that of Dr Koon.

83.  The methodology adopted by Mr So and Dr Koon is largely the same, but they came to different conclusions. Mr So and Dr Koon dispute mainly on the sampling size for different laboratory tests, which is to find out the in-situ concrete properties of the Building. They also argue on how to interpret the respective test/survey results in terms of concrete strength, chloride content, carbonation, concrete cover and reinforcement corrosion, and have disagreements on the number of structural defects, the way to deal with unauthorized building works and retaining wall, the application of design working life and the amount of structural repair cost.

84.  Mr So has taken 24 samples only for each structural test/survey, out of which 8 were carried on columns/walls, 8 on beams and 8 on slabs. Whilst Dr Koon has taken 50 samples for compression test, carbonation depth test and open-up examination and 30 samples for cement content test, chloride content test and cover-meter test, but they are samples from columns/walls only. We are of the view that more samples would generally be more representative and therefore more samples are preferable. It is also necessary to take samples from beams and slabs, which are another type of structural members, even if the concrete mix for different structural members on the same floor might be made from the same batch of concrete. In this instance, we consider that the structural tests/surveys of both structural experts should be taken into consideration and should also be reviewed with care.

85.  In terms of concrete strength, Mr So’s compression test results reveal that 3 out of 8 column/wall samples, 4 out of 8 beam samples and 3 out of 8 slab samples could not meet the design strength. Dr Koon adopts a different approach. He compares the average measured concrete strength with 85% of the design strength under the LCC By-laws, and concludes that all his 50 samples have fulfilled the required acceptance criteria. Even if average figure can be used for comparison, we would prefer to firstly look at each test result individually because the identification of the weaker point if any is relevant and important in structural assessment. We are also of the view that there should have been comparison with the design strength. Even if there is a lower threshold because of the safety margin, the comparison with the lower threshold cannot replace the comparison with the design strength, which was the requirements when the building was designed and built.

86.  Regarding the cement content tests, Mr So’s results and Dr Koon’s results reveal that 5 (3 in column/wall, 1 in beam and 1 in slab) out the 24 samples and 3 out of the 30 samples respectively were below the minimum cement content.

87.  On the whole, we agree with Mr So that the Building has to a certain extent deficiency in the concrete strength and the structural capability of its structural elements may not be sufficient to resist the intended loads or forces.

88.  In terms of chloride content, we agree with the respondents that the test results are basically satisfactory. Only 1 out of the 8 slab samples of Mr So and 3 out of the 50 samples of Dr Koon exceeded the limit of 0.35% chloride content.

89.  In terms of carbonation, we agree with Mr So that the alkaline environment of the Building, which protects the steel bars, is compromised, and the reinforcement bars near the surface of the structural elements are vulnerable to be attacked by corrosion. Mr So’s results reveal that 13 (1 in column/wall, 5 in beam and 7 in slab) out of the 24 samples exceeded the measured mean thickness of concrete cover, and Dr Koon’s results, which were limited to column/wall only, reveal that the carbonation depth in 21 out of 50 locations reached the reinforcement bars.

90.  In terms of concrete cover, Mr So’s results reveal that 2 out of the 8 column/wall samples, 7 out of the 8 beam samples and 1 out of the 8 slab samples were lower than that as stipulated in the LCC By-laws, and the 30 Dr Koon’s wall samples generally tallied with the approved structural plans.

91.  In terms of reinforcement corrosion, Mr So found that all steel reinforcement bars exposed from corrosion survey locations exhibited rust of various magnitudes. The average reduction in bar area of columns/walls, beams and slabs are 4.4%, 5.6% and 5.8% respectively. Whilst, Dr Koon’s 50 open-up survey tests reveal that 5 vertical bars had a loss of cross-sectional area of 0.2% to 3.8% and 6 transverse bars had a loss of cross-sectional area of 1.3% to 12.4%.

92.  In terms of structural defects by visual inspection, Mr So had identified 75 structural defects in the form of spalling and cracks in the 14 inspected flats and the common areas in the Building. Dr Koon estimates that the number of elements with structural defects in the Building including the vacant units was about 96.

93.  It is not disputed that there were unauthorized building works in the Building. Even if there were no enforcement action, we consider that these unauthorized building works would to a certain extent affect the structure and safety of the Building. Further, on a balance of probabilities, we consider that the crack in the retaining wall is not a construction joint as opined by Dr Koon. The Incorporated Owners of the Building had in fact resolved in 2020 to repair the crack. We agree with Mr So that the crack in the retaining wall should be repaired.

94.  Regarding the structural repair costs, we agree with Mr So that there should be provision of props and bracing for structural repairs as safety measures and the application of anti-carbonation paint to the soffit of the ground floor slab, which is above a sloping soil surface with extensive exposure. We also agree with him to estimate the cost based on the advice of quantity surveyor instead of the direct adoption of the rates published by the Architectural Services Department, which are for tenderers bidding for government jobs only and such jobs are mostly long-term maintenance work. We agree to the repair costs proposed by Mr So, in the sum of $109,850 for hammer tapping, $585,000 for repairing the defective structural elements and $148,500 for application of anti-carbonation paint to the soffit of the ground floor slab.

95.  In sum, we prefer the conclusions and recommendations of Mr So to those of Dr Koon, who relies on some foreign materials in his assessment. We have doubt to accept the foreign materials downloaded from the website without rigorous verification and proof. With the presence of local codes and guidelines, we also find that foreign codes are inapplicable because of the difference in climate, materials for construction, range of temperature, use of mechanical plants for construction and building regulations, etc.

96.  We agree with Mr So that the structural frames of the Building, which have deteriorated over the past 55 years, are in need of repair, and the deterioration will continue steadily due to extensive carbonation of the concrete. As revealed in the various structural surveys and tests, there are inherent structural defects in the Building and the defects are propagating.

Conclusion on state of repair

97.  Based on the aforesaid discussions, we are satisfied that the redevelopment of the Building is also justified due to the state of repair of the Building.

ISSUE 3 – REASONABLE STEPS

98.  The applicants have made 11 offers to each of the respondents as follows: -

Date	R1	R2	R3	R4
25-Feb-19	$35,890,000	$38,810,000	$43,680,000	$36,050,000
3-Apr-20	$35,100,000	$37,920,000	$42,747,000	$35,270,000
2-May-20	$35,890,000	$38,810,000	$43,680,000	$36,050,000
2-Jun-20	$34,935,100	$37,734,100	$42,535,000	$35,094,500
6-Jul-20	$35,100,000	$37,920,000	$42,747,000	$35,270,000
3-Aug-20	$35,100,000	$37,920,000	$42,747,000	$35,270,000
3-Sep-20	$35,100,000	$37,920,000	$42,747,000	$35,270,000
3-Mar-21	$36,504,000	$39,816,000	$44,884,000	$36,681,000
1-Apr-21	$38,329,000	$41,807,000	$47,128,000	$38,515,000
5-May-21	$38,329,000	$41,807,000	$47,128,000	$38,515,000
28-Jan-22	$38,329,000	$41,807,000	$47,128,000	$38,515,000

99.  The applicants’ offers have made reference to the then valuations prepared by Savills Valuation and Professional Services Limited (“Savills”) and reflected the then RDV attributable to the respective units owned by the respondents.

100.  In assessing the reasonableness of the offers, we have considered the Court of Final Appeal’s judgment in Capital Well Ltd v Bond Star Development Ltd FACV 4/2005, (2005) 8 HKCFAR 578 particularly in paragraphs 33 and 36 thereof Ribeiro PJ has this to say: -

“33. In making that assessment the Tribunal is not conducting a valuation exercise. It does not need to adjudicate upon any disputes about the correct valuation principles to be applied. It does not itself arrive at any conclusion as to what figure represents the correct valuation. It merely needs to be satisfied that, on the evidence available, the offer falls within the range of what may broadly be regarded as fair and reasonable compensation for the interest in question. It is obviously necessary to recognise that there will often be differences of opinion on that matter …

…

36. ... We are of course not suggesting that it is necessary for the offer to ‘beat’ the valuation as if it were a payment into court. What the Tribunal must do is to consider whether, in the circumstances of each case, the offer falls within a band of what represents a fair and reasonable assessment of the value of the minority owner’s interest reflecting a proportionate share of the redevelopment value of the whole site …”

101.  We accept that the applicants’ respective offer prices fall within the range of what may broadly be regarded as fair and reasonable compensation for the interest in question. In these proceedings, there is no evidence that Savills’ valuations were basically unreliable, and in fact the determinations by this Tribunal to be discussed in the latter parts of this judgment are not far from the assessments by Mr Charles Chan (“Mr Chan”) of Savills, the valuation expert appointed by the applicants. Although we may not agree with Mr Chan on each and every item in his assessments, it is a matter of differences in opinion and his valuations before this Tribunal have no serious fault.

102.  Thus, we are satisfied that the applicants have taken reasonable steps to acquire the respondents’ properties in accordance with section 4(2)(b) of the Ordinance.

ISSUE 4 – UNDUE HARDSHIP

103.  Mr Yuen submits that the Tribunal is entitled to take into account all the circumstances and not just “age or state of repair” in determining whether the redevelopment is justified and he relies on the case of Century Supreme, supra, where the Tribunal held that “such textual expression does not compel the tribunal to make an order for sale once the “age or state of repair” and “reasonable steps” are satisfied. This means that the tribunal could refuse to grant an order even though the criteria are met”.

104.  Mr Yuen also refers us to the Official Record of Proceedings of the Provisional Legislative Council dated 7 April 1998, where the Secretary for Planning, Environment and Lands remarked that “the criteria specified in the Bill are not exhaustive and that the relevant clause has been purposely drafted to allow the Lands Tribunal to take into account other relevant factors, including that of undue hardship on the part of the minority owners”.

105.  However, we find that Ordinance is clear on the criteria in refusing an order for sale. They are just those requirements mentioned in section 4(2), ie “the age or state of repair” and “reasonable steps to acquire”. There is nothing in the Ordinance which requires the Tribunal to consider “undue hardship” of the minority owners. When the Ordinance is clear, there is no need for us to refer to the discussions of the legislature.

106.  Even if we were to look at the discussions of the legislature, we do not find it conclusive that the Ordinance is to have the intention of including “undue hardship” as a consideration merely by reference to what the Secretary said at the time when the Bill was discussed. The Secretary did not refer to any particular provisions or words of the Bill which could infer “undue hardship” being intended. It is possible that the Secretary might have a wrong understanding of the Bill herself. Alternatively, she could have referred to the regulations to be made under section 12 of the Ordinance, but no such regulations were ever made.

107.  In the premises, we do not follow Century Supreme, supra, and we do not find it necessary to consider the alleged hardship of R2 and R3.

108.  For the sake of completeness, even if we were required to consider undue hardship, we do not find the alleged hardship of R2 and R3 being undue hardship. Those matters mentioned by R2 and R3 are just inconvenience to them. They can hardly amount to any hardship which could prevent the greater good of urban renewal from being achieved.

109.  Thus, we do not find it necessary to consider the alleged hardship of R2 and R3 and such alleged hardship would not be sufficient to prevent an order for sale being granted.

ISSUE 5 - THE EUV OF ALL UNITS IN THE BUILDING

110.  Pursuant to section 4(1)(a)(i) of the Ordinance, if there is a dispute between the parties on the EUV of the units as assessed in the application, the Tribunal shall determine the proper value.

111.  Section 4(1)(a)(ii) further provides that, in the case of any minority owner of the lot who cannot be found, the majority owner of the lot is required to satisfy the tribunal that the value of the minority owner’s property 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.”

112.  There are disputes between the applicants and the respondents on both the EUV and RDV valuations, and they rely on the valuation expert opinion of Mr Chan and Mr Paul Varty (“Mr Varty”) respectively. Mr Chan and Mr Varty have prepared various valuation reports, supplemental and/or rebuttal reports respectively. Mr Chan and Mr Varty have also prepared their 1^st Joint Statement dated 29 January 2021, and after they updated their respective RDV assessments in early 2022 they have prepared their 2^nd Joint Statement dated 28 January 2022.

113.  Both Mr Chan and Mr Varty adopt direct comparison method to arrive at their EUV valuations. They agree on the EUV of each car parking space and the unit rate of the reference domestic unit (ie Unit B on 4^th Floor) at $172,500 per square meter. In the valuation of each domestic unit in the Building, they agree on the conversion factor at 1/8 for the roof and the adjustments for floor, top floor, lighting/ventilation, view and size, but they disagree on how to convert the roof and the adjustments for noise and internal conditions for a few domestic units.

114.  With the benefit of site inspection together with the parties, we agree with Mr Chan not to make adjustment for noise to the Units D on 2^nd Floor, 3^rd Floor and 4^th Floor. We consider that these 3 units would not be adversely affected by their adjacent carport as claimed by Mr Varty. Nevertheless, we are of the view that there should have an adjustment for noise together with privacy for all units on the 1^st Floor, which can be easily seen from the carport in the Building and would also be adversely affected by the noise generated from the carport, but the adjusted rate should be -2% only instead of -3% as suggested by Mr Varty.

115.  With reference to the photos in the trial bundle and the photos taken by the 2 valuation experts during site inspection, we agree with Mr Chan that the internal condition of the Unit B on 5^th Floor, which was tenanted as at the valuation date, should be fair only, but the respective conditions of the Unit A on 5^th Floor, Unit A on 7^th Floor and Unit A on 8^th Floor should be good. We agree with Mr Varty to make positive adjustment to these 3 domestic units, which appear to have decorated to a relatively high standard, but the adjustment rate should be 3% only instead of 6%.

116.  In the conversion of roof, since each of the 4 roofs is an independent unit, we agree with Mr Chan to adopt the average unit rate of the 4 domestic units on the 8^th Floor instead of linking the roof value to the value of the specific domestic unit thereunder.

117.  All the domestic units in the Building are assessed at $479,860,000, which are listed in Appendix I of the judgment.

EUVs of All Units in the Building

118.  The EUVs of all units in the Building as at the relevant date of valuation, ie 15 February 2019, and adopted by this tribunal are appended below: -

CPS No	EUV		CPS No	EUV
1	$1,710,000		17	$1,950,000
2	$1,710,000		18	$1,710,000
3	$1,810,000		19	$1,710,000
4	$1,810,000		20	$1,710,000
5	$1,810,000		21	$1,860,000
6	$1,770,000		22	$1,710,000
7	$1,710,000		23	$1,860,000
8	$1,710,000		24	$1,710,000
9	$1,860,000		25	$1,770,000
10	$1,860,000		26	$1,810,000
11	$1,710,000		27	$1,810,000
12	$1,710,000		28	$1,810,000
13	$1,710,000		29	$1,310,000
14	$1,950,000		30	$1,800,000
15	$1,950,000		31	$1,690,000
16	$1,950,000		32	$1,690,000
			Sub-total:	$56,650,000

Floor	Flat	EUV		Floor	Flat	EUV
1	A	$17,290,000		5	C	$11,320,000
1	B	$15,570,000		5	D	$12,830,000
1	C	$10,310,000		6	A	$18,660,000
1	D	$10,200,000		6	B	$18,660,000
2	A	$17,740,000		6	C	$11,730,000
2	B	$18,290,000		6	D	$12,890,000
2	C	$10,570,000		7	A	$19,310,000
2	D	$10,780,000		7	B	$18,750,000
3	A	$17,290,000		7	C	$11,440,000
3	B	$17,830,000		7	D	$12,570,000
3	C	$10,950,000		8	A	$18,830,000
3	D	$11,140,000		8	B	$17,740,000
4	A	$17,920,000		8	C	$11,390,000
4	B	$18,470,000		8	D	$12,260,000
4	C	$11,620,000		Roof	A	$1,700,000
4	D	$11,490,000		Roof	B	$1,700,000
5	A	$19,120,000		Roof	C	$1,510,000
5	B	$18,570,000		Roof	D	$1,420,000
					Sub-total:	$479,860,000

119.  We therefore accept the total EUV of the Building at $536,510,000 ($56,650,000 + $479,860,000).

ISSUE 5 - RESERVE PRICE FOR THE PUBLIC AUCTION

120.  We are satisfied that the redevelopment of the Lots is justified and that the applicants have taken reasonable steps to acquire all the undivided shares in the Lots. Such being the case, we are satisfied that an order for sale should be granted in favour of the applicants.

121.  For the redevelopment of the Lots, Mr Chan and Mr Varty agree that the Lots have a net site area of 988.94 square meters and a maximum plot ratio of 5. In addition to the valuation by residual method, they also assess the RDV by direct comparison method with reference to a site comparable, Nos 1 & 1A Kotewall Road, transacted on 13 December 2021. In the residual valuation, although they agree on some of the valuation parameters such as marketing cost at 3% of gross development value (“GDV”), professional fees at 6%, demolition cost of $8,052,000, development period of 2.5 years and allowances for stamp duty at 4.25% and legal cost at 0.1% on residual land value, they disagree on the form of optimum development, total saleable area, GDV, interest rate, construction cost and developer’s profit.

Direct Comparison Method

122.  The 2 valuation experts agree that the site comparable upon development has a registered site area of 1,067.48 square meters, a maximum plot ratio of 5 and a maximum gross floor area of 5,337.41 square meters. It was sold in the consideration of $1,300,000,000 (ie accommodation value of about $243,564 per square meter) on 13 December 2021, close to the agreed valuation date of 14 January 2022. As compared with the Lots, the 2 valuation experts agree to make adjustment for site configuration at 5%, but they disagree on the adjustments for location and environment, view and construction cost.

123.  The respective valuation adjustments made by Mr Chan and Mr Varty to the site comparable are as follows: -

Adjustments	Sr Chan	Sr Varty
Location & Environment	-5.0%	8.0%
View	-20.0%	-15.0%
Site Configuration	5.0%	5.0%
Construction Cost	0.0%	4.0%
Total Adjustments	-20.2%	0.2%
Adjusted Accommodation Value	$194,364	$244,051

124.  We agree with Mr Chan that the site comparable in terms of location and environment for residential development in the district is better than the Lots and should justify an adjustment at -5%. The lower density and tranquility of the site comparable outweigh the better accessibility and convenience of the Lots. We also agree with Mr Chan that nil adjustment should be made for construction cost. In addition to the access by way of a shared vehicular lane next to its adjacent development, the site comparable has frontage abutting on and is directly accessible from Kotewall Road. We consider that the respective construction costs for the site comparable and the Lots are similar.

125.  Nevertheless, we are of the view that the adjustment for view should be -17.5% instead of -20% as suggested by Mr Chan or -15% as adopted by Mr Varty.

126.  By applying the adjustments as determined above, the total adjustments should be -17.7%, at the accommodation value of about $200,453 per square meter, and the market value of the Lots should then be about $991,000,000.

Hypothetical Development

127.  The main disputes are (1) whether a taller building as suggested by Mr Varty should be built; (2) whether there should have a sky garden together with a club house on 4^th floor as suggested by Mr Varty; (3) what is the optimum size of common areas; (4) whether the common areas (ie lift shafts and staircases) on car parking levels are gross floor area accountable; and (5) whether there would have larger lift shaft with gross floor area exemption in the hypothetical development.

128.  We prefer Mr Chan’s hypothetical development to that of Mr Varty, and on a balance of probabilities we accept that the lifts shafts and staircases on car parking levels in this instance are gross floor area accountable.

129.  A taller building with more residential floors would enable the residential units on higher levels enjoying better view and hence can achieve a higher value, but more residential floors would create more common areas and hence lower the overall efficiency and would also lower the saleable area of each typical residential unit. Having considered the particular location of the Lots in the Mid-levels district, which has relatively tall buildings to its north, and size of the Lots, which is less than 1,000 square meters and would allow a relatively small scale residential development only, we are of the view that a lower but higher efficiency building is better than a taller building in this instance.

130.  With reference to the Joint Practice Note No 1 for Green and Innovative Buildings, we have doubt whether Mr Varty’s proposal of sky garden on the 4^th Floor is feasible because parts of it do not have cross ventilation. In view of the hypothetical development as a prestigious building in a residential district accommodating mainly middle to high income groups, we consider that larger common area on each floor (ie 55 square meters) as proposed by Mr Chan is preferable.

131.  With reference to Appendix C of PNAP-2 published by Buildings Department and the Buildings Department’s responses in 1/2017 Discussion Forum on 13 January 2017, we are of the view that the lift shafts and staircases on car parking levels (ie from the 1^st to 3^rd Floors) in this instance cannot be exempted from gross floor area calculation. Car park ancillary areas would be 100% exempted in gross floor area calculation if it is either solely serving car parks that are 100% exempted or solely serving car parks and other floor spaces that are also 100% exempted only. Unlike the lift shafts and staircases of car parks at basement that would serve likely the car parks only, the lift shafts and staircases of car parks on the 1^st to 3^rd Floors, in between the Ground Floor and the upper residential floors, would also serve the upper residential floors.

132.  Lastly, although we agree with Mr Varty that gross floor area exemption of larger lift shaft would in certain circumstances increase the overall efficiency marginally because the increase in floor area due to exemption could be allocated for other uses, we disagree to increase the total saleable area of Mr Chan’s hypothetical development in the assessment as suggested by the respondents. If part of the gross floor area exemption, which is subject to a maximum of 10%, is allocated for larger lift shaft, there will have lesser floor area for other exemptions and this would have impact on the overall design. Mr Varty has not provided a fallback valuation based on Mr Chan’s hypothetical development. Without a clear proposal on the overall design including the allocation of gross floor area exemption in detail, we are not persuaded to include gross floor area exemption of larger lift shaft in this instance. In addition, we note that the larger lift shaft concessions could be very minimal, such as The Morgan, one of the 3 comparable developments for GDV assessment in this judgment, which has larger lift shaft of 18.613 square meters[1] only, about 0.13% of the total gross floor area of 13,871.36 square meters[2].

133.  We prefer the hypothetical development (ie a 19-storey residential building) proposed by Mr Chan. We also accept Mr Chan’s proposals on the flat reference unit (ie a flat of 135.54 square meters saleable on 11^th floor with open building view and headroom of 3.5 meters), gross floor area (ie 4,944.63 square meters), saleable area (ie 4,060.27 square meters) and number of parking space (ie 48 private car parking spaces, 1 disabled car parking space and 1 motorcycle parking space).

GDV

134.  The 2 valuation experts agree on the value of the motorcycle parking space at $150,000, but they differ in opinion on the value of the private car parking spaces and disabled car parking space. They dispute on mainly selection of comparables and adjustment for car park ratio but the overall differences are not substantial (ie Mr Chan: $3,600,000 / $3,900,000 v Mr Varty: $3,800,000 v $4,150,000).

135.  Given that the comparables have a wide range of transaction prices and there is no comprehensive analysis of their respective backgrounds, whether each of the car parking spaces was sold together with a residential flat in the same development or the comparable was an independent transaction and etc, we tend to adopt a board-brush approach in this assessment. Having further considered the adjusted unit rates of the common comparables in 2020 and 2021, we accept the higher figures proposed by Mr Varty at $3,800,000 for a private car parking space and $4,150,000 for a disabled car parking space.

136.  In the valuation of the flat reference unit, in addition to 15 common comparables in The Morgan, Arezzo and Azura, Mr Varty has proposed an additional comparable in Babington Hill of 68.92 square meters. Since this comparable is smaller in size, we prefer not to analyze it in this assessment.

137.  The 2 valuation experts agree on the adjustment for floor at 0.5% per 1-level difference, the adjustment for size at 1% per 10-square meter difference, the adjustment for age at 1% per 1-year difference and the adjustment for headroom at 5% per 1-meter difference, but they disagree on some of the adjustments for time, location, view, scale and facilities, and nuisance (if any).

138.  Given that the flat reference unit and most of the comparables are Class D (ie saleable area of 100 to 159.9 square meters) units, we prefer to adopt in the adjustment for time the private domestic indices (Classes D & E) as suggested by Mr Chan to the all classes indices as proposed by Mr Varty.

139.  Regarding the adjustment for location, the 2 valuation experts agree that The Morgan is better than the hypothetical development and Arezzo and Azura are inferior, but they disagree on the adjustment rates. Having reviewed their respective locations in terms of environment, building density, tranquility, accessibility, convenience and etc, we are of the view that The Morgan should be adjusted at -7.5% instead of -10% as suggested by Mr Chan or -5% as proposed by Mr Varty, and Arezzo and Azura should be adjusted at 6% instead of 5% as suggested by Mr Chan or 10% as proposed by Mr Varty.

140.  Mr Chan and Mr Varty disagree on the view of Comparables NR9 and NR11, but they agree on the adjustment rate for each type of view. With the benefit of site inspection together with the parties, we agree with Sr Chan that the view of these 2 comparables is “open building”.

141.  In terms of scale and facilities and in the 2^nd Joint Statement, the 2 valuation experts agreed on the adjustment rates at 5% for Arezzo, which shares some of its common area and recreational facilities with another development Alassio, and 0% for Azura, but disagreed on the adjustment rate for The Morgan. Nevertheless, Mr Chan said at trial it was his mistake that the adjustment rate for Azura should actually be -5%, same as that for The Morgan, instead of 0% because both developments are larger in scale and have more recreational facilities. We agree with Mr Varty that the adjustment rate for both Arezzo and the Morgan should be 0% instead of -5% proposed by Mr Chan. We consider that scale of development is not a material factor for such boutique residential development in the Mid-levels district and the hypothetical development is not very small in scale too. Further, size of the proposed club house at about 5% of the domestic gross floor area would also be proportional to the size of the hypothetical development.

142.  In terms of nuisance, we agree with Mr Varty to make adjustment to the comparables in Arezzo and Azura at the minimal rate of 1% to reflect the temporary nuisance to them created by their nearby construction site.

143.  The RDV of the flat reference unit is assessed at $360,000 per square meter, which is listed in Appendix II of the judgment. Further, having applied an adjustment for floor at 0.5% per 1-level difference and an adjustment for special units at 30%, the average unit rate for the residential portion is assessed at $375,600 per square meter, about 4.33% above the adjusted unit rate of the flat reference unit, and the unit rate of the flat roof on the 4^th Floor is assessed at $57,900 per square meter, about 1/6 of the 4^th Floor unit rate as agreed by the parties.

144.  We consider that the adjustment rate for special units at 30% as agreed by the 2 valuation experts should have included the value of roof in this instance as suggested by Mr Chan. The assessment of roof value in addition to the adjustment at 30% as suggested by Mr Varty would double count this factor. Since the duplex units on the top 2 floors would have “open building” view only, we consider that their specialty is attributable to mainly their attachment of roof and 30% can fully reflect this factor.

Residual Method – interest rate, construction cost and developer’s profit

145.  Given that the developer would be able to lend part of the land cost and building cost only, we agree with Mr Chan that the interest rate adopted in a residual valuation is to reflect the cost of project finance or building mortgage as well as the opportunity cost of developer’s capital. However, we consider that the opportunity cost of developer’s capital should also base on the cost of project finance or building mortgage instead of extending it to cover the risks and effort required for a property development, which are normally reflected in developer’s profit only. If the residual valuation takes into account of the risks and effort required for a property development in both the interest rate and the developer’s profit, there would have double counting.

146.  Having considered the relatively low HIBOR rates, the finance market as at the valuation date and that the cost of project finance would generally be higher than the finance cost of investment properties, we consider that the interest rate in the subject residual valuation should be 4% per annum instead of 3% as suggested by Mr Varty. As at the valuation date, there was a tendency that interest rate would increase in short term and continue to increase in medium term, which would lift up the cost of project finance.

147.  Regarding the construction cost, the 2 valuation experts agree to adopt the same base rate of $36,700 per square meter for very high quality residential building, but they disagree on mainly the adjustment rates for development scale and accessibility. Since the scale of the hypothetical development is slightly below 5,000 square meters only, we accept the adjustment for development scale at 17.5% as proposed by Mr Varty instead of 20% as suggested by Mr Chan. Further, although we agree with Mr Chan that there should have adjustment for accessibility in this part of the Mid-levels district, the adjustment rate should be about 5% only instead of 15% as suggested by Mr Chan. Accordingly, we accept the construction cost of about $300,000,000 only, below the figure of $336,157,878 as adopted by Mr Chan

148.  Regarding the developer’s profit, we are of the view that it is reasonable to adopt a rate of 12.5% instead of 15% as proposed by Mr Chan or 12% as suggested by Mr Varty. We consider that as at the valuation date, despite the slight drop in residential property price in late 2021, the hypothetical development along Robinson Road in the Mid-levels district is still a sought after development project and demanded by most of the local developers.

149.  The residual land value is assessed at $1,012,000,000, in between Mr Chan’s valuation at $901,000,000 (ie excluding his latest amendment to the adjustment for scale and facilities at the trial) and Mr Varty’s valuation at $1,155,100,000, which is listed in Appendix III of the judgment.

RDV of the Lots as at 24 January 2022

150.  Based on the agreements between the two valuation experts and the above determinations, we assess the RDV of the Lots at $1,000,000,000, equivalent to an accommodation value of about $202,240 per square meter (ie about $18,789 per square foot), which should be the reserve price for public auction. The assessment at $1,000,000,000 is in between the land values derived by the direct comparison method, which relies on one site comparable only, and the residual method.

ORDERS

151.  For the reasons given in this judgment, we make the following orders:-

(1) All the undivided shares in the Lots, the subject of the application, be sold by way of public auction for the purposes of the redevelopment of the Lots;

(2) Mr Tam Tak Hing and Mr Ching Kwok Ho, nominated by the applicants, be appointed the trustees (“the Trustees”) to discharge the duties imposed on them as trustees by the Ordinance in relation to the sale of the Lots;

(3) The Trustees be authorized to charge such remuneration for their services in accordance with the terms set out in the letter of Messrs King & Company dated 21 January 2022;

(4) For the purposes of the sale of the Lots by public auction: -

a) the sale of the Lots be on the particulars and conditions of sale the same or substantially the same as those set out in the draft Particulars and Conditions of Sale to be approved and initialed by the Tribunal; and

b) the reserve price be set at $1,000,000,000;

(5) Subject to further extensions that the Tribunal may subsequently allow upon the application of the purchaser of the Lots or its successor in title, the redevelopment of the Lots and the Building shall be completed and made fit for occupation within a period of 6 years after the date on which the purchaser of the Lots becomes the owner of the Lots; and

(6) Liberty to the applicants, the respondents and the Trustees to apply to the Tribunal for further directions.

COSTS

152.  Following Good Faith Properties Ltd and Others v Cibean Development Co Ltd [2014] 5 HKLRD 5340, we make a costs order nisi that save for costs orders that have already been made, the applicants do pay costs of these proceedings to the respondents, on High Court scale with certificate for one counsel and including any reserved costs, to be taxed if not agreed. Unless any parties apply by summons to vary the costs order nisi, it shall be made absolute upon expiry of 14 days from the date of this judgment.