EVER GREAT DEVELOPMENT LTD v. CHAN WOON CHAM AND ANOTHER

LDCS 6000/2020

[2023] HKLdT 50

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LAND COMPULSORY SALE MAIN APPLICATION NO 6000 OF 2020

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JUDGMENT

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BACKGROUND

1.  The applicant originally applied in this 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 the following 8 rectangular and contiguous lots together with the following 8 buildings erected respectively thereon. In this judgment, the 8 lots are collectively referred to as “the Lots” and the 8 buildings are collectively referred to as “the Buildings”.

the Lots

the Buildings

Kowloon Inland Lot No 10046 (the "1st Lot")	No 177 Tai Kok Tsui Road (the "1st Building")
Kowloon Inland Lot No 10072 (the "2nd Lot")	No 179 Tai Kok Tsui Road (the "2nd Building")
Kowloon Inland Lot No 10090 (the "3rd Lot")	No 181 Tai Kok Tsui Road (the "3rd Building")
Kowloon Inland Lot No 10067 (the "4th Lot")	No 183 Tai Kok Tsui Road (the "4th Building")
Kowloon Inland Lot No 10089 (the "5th Lot")	No 185 Tai Kok Tsui Road (the "5th Building")
Kowloon Inland Lot No 10045 (the "6th Lot")	No 187 Tai Kok Tsui Road (the "6th Building")
Kowloon Inland Lot No 10062 (the "7th Lot")	No 189 Tai Kok Tsui Road (the "7th Building")
Kowloon Inland Lot No 8797 (the "8th Lot")	No 191 Tai Kok Tsui Road (the "8th Building")

2.  The Lots are situated side by side as the table above illustrates and they together form a row, with one side facing Tak Kok Tsui Road and the other side facing a scavenging lane.

3.  Each of the Buildings is a 6-story tenement block and each of them is served by 2 common staircases in the following alternate front and rear (or criss-crossing) manners:

(1)  The 1^st Building first shares a common staircase at the back facing a scavenging lane with its adjacent building, No 175 Tak Kok Tsui Road.

(2)  The 1^st and 2^nd Buildings share a common staircase in the front facing Tak Kok Tsui Road.

(3)  Three pairs of the Buildings also share a common staircase at the back facing a scavenging lane. They are (i) the 2^nd and 3^rd Buildings, (ii) the 4^th and 5^th Buildings, and (iii) the 6^th and 7^th Buildings.

(4)  Three other pairs of the Buildings also share a common staircase in the front. They are (i) The 3^rd and 4^th Buildings, (ii) the 5^th and 6^th Buildings, and (iii) the 7^th and 8^th Buildings.

(5)  The 8^th Building shares a common staircase also at the back with its adjacent building, No 193 Tak Kok Tsui Road.

4.  Occupation permit Nos 58K and 47K were issued for the 1^st Building, the 2^nd Building, the 3^rd Building, the 4^th Building, the 7^th Building and the 8^th Building on 1 May 1957, and occupation permit Nos 41K and 35K were issued for the 5^th Building and the 6^th Building on 26 March 1957, granting permission to occupy their respective ground floors for non‑domestic use and their respective upper floors for domestic use.

5.  According to the approved building plans of the Buildings, there are a shop unit together with a cockloft planned on ground floor and a domestic unit planned on each floor from 1^st floor to 5^th floor of each block.

6.  According to the records of the Land Registry, 5 domestic units of the Buildings (i.e. 3^rd Floor of No 179 Tai Kok Tsui Road, 2^nd Floor of No 185 Tai Kok Tsui Road, 3^rd Floor of No 185 Tai Kok Tsui Road, 4^th Floor of No 187 Tai Kok Tsui Road and 3^rd Floor of No 189 Tai Kok Tsui Road) have been subdivided into 3 smaller units (i.e. Portion / Flat A, B and C).

7.  Each of the Lots together with the respective building standing thereon is allocated 6 undivided shares. Each of the shop unit and the 5 domestic units in each block is given 1 undivided share, making up a total of 6 undivided shares. Each of the 3 sub-divided units of the said 5 domestic units is given 1/3 of 1 undivided share, making up a total of 1 undivided share.

OWNERSHIP OF THE APPLICANT

8.  At the time of filing of the Notice of Application (“NOA”) on 18 May 2020, there were 6 respondents. The applicant then owned the following undivided shares in the Lots: -

Lot

Undivided Share

Percentage

Average Percentage

1st Pair of Building	1st Lot	6/6	100%	91.67%
	2nd Lot	5/6	83.33%
2nd Pair of Building	3rd Lot	5/6	83.33%	91.67%
	4th Lot	6/6	100%
3rd Pair of Building	5th Lot	5 & 2/3 of 6	94.44%	80.56%
	6th Lot	4/6	66.67%
4th Pair of Building	7th Lot	5/6	83.33%	91.67%
	8th Lot	6/6	100%

9.  In the application and submissions of the applicant, the applicant groups the 1^st Building and the 2^nd Building on the 1^st Lot and the 2^nd Lot respectively, which are connected by a common staircase in the front, as “the 1^st Pair of Building” for calculating average percentage of ownership under section 3(2)(b)(ii) of the Ordinance. The applicant also groups and names the 3^rd Building and the 4^th Building as “the 2^nd Pair of Building”, the 5^th Building and the 6^th Building as “the 3^rd Pair of Building”, and the 7^th Building and the 8^th Building as “the 4^th Pair of Building”, each pair of them also connected by a common staircase in the front, for calculating average percentage of ownership under the Ordinance.

10.  After the filing of the NOA, the applicant acquired 2^nd Floor of No 179 Tai Kok Tsui Road, 2^nd Floor of No 181 Tai Kok Tsui Road, 1/3 share of 1^st Floor of No 185 Tai Kok Tsui Road and 2^nd Floor of No 189 Tai Kok Tsui Road and subsequently discontinued the proceedings against the 1^st respondent, the 2^nd respondent, the 3^rd respondent and the 6^th respondent. The applicant has also amended the NOA on 9 March 2021, re-amended the NOA on 16 August 2021 and re-re-amended the NOA on 14 July 2022 pursuant to the Orders of the tribunal.

11.  At the trial, the applicant owned the following undivided shares in the Lots: -

Lot

Undivided Share

Percentage

Average Percentage

1st Pair of Building	1st Lot	6/6	100%	100%
	2nd Lot	6/6	100%
2nd Pair of Building	3rd Lot	6/6	100%	100%
	4th Lot	6/6	100%
3rd Pair of Building	5th Lot	6/6	100%	83.33%
	6th Lot	4/6	66.67%
4th Pair of Building	7th Lot	6/6	100%	100%
	8th Lot	6/6	100%

THE REMAINING RESPONDENTS

12.  At the trial, the following 2 respondents (“the respondents”) remain in the present action: -

Respondent		Premises
4th Respondent	(“R4”)	5th Floor of No 187 Tai Kok Tsui Road (“R4’s Property”)
5th Respondent	(“R5”)	Ground Floor and Cockloft of No 187 Tai Kok Tsui Road (“R5’s Property”)

13.  R4 cannot be found. Substituted service of the application on R4 was effected on 21 June 2021 pursuant to the Order of the tribunal dated 1 June 2021. Up to the date of trial, R4 has not shown up.

14.  R5 is the only one live respondent opposing the application in these proceedings. Although R5 has already sold his ½ share of 2^nd Floor of No 189 Tai Kok Tsui Road to the applicant, he still owns the R5’s Property.

TRIAL HISTORY

15.  R5, represented by Ms Emily Ting (“Ms Ting”), took issue at the trial before Member Alex Ng alone mainly on the valuations in the application. R5 has appointed Mr Patrick Lai (“Mr Lai”) of AA Property Services Ltd as his valuation expert.

16.  The applicant is represented by Ms Nancy Ngai (“Ms Ngai”). The applicant has appointed Dennis Wong Wing Cheung (“Mr Wong”) of Prudential Surveyors International Ltd and Mr Sammy Ng Tim Yeung (“Mr Ng”) of AECOM Asia Company Ltd as its building experts, and Ms Dorothy Chow (“Ms Chow”) of Colliers International (Hong Kong) Ltd as its valuation expert.

17.  After the judgment of Max Win Development (HK) Ltd v Lam Ngok Hing and Others, unreported, LDCS 37000/2019, 30.9.2022 (“Max Win”)[1]was handed down by another panel of the tribunal[2] shortly before the pre-trial review of these proceedings on 6 October 2022, R5 also took issue at the trial before Member Alex Ng alone on the entitlement of the applicant to make the application in terms of ownership and the entitlement to apply for an order for sale of the Lots together in one auction.

18.  Since the above two issues are legal issues, Member Ng at the 4^th day of the trial directed that respective written closing submissions, being Part I on legal issues and Part II on valuation and other issues, be lodged and exchanged on or before 31 January 2023 and an oral hearing of the legal issues only be scheduled to be heard before Deputy District Judge (“DDJ”) S H Lee alone on 7 February 2023.

19.  At the said last day of trial before DDJ S H Lee alone on 7 February 2023, it was agreed by the parties, and also accepted by the tribunal, that a combined judgement on legal and valuation issues be handed down by the tribunal. Ms Ting further confirmed that, if (contrary to her submissions) an order for sale is granted on the 5^th Lot and the 6^th Lot, R5 had no objection for directions sought by the applicant that the 5^th Lot and the 6^th Lot be sold together with the rest of the Lots as a merged site and for the apportionment of sales proceeds thereof based on the EUV of all units in the Buildings.

20.  Afterwards, on 9 February 2023, the applicant filed notice to withdraw the 1^st, 2^nd, 3^rd, 4^th, 7^th and 8^th Lots from this application. Thereafter, the applicant applies now only for an order for sale of all the undivided shares of the 5^th Lot and the 6^th Lot (i.e. the 3^rd Pair of Building connected by a common staircase in the front).

ISSUES FOR DETERMINATION BY THE TRIBUNAL

21.  Hence, the issues that were argued by the parties at trial and that remain to be resolved by the tribunal are as follows:

(1)  Whether the applicant was entitled to make the application in terms of ownership percentage in respect of the 5^th Lot and the 6^th Lot?

(2)  What was the respective existing use value (“EUV”) of all units in the Buildings as at 26 March 2020, the valuation date adopted in the application valuation report dated 26 March 2020, as assessed in accordance with Part 1 of Schedule 1 of the Ordinance?

(3)  Whether the redevelopment of the 5^th and 6^th Lots is justified due to age and/or state of repair of the 3^rd Pair of Building in accordance with section 4(2)(a) of the Ordinance?

(4)  Whether the applicant has taken reasonable steps to acquire all the undivided shares in the 5^th and 6^th Lots on terms that are fair and reasonable in accordance with section 4(2)(b) of the Ordinance?

(5)  If an order for sale should be granted in respect of the 5^th Lot and the 6^th Lot, what should be the reserve price (i.e. redevelopment value (“RDV”) of the Lots) for the purpose of one single auction sale of the Lots as a merged site?

22.  The introductory paragraphs of this judgment are written by both members of this tribunal. Issue (1) of this judgment on the entitlement of the applicant to make this application is determined and written by DDJ S H Lee alone. Based on determination of Issue (1) by DDJ S H Lee alone, Issues (2), (3), (4) and (5) of this judgment on valuation and other issues are determined and written by Member Ng alone. The orders made in this Judgment are jointly made by both members of this tribunal.

ENTITLEMENTS TO MAKE THE APPLICATION – ISSUE (1)

Ownership Percentage Threshold

23.  Section 3(1) of the Ordinance requires an applicant or applicants to have not less than 90% of the undivided shares in a lot before he may make an application to the tribunal for an order to sell all the undivided shares in the lot for the purposes of the redevelopment of the lot.

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

25.  The Land (Compulsory Sale for Redevelopment (Specification of Lower Percentage) Notice was gazetted on 22 January 2010 and came into operation on 1 April 2010 (“the Notice”). Section 3 of the Notice lowered the threshold percentage i.e. the percentage required for the purposes of section 3(1) for applying for compulsory sale in respect of the classes of lots specified in the Notice from 90% to 80%.

26.  Under section 4(1)(b) of the Notice, 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”. The “relevant date” is defined in section 2 of the Notice to mean the date of the application i.e.18 May 2020 for this application.

27.  The respective occupation permits of the Buildings erected on the Lots were issued more than 50 years prior to the filing this application. The Notice is therefore applicable. Indeed, R5 does not dispute that the threshold percentage for the purpose of this application has been lowered to 80% by the Notice. And this is the ownership percentage threshold applied by this tribunal in this application.

Multiple-Lot Applications

28.  Without prejudice to the above, section 3(2) of the Ordinance stipulates that an application under section 3(1) may cover:

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

(b) 2 or more lots -

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

(ii) where the average of -

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

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

is not less than the percentage specified in subsection (1) (bold supplied).”

Connected by Front Common Staircase

29.  R5 accepted that, for purpose of calculating average percentage of undivided shares for this application pursuant to section 3(2)(b)(ii) of the Ordinance, the applicant’s approach of grouping into 4 pairs the Buildings by way of common front staircase can be adopted and that it is appropriate to consider the 3^rd Pair of Building for calculating average ownership percentage under section 3(2)(b)(ii) of the Ordinance.

30.  Ms Ting’s submissions and related submissions of Ms Ngai, both of which this tribunal agrees, ran as follows:

(1)  “Building” in section 2 of the Ordinance means a building within the meaning of the Buildings Ordinance, Cap 123 (“BO”). Under section 2 of BO, “building” includes the whole, or any part, of any domestic or public building… (italics supplied)”.

(2)  After noting the above 2 definitions, the Court of Appeal in Pacific Base Holdings Ltd v Ever Million Development Ltd & Others, CACV 426/2020 (unreported, 31.05.2021) (“Pacific Base”)[3] had ruled at §15 of its judgment that “if there is only part of a building on a lot, redevelopment can mean the replacement of part of a building on the lot”.

(3)  The Court of Appeal said at §§17 and 22 of its judgment in Pacific Base that they could discern no contextual reason to exclude a redevelopment of part of a building (assuming it is one building straddling over two different lots) from the scope of the Ordinance. In the context of buildings connected by common staircase, section 3(2)(b) of the Ordinance indicates that the legislature regarded the same as two buildings.

(4)  According to Pacific Base, the scheme of the Ordinance is lot-based. Absent restriction due to deed of mutual covenant covering 2 or more lots or common law rights stemming from easement, owners of each lot can decide for themselves whether to redevelop structure erected over their own lot (and whether alone or in conjunction with structure erected over adjacent lot) without obtaining consent from owners of adjacent lot.

(5)  Hence, for this application, the 5^th Building is a “building” as defined by the Ordinance for redevelopment purpose according to Pacific Base. So is the 6^th Building a “building” within the Ordinance for same purpose. The 3^rd Pair of Building are connected in their front by a common staircase intended for common use by their occupiers.

(6)  And, in this application, said R5, there is no evidence of restriction over the right of owners of the 5^th Lot or the 6^th Lot to redevelop their lot (and the 5^th Building or the 6^th Building erected thereon) and no evidence to show that these owners have exercised rights of way over other buildings erected on non-adjacent lots.

Issue of Lot(s) Wholly Owned by Applicant

(1)  Max Win

31.  The tribunal (differently constituted) had recently in Max Win cast doubt on whether an applicant owning 100% of a lot though on which one building is connected to another building on an adjoining lot by a staircase intended for common use by the occupiers of the buildings could make an application under the Ordinance despite the average of the percentage of the undivided shares owned by the applicant in Group A lot(s) and in Group B lot(s) is not less than the percentage specified in subsection (1).

32.  His Honour Judge M Wong held at §33 of the judgment of Max Win that whilst an application under the Ordinance may include multiple or contiguous lots, such multiple-lots application is permissible if, and only if, the conditions in section 3(2)(a) or 3(2)(b) are satisfied. There is no other basis to permit an application to encompass multiple or contiguous lots. Non-fulfilment of the conditions in either limb of section 3(2) will result in the multiple-lots application being invalid.

33.  As the 2 lots in Max Win over which the portion of building at No 300 Castle Peak Road was erected were 100% owned even before the commencement of the application, applying Court of Appeal judgment in Bond Star Development Ltd v Capital Well Ltd [2004] 2 HKLRD 855 (“Bond Star”) which is binding upon the tribunal, the said 2 lots were not within the scope of the Ordinance (§46 of the judgment of Max Win).

34.  Nor could the applicant in Max Win apply on its own (or even with the other two lots straddled by the building) for compulsory sale order in respect of another 2 lots over which the portion of the building at No 302 Castle Peak Road stands because it owned only 66.67% ownership of their undivided shares under section 3(2)(a) of the Ordinance (§47 of the judgment of Max Win).

35.  Similarly, in Max Win where one of the 2 lots over which portion of the building at No 304 Castle Peak Road stands was 100% owned ever since the commencement of the application, the said lot on which that portion of the building stands was out of scope of the Ordinance (§52 of the judgment of Max Win).

36.  Coming to the lot on which the building at No 306 Castle Peak Road stands, which the applicant in Max Win has by then became the sole owner, His Honour Judge M Wong also applied Bond Star and ruled at §55 of the judgment that the Ordinance does not permit an application to be continued in respect of a number of lots where the applicant is already the full owner of one or more of those lots. Thus, the lot which had become 100% owned could no longer form the proper subject matter of the application (even though it was so at the commencement of the application).

(2)  Winmark

37.  Not long later, in Winmark Properties Limited & Another v Prime Way Investment Co Ltd, LDCS 4000/2020 (unreported, 21.11.2022) (“Winmark”), the same entitlement issue of owner of wholly owned lots arose again when the applicant there at the commencement of an application owned 62.5% of the undivided shares in one lot and 100% of another lot on which a building at Nos 11 & 13 Lyndhurst Terrace straddles.

38.  DDJ Roy Yu at §§11 to 25 of his judgment of Winmark considered at length the procedural history of Bond Star and concluded that Bond Star was argued and decided only on section 3(2)(a) at Lands Tribunal as well as on its appeal to the Court of Appeal. Specifically, Rogers VP had said at 867C of Bond Star that the application or otherwise of section 3(2)(b) to No 28 Ming Yuen Western Street (connected by common staircase to No 30 of Ming Yuen Western Street wholly-owned by the applicant in Bond Star) “has not been argued as such” and the Court of Appeal had at §§35 & 36 of the judgment of Bond Star remitted the said question to the Lands Tribunal for further consideration.

39.  Having so considered Bond Star above, DDJ Roy Yu ruled at §42 of judgment of Winmark that there should be “no reason to exclude” an applicant who is an owner who owns 100% of a lot, but 95% of the other lot (when there are building(s) erected on the lots connected by common staircase) to rely on section 3(2)(b) to apply for an order for sale. Applicant’s shareholding of the two lots should, said DDJ Roy Yu at §42 of his judgment of Winmark, be taken as their average and the applicant should be treated as not having 100% ownership in either lot.

40.  But as regards the lots on which the building at Nos 15 & 17 Lyndhurst Terrace stands, which the applicant had subsequently acquired 100% ownership of 2 lots, DDJ Roy Yu ruled at §§49 and 50 of judgment of Winmark that such “change of circumstance is a matter to be taken into account” and that there is “no purpose” in granting an order for sale for the said 2 lots according to the ruling of Bond Star.

Ownership Percentage Submissions Made by R5

41.  R5 submitted that, since the applicant now owns less than 80% interest in the 6^th Lot and 100% interest in the 5^th Lot, the applicant is not entitled to rely on section 3(2)(b) of the Ordinance to apply for an order for these 2 lots. No order for sale should therefore be made in respect of the 5^th Lot and the 6^th Lot i.e. the 3^rd Pair of Building.

42.  Since the applicant now owns 100% of the undivided shares of the 1^st, 2^nd, 3^rd, 4^th, 5^th, 7^th and 8^th Lots, the applicant is, R5 submits, not entitled to apply for an order for sale of the Lots.

43.  Therefore, this application is, according to R5, not properly constituted and should be dismissed.

44.  Ms Ting developed the above submissions as follows: -

(1)  Though R5 accepted that Bond Star was confined to section 3(2)(a) of the Ordinance, its ratio ought still to apply to section 3(2)(b) such that lots wholly owned by the applicant should not form part of the application. In absence of binding or appellate authorities on the point, Bond Star remains, it was said, persuasive and authoritative. It had not been overruled when the case reached the Court of Final Appeal and it has been followed in subsequent judgments of Lands Tribunal[4].

(2)  This tribunal is invited by R5 to follow Max Win to apply the rationale (if not ratio) of Bond Star (i.e. the Ordinance exists, or an order for sale is required, in order to allow a developer to obtain the last portion of a lot which he does not already own) on both s.3(2)(a) and s.3(2)(b) as a matter of interpretation of the Ordinance, including that an application should not be continued in respect of lots which are fully owned by the applicant. There is, it is stressed, simply “no purpose” for a full owner of a lot asking for an order to put up the said lot for sale.

(3)  Section 3(2)(b)(ii) of the Ordinance refers to “majority owner” by saying “percentage of the undivided shares owned by the majority owner in the lot or lots on which one of the buildings (and on which the other of the buildings) stand (bold and italics supplied)”. Such words in their natural meaning[5] indicate, it was said, multiple ownership[6] and suggest that there must be a majority owner owning less than 100% in each of the lots when the building thereon is connected to that of the adjacent lot by common staircase. Consistent with that, the recurrent theme throughout the Ordinance, as was pointed out at §§34 and 35 of the judgment of Max Win, is a contest between majority owner(s) and minority owner(s).

Consideration of R5’s Submissions

45.  First, though Bond Star was not overruled when it reached the Court of Final Appeal, in line with observations made by DDJ Roy Yu in Winmark, on full and proper analysis of the history and judgments of Bond Star, this tribunal believes that only section 3(2)(a) of the Ordinance was relied upon, argued and decided by the Court of Appeal in Bond Star as well as the Lands Tribunal below. In other words, section 3(2)(b) of the Ordinance had not been argued or decided by the Court of Appeal in Bond Star as well as the Lands Tribunal below. As such, there was no ratio (or rationale) of Bond Star as far as section 3(2)(b) is concerned.

46.  Hence, the rationale given by the Court of Appeal in deciding Bond Star, and the ratio of the appeal judgment, is confined to section 3(2)(a) of the Ordinance only. For application made under section 3(2)(b) of the Ordinance, including this application over the 3^rd Pair of Building, Bond Star is thus not binding on this tribunal.

47.  Despite subsequent judgments of the tribunal following Bond Star, the tribunal in Max Win had, with due respect, wrongly considered itself being bound by (or obliged to follow) Bond Star when it comes to consider applications made under section 3(2)(b) of the Ordinance. In fact, in terms of precedent, this tribunal was, and is, free to decide applications made under section 3(2)(b) of the Ordinance, as was illustrated by the undeniable fact that the Court of Appeal in Bond Star did remit the application or otherwise of that section to Nos 28 & 30 Ming Yuen Western Street to Lands Tribunal below for determination.

48.  Regarding the rationale of Bond Star, as the appeal was decided on section 3(2)(a) of the Ordinance only, it does not, this tribunal believes, apply to applications made under section 3(2)(b) of the Ordinance with the same force or at all.

49.  As Max Win had reviewed the legislative history of the Ordinance at §§21 to 29 of its judgment, the bill at first only contained section 3(1), which dealt solely with “single-lot” application. Section 3(2) covering “multiple-lot” application was introduced by way of amendments to the bill by the authorities to deal with concerns of some members of the Provisional Legislative Council when the bill passed through committee stage.

50.  For “multiple-lot” applications of section 3(2), its 2 sub-sections deal with different “multiple-lot” scenarios. And their ownership percentage threshold requirement is also set up differently. The Court of Appeal in Pacific Base had explained as follows:

“52. Construing the statutory provision in such context, it would appear that Section 3(2) is a permissible variant of an application under Section 3(1) making it clear that an application can cover more than one lots.

53. Section 3(2) spells out how the minimum percentage of ownership should be applied in respect of an application covering more than one lot. Section 3(2)(a) is the provision which applies generally to all such cases other than the situation provided for under Section 3(2)(b). The general requirement is that 90% ownership has to be satisfied in respect of each lot individually.

54. Section 3(2)(b) provides for an exception when the application is in respect of 2 or more lots on which one building is connected to another building by a common staircase. In that particular type of situation, the 90% minimum can be satisfied by way of averaging between the ownership in the lot(s) on which one of the buildings stand and the ownership in the lot(s) on which the other building(s) stand.

58. … by enacting Section 3(2)(b), a less stringent minimum requirement (by averaging the percentage of the two lots) is provided for those who wish to make an application in respect of the two lots together on which two buildings are connected by a common staircase (bold, underline and italics supplied).”

51.  In the humble views of this tribunal, section 3(2)(a) effectively allows multiple “single-lot” applications as the 90% minimum ownership requirement has to be satisfied in respect of each lot individually.

52.  At §29 of the judgment of Max Win, section 3(2)(b) of the Ordinance was called the “common-staircase exception”. The Court of Appeal in Pacific Base had also called that section “a special route” (p.10 of the judgment). It is special in at least two ways.

(1)  It only applies to the scenario of building(s) “connected to another by a common staircase”; and

(2)  Significantly, instead of ownership threshold being met on an individual lot basis, the ownership threshold is to be met by “averaging” (i) the ownership percentage of Group A lot(s) on which one of the buildings stand with (ii) the other ownership percentage of Group B lot(s) on which the other of the buildings stands.

53.  With respects, the rationale given in Bond Star to exclude 100%-owned lots in multiple “single-lot” applications under section 3(2)(a) of the Ordinance (i.e. there is no purpose in an owner of a lot asking for an order to put up the lot for auction if he already owns all the shares, for he could do so without an order) does not, this tribunal thinks, apply to “multiple-lot” applications made under the “common-staircase exception”, or “the special route”, of section 3(2)(b) with the same force or at all.

54.  Adopting a purposive construction of the Ordinance, in line with the thinking of DDJ Roy Yu at §42 of Winmark, it does, this tribunal believes, serve good and legitimate purpose to include (and retain) in section 3(2)(b) applications 100%-owned lots already fully owned by applicant(s) so as to allow its specially-designed “less stringent” “averaging” ownership percentage requirement to operate to its fullest when otherwise the same may not be met for one simple reason or another.

(1)  Take the not uncommon example found in this application i.e. 6-storey tenement buildings connected by a common staircase, with each of the two buildings having 6 units each allocated with 1/6 undivided shares of the lot upon which each building stands.

(2)  In above example, if an applicant is not able to acquire 2[7] out of all 6 undivided shares of Group A Lot(s) for whatever simple reason(s) (such that it owns only 66.67%), it would not be able to obtain an order for sale of the two lots as a whole for redevelopment unless it is allowed to join all 6 shares it owns of Group B Lot(s) (i.e. 100%) in an application under section 3(2)(b) of the Ordinance, thus producing an “average” ownership percentage exceeding the lower threshold of 80% applicable under the Notice. If one is not allowed to include wholly owned (or 100%) lots into applications under section 3(2)(b), the use of this “less stringent” “averaging” threshold requirement designed by the legislature would be much limited.

(3)  Moreover, given that buildings in applications made under section 3(2)(b) “is connected by a common staircase”, there exists, this tribunal believes, another good and legitimate reason to join and retain 100%-owned lot(s) so as to ensure that all the lots over which the said connected buildings are built could be sold to the same purchaser, demolished together and redeveloped together as a composite site. Technical, or feasibility, problems due to their former staircase connection encountered or suggested, for example, in Pacific Base at Lands Tribunal below may therefore be avoided if 100%-owned lot is allowed to be included or retained in the application. And a larger total site can be redeveloped as a result.

(4)  If these 100%-owned lots cannot form the subject matter of section 3(2)(b) applications, unless their owners so happen to out-bid others at auction to purchase the rest of Group A Lot(s) and/or Group B Lot(s) not wholly owned, it is possible, if not likely, that the said connected building(s) may need to be demolished “partly” with possible technical or feasibility problems arising and those lots that are not wholly owned be re-developed in a “haphazard”, if not a “dangerous”, manner.

55.  For reasons at §47 of the judgment of Supergoal Investment Ltd v Five F Ming House Ltd [2014] 1 HKLRD 286 (“Supergoal”), the exclusion of 100%-owned lots carried out by Bond Star to section 3(2)(a) applications, if applied to section 3(2)(b) applications, would, this tribunal agrees with Ms Ngai, undermine the policy objectives of the Ordinance as was questioned by Riberiro PJ below when Bond Star reached the Court of Final Appeal and became known as Capital Well Ltd v Bond Star Development Ltd (2005) 8 HKCFAR 578 (“Capital Well”):

“38. The Tribunal had, on the respondent’s application, ordered the sale of the six lots intended for redevelopment in a single batch. However, the Court of Appeal held (§§12-20) that on the true construction of the Ordinance this was impermissible. It varied the Tribunal’s order to confine it to an order solely for sale of the Lot. The order as varied is not under challenge and stands as between the parties.

39. There is, however, a danger that if the power is so confined the policy objectives of the Ordinance may be undermined. As the Court of Appeal recognized (§17), the minority owner, if sufficiently funded, might be able to bid up the single lot to a highly inflated price thereby exercising “ransom power” through the medium of the public auction. And if the minority owner or a third party actually acquired the auctioned lot, the intended redevelopment might have to be abandoned or face lengthy delays subject to the uncertainties of negotiations with the new owner of the lot. Such consequences plainly run counter to the statutory objectives.

40. If, on the other hand, it were open to the majority owner to combine sale of the Lot with sale of the other lots already owned, the entire developable site would be put up for sale. Such an auction could be expected to attract only bids from genuine developers. There would be no room for ransom-motivated bids. An appropriate reserve price would have to be fixed to ensure that the minority owner receives a proper share of the redevelopment value of the site. But whether the successful bidder should prove to be the majority owner or someone else, a redevelopment of the entire site would be able to proceed without impediment, in line with the objectives of the Ordinance.

41. Plainly, the power coercively to order sale is confined to ordering the sale of a lot or lots in which a majority owner and a minority owner each hold a proprietary interest. However, in cases where a majority owner qualifies for the making of such a compulsory order and wishes to have that lot put up for auction together with adjacent redevelopment lots wholly owned by him, the question arises as to whether, on its true construction, the Ordinance precludes the Tribunal from making an order for sale in respect of the composite site. That matter was not in issue and was not argued before us. In the light of the policy concerns noted above, we wish expressly to leave that question open for possible future consideration.

42. Additionally, if a restrictive construction of the Ordinance is required, we wish expressly to leave it open for possible future consideration whether the Tribunal has a discretion to give suitable directions (under s 4(6)(a) of the Ordinance or otherwise) concerning conduct of the sale designed to secure that the sale of the single lot, the subject of its order, can take place together with the sale of the other redevelopment lots, similar to the directions given by the Court of Appeal in Golden Bay Investment Ltd v Chou Hung [1994] 2 HKC 197 at 200-202, or along analogous lines.”

(1)  A developer applicant contemplating composite site redevelopment would be subject to the “ransom power” of minority owners or third parties if it could only apply for the compulsory sale of a lot that it does not fully own. This would not facilitate comprehensive urban redevelopment in respect of old and dilapidated buildings (compare §§39 and 40 of Capital Well).

(2)  Faced with the above possibility, an applicant contemplating composite site redevelopment may elect not to acquire all the undivided shares in an adjourning lot after he has achieved the threshold percentage so that the application may cover the adjourning lot. This, this tribunal agrees with Ms Ngai’s submissions, does not sit comfortably with the statutory requirement of section 4(2)(b) of the Ordinance that “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).”

(3)  As was stressed by Ms Ngai by reference to §40 of Lands Tribunal[8] judgment of Good Faith Properties Ltd v Cibean Development Co Ltd LDCS 42000/2011 (unreported, 31.5.2013), the above duty of the applicant to take reasonable steps to acquire all the undivided shares extends until the trial of the application.

(4)  If a developer applicant is indeed contemplating a composite site redevelopment, there is, this tribunal thinks, no reason why the minority owners should not be entitled to a share of the redevelopment value on that basis. A restrictive construction of the Ordinance suggested in Bond Star may affect the ability of the tribunal to take the full redevelopment potential into account when setting the reserve price of auction if sale is ordered in the end (compare §40 of Capital Well).

56.  Indeed, in “multiple-lot” application under section 3(2)(b), this tribunal believes that the contrary construction of the Ordinance rejected in Bond Star i.e. allowing inclusion or retention of wholly-owned lots of majority owners could advance more the underlying objective of the Ordinance as was explained by the Court of Final Appeal at §21 of Capital Well quoted below.

“21. The objectives of the Ordinance … are clear. On the one hand, the Ordinance aims to facilitate urban renewal in respect of old and dilapidated buildings by assisting private developers to complete their acquisition where they already own at least 90% of the lot in question and by preventing the indefinite obstruction of a redevelopment by any minority owners who may seek to extract a wholly unreasonable price or “ransom” for permitting the redevelopment to proceed. On the other hand, it aims to ensure that the minority owner receives fair and reasonable compensation for his interest in the lot. Such compensation may be that which the minority owner agrees to accept or that which represents his share of the market value of the lot (reflecting its redevelopment value) as determined at a public auction, subject to a reserve price approved by the Tribunal (bold and italics supplied).”

57.  This tribunal would further agree with §§40, 42, 43 and 44 of the judgment of Max Win where DDJ Roy Yu had discussed the definition of “majority owner” in section 2 of the Ordinance. Such definition could cover 100% owner of a lot applying for an order for sale in applications under section 3(2)(b) of the Ordinance.

58.  Notwithstanding the natural meaning of the word of “majority” pointed out by Ms Ting, “majority owner”, in relation to a lot, is defined by reference to the status of the applicant(s) taking out application under the applicable section(s) of the Ordinance. The ownership threshold requirement is separately provided for in section 3(1) of the Ordinance, where the words chosen are “not less than 90%” prescribing minimum percentage to be achieved and not “less than 100%” prescribing maximum percentage to be avoided. And this is the percentage also to be applicable in multiple-lot applications under section 3(2)(a) or 3(2)(b) of the Ordinance.

59.  In this context, one must not forget the unique legislative history of the Ordinance that led to introduction of section 3(2) at committee stage referred to above. Given that the bill was at first limited to single-lot applications with section 3(1), it was, one thinks, entirely not surprising that the words “majority owner” was chosen at first for the bill. As was explained at §§58 to 60 of Supergoal below, such history has also left other footprints in the Ordinance when the scope of the bill was expanded to include multiple-lot applications with section 3(2):

“58. … The starting premises is still section 3(1) which caters for single lot applications. The Ordinance permits “an application under subsection (1)” to cover more than one lot provided that the conditions set out in section 3(2) are satisfied.

59. Since the Ordinance has inherited the language of the Bill, it has retained definitions referable to single lots (bold added). For example:

(a) “lot” is in the singular;

(b) “majority owner in relation to a lot” is defined as “the person or persons who has or have made an application under section 3(1) in respect of the lot”; (emphasis added) and

(c) “minority owner in relation to a lot which is the subject of an application under section 3(1)” is defined to mean “the persons who (i) owns or own undivided shares in the lot … but (ii) is or are not the person or persons who has or have made the application.” (emphasis added)

60. Given the way section 3(2) is drafted, a multiple lots application satisfying the requirements of section 3(2) is to be regarded as “an application under subsection (1)” which is “an application … to the Tribunal for an order to sell all the undivided shares in the lot for the purposes of the redevelopment of the lot”. Therefore, the context does not exclude but instead presumes the application of section 7(2) of the Interpretation and General Clauses Ordinance that: “Words and expressions in the singular include the plural…”. The word “lot” therefore can mean “2 or more lots” in the context of the Ordinance…”

60.  Like what DDJ Roy Yu said at §35 of the judgment of Winmark, this tribunal has no quarrel with the observation expressed at §§34 and 35 of the judgment of Max Win that the recurrent and consistent theme throughout the Ordinance is a contest between majority owner(s) and minority owner(s). This tribunal, however, has to part company with Max Win (and disagree with Bond Star) to take the view that the said contest could still exist and work effectively in “multiple-lot” applications under section 3(2)(b) in which the applicant(s) have already owned some of the subject lots wholly.

(1)  This application itself is a good example. Despite the applicant owns wholly the 1^st Lot, the 2^nd Lot, the 3^rd Lot, the 4^th Lot, the 5^th Lot, the 7^th Lot and the 8^th Lot, the active minority owner i.e. R5 has still mounted an effective and meaningful challenge to this Application.

(2)  For as long as there remains in section 3(2)(b) applications (which could consist of more than one pair of Group A lot(s) and Group B lot(s)) at least one single lot not wholly owned by the applicants, such contest between majority and minority owners envisaged by the Ordinance could, this tribunal thinks, still exist and work in practice, and the objectives of the Ordinance could still be advanced. To this limited extent, this tribunal begs to differ from §50 of the judgment of DDJ Roy Yu at Winmark.

61.  In any event, the applicant has, as Ms Ngai had intimated at the last day of trial, elected to have withdrawn all its wholly-owned pairs of lots with connected buildings (i.e. the 1^st Lot, the 2^nd Lot, the 3^rd Lot, the 4^th Lot, the 7^th Lot and the 8^th Lot) from this application. Ms Ting’s objection to them forming subject matter of this application could no longer stand.

62.  For reasons given in this section, this tribunal would hold that, though the applicant has, since the commencement of this application, acquired 100% of the undivided shares of the 5^th Lot, it is still entitled to continue this application to apply for an order of sale of all the undivided shares of the 5^th and 6^th Lots for redevelopment purpose. So far as the 3^rd Pair of Building is concerned, this application is properly constituted under the common-staircase exception under section 3(2)(b) of the Ordinance.

DETERMINATION OF THE EUV OF ALL UNITS IN THE BUILDINGS – ISSUE (2)

63.  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. 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.”

64.  In these proceedings, R4 is a missing owner and R5 disputes on the valuations as assessed in the application.

65.  In the EUV assessment by direct comparison method, the 2 valuation experts agree on the valuation date of 26 March 2020, the adoption of the same shop reference unit (i.e. Ground Floor of No 179 Tai Kok Tsui Road) and domestic reference unit (i.e. 2^nd Floor of No 177 Tai Kok Tsui Road), the unit rate of the domestic reference unit at $77,600 per square meter, and the particulars and attributes of all units in the Buildings (i.e. except for the depth of 3 shop units and the view of some domestic units) and the comparables.

66.  They disagree on the selection of some shop comparables. In the direct comparison with the shop comparables, they disagree on mainly the adjustments for location, frontage, size and layout. In the comparison with the shop reference unit in the Buildings, they disagree on mainly the adjustment for frontage only. In the comparison with the domestic reference unit in the Buildings, they disagree on mainly some of the adjustments for view, lighting/ventilation, noise, and whether an additional adjustment for sub-division is necessary.

EUV of Shops

67.  Ms Chow and Mr Lai propose 8 shop comparables and 4 shop comparables respectively, and only 2 of them are common (i.e. Comparables ES1 and ES4). This tribunal agrees to analyse Comparables ES5, ES6, ES7 and ES8 proposed by Ms Chow but would exclude Comparables ES2 (i.e. Shop 8, Gound Floor, Chung Sing Building, Chung Wui Street / Kok Cheung Street) and ES3 (i.e. Shop 34, Ground Floor, Chung Ying Building, Tai Kok Tsui Road / Wai On Street / Lok Kwan Street / Mei On Street) in the assessment. This tribunal agrees with Mr Lai that the respective characters of Comparables ES2 and ES3 located at vehicular dead end and surrounded by mainly engineering workshops are much different from the shop reference unit. Although Comparables ES5, ES6, ES7 and ES8 are also inferior than the shop reference unit and were transacted in 2018 about 2 years earlier than the valuation date, they are adopted because there are not many relevant comparables in the assessment. Given that there are limited number of relevant comparables, this tribunal also agrees to adopt Comparables ES9 and ES10 proposed by Mr Lai, though they were transacted after the valuation date, are smaller in size and the location of Comparable ES10 is relatively far from the shop reference unit.

68.  The 2 valuation experts agree on the adjustment for time with reference to retail price indices, adjustment for age at 1% for every 5-year difference, adjustment for headroom at 2% for every 1-meter difference, and adjustment for size at 1% for every 5-square meter difference. Since Comparables ES9 and ES10 are smaller in size, Mr Lai has proposed an additional adjustment for size at 5% to these 2 comparables, which is agreed by this tribunal.

69.  Although the 2 valuation experts disagree on the depth of 3 shops units including the shop reference unit and argue whether depth measurement should count the depth of the main shop area only or should also count the depth of the kitchen at the back of the shop, they agree on the adjustment rates for layout to the 2 common comparables and the layout adjustments to all the shops in the Buildings. In this instance, with reference to the depth of each comparable and the agreed layout adjustment rates to the 2 common comparables, this tribunal considers that there should have nil adjustment for layout to Comparables ES5, ES7 and ES8 but Comparables ES6, ES9 and ES10 should be adjusted at -2.5%.

70.  Regarding the adjustment for location, this tribunal agrees with Ms Chow that Comparable ES1 should be adjusted at 5% only instead of 10% suggested by Mr Lai, but the adjustment rate for Comparable ES4 should be -25% instead of -30% proposed by Ms Chow and -15% suggested by Mr Lai. On the other hand, this tribunal accepts that Comparables ES5, ES6, ES7, ES8 and ES9 are all inferior than the shop reference unit along Tai Kok Tsui Road, but their adjustment rates should be 35%, 25%, 25%, 30% and 25% respectively. The respective locations of Comparables ES6, ES7 and ES9 are relatively better than Comparables ES5 and ES8. Whilst, Comparable ES10 close to the MTR Olympic Station should be adjusted at -5% instead of 0% proposed by Mr Lai.

71.  Regarding the adjustment for frontage, this tribunal agrees with Ms Chow to adopt the adjustment rate at 2% per 1-meter difference instead of 4% per 1-meter difference suggested by Mr Lai. This tribunal prefers a less sensitive adjustment rate for frontage particularly in the valuation of the retail shops in secondary location.

72.  The valuation of the shop reference unit is listed in Appendix I of the judgment. Although the 2 valuation experts have agreed on the adjustment rate for headroom, this tribunal considers that the headroom of Comparable ES10, which has a cockloft covering most of its ground floor area, should be adjusted manually at say 4.5%. The average unit rate of the 8 comparables is about $260,950, and the average excluding the lowest and the highest, Comparables ES5 and ES7, is about $264,495. This tribunal considers that the adopted unit rate for the shop reference unit should be $264,000 per square meter.

73.  The valuation of each shop unit on ground floor is listed in Appendix II of the judgment. The same adjustment rates and principles as agreed by the valuation experts or as determined by this tribunal above are applied to the valuation of all shop units in the Buildings.

EUV of Flats

74.  Ms Chow and Mr Lai agree on the unit rate of the domestic reference unit at $77,600 per square meter. In the comparison with the other domestic units in the Buildings, they agree on the adjustment for floor at 2.5% per 1-level difference, adjustment for top floor at -5%, adjustment for size at 1% per 5-square meter difference, and all the adjustments for internal condition.

75.  Regarding the adjustment for view, the 2 valuation experts disagree on the adjustments to the units on or above 4^th floor facing east at Nos 183-191 Tai Kok Tsui Road and the sub-divided units, the view of 3^rd Floor of No 191 Tai Kok Tsui Road, and the adjustment rates for the units with the view above flyover and close building. With the benefit of site inspection together with the parties, this tribunal agree with Mr Lai that the units with above flyover view and close building view should be adjusted at 2% only instead of 5% proposed by Ms Chow, but this tribunal agrees with Ms Chow on the description of view to the units including the sub-divided units. In the subject assessment, it is not necessary to differentiate the single aspect of the subdivided units and the view towards M & E facilities suggested by Mr Lai. Nevertheless, this tribunal considers that the building view of the units on the 4^th and 5^th Floors of Nos 183 – 191 Tai Kok Tsui Road would be affected by the funeral parlour on the opposite side of Tai Kok Tsui Road. The units on the 4^th and 5^th Floors of Nos 183 – 187 Tai Kok Tsui Road should be adjusted at 5% and the units on the 4^th and 5^th Floors of Nos 189 – 191 Tai Kok Tsui Road should be adjusted at 4%, instead of the agreed rate of 10% for building view.

76.  Regarding the adjustment for lighting/ventilation, this tribunal considers that negative adjustment should be applied to the sub-divided units facing the lane only instead of all sub-divided units as suggested by Mr Lai, and the adjustment rate should be -3% instead of -5% as agreed. Nonetheless, this tribunal agrees with Mr Lai that the noise adjustment to these sub-divided units facing the lane should be 2% only instead of 3% proposed by Ms Chow.

77.  This tribunal agrees with Ms Chow not to make an additional adjustment at -5% to the sub-divided units of about 20 square meters as suggested by Mr Lai. This tribunal disagrees with Mr Lai that these small sub-divided units would have poor marketability.

78.  Based on the agreements between the 2 valuation experts and the above determinations by this tribunal, the valuation of each domestic unit in the Buildings is listed in Appendix III of the judgment.

EUV of All Units in the Buildings

79.  The EUV of all units in the Buildings as at the date of valuation, i.e. 26 March 2020, and adopted by this tribunal are appended below: -

Street No Floor EUV

Street No Floor EUV

No 177 G $24,970,000 No 179 G $22,390,000 No 181 G $21,030,000 No 183 G $24,530,000

No 185 G $20,600,000 No 187 G $25,670,000 No 189 G $21,030,000 No 191 G $25,740,000

Sub-total: $185,960,000

 

 

Street       No Floor Unit EUV

Street       No Floor Unit EUV

No 177 1 - $6,178,000 No 179 1 - $5,985,000 No 181 1 - $6,370,000 No 183 1 - $6,178,000 No 185 1 - $6,370,000 No 187 1 - $6,370,000 No 189 1 - $6,563,000 No 191 1 - $6,370,000 No 177 2 - $6,215,000 No 179 2 - $6,401,000 No 181 2 - $6,215,000 No 183 2 - $6,215,000 No 185 2 A $1,821,000 No 185 2 B $1,599,000 No 185 2 C $2,176,000 No 187 2 - $6,401,000 No 189 2 - $6,401,000 No 191 2 - $6,215,000 No 177 3 - $6,178,000 No 179 3 A $1,988,000 No 179 3 B $2,490,000 No 179 3 C $1,519,000 No 181 3 - $6,364,000 No 183 3 - $5,811,000 No 185 3 A $2,286,000

No 185 3 B $1,742,000 No 185 3 C $2,331,000 No 187 3 - $5,811,000 No 189 3 A $2,066,000 No 189 3 B $1,505,000 No 189 3 C $2,182,000 No 191 3 - $6,364,000 No 177 4 - $6,126,000 No 179 4 - $6,505,000 No 181 4 - $6,505,000 No 183 4 - $6,024,000 No 185 4 - $6,024,000 No 187 4 A $1,910,000 No 187 4 B $2,221,000 No 187 4 C $1,451,000 No 189 4 - $5,789,000 No 191 4 - $5,970,000 No 177 5 - $5,226,000 No 179 5 - $5,561,000 No 181 5 - $5,396,000 No 183 5 - $4,988,000 No 185 5 - $5,152,000 No 187 5 - $5,311,000 No 189 5 - $4,942,000 No 191 5 - $5,101,000

Sub-total: $238,882,000

80.  This tribunal therefore accepts the total EUV of the Building is $424,842,000 (i.e. $185,960,000 +$238,882,000).

SECTION 4(2) OF THE ORDINANCE - JUSTIFICATION AND REASONABLE STEPS – ISSUES (3) AND (4)

81.  Section 4(2) of the Ordinance provides as follows: -

“2. 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).”

82.  The applicant must satisfy this tribunal the above statutory requirements are met; otherwise, an order for compulsory sale would not be granted.

Whether Development of the 5^th and 6^th Lots are Justified due to the Age and/or State of Repair of the 3^rd Pair of Building

83.  The applicant adduces expert evidence of Mr Ng and Mr Wong to support its application in terms of age and state of repair of the Buildings. Mr Ng conducted a structural survey of the Buildings and prepared a Structural Condition Survey Report on 16 December 2021. Mr Wong conducted a condition survey of the Buildings and prepared a Condition Survey Report on 16 December 2021.

84.  None of the respondents adduced expert evidence to rebut the reports complied by Mr Ng and Mr Wong.

85.  Having considered the reports of Mr Ng and Mr Wong, this tribunal accepts their expert opinion. The Buildings, being erected more than 66 years ago, are in poor condition and have come to the end of their design working life. The design of the Buildings has become obsolete over time in many aspects, both physically and functionally, and fails to conform to modern safety standards and statutory requirements.

86.  This tribunal is also of the view that the Buildings are in poor state of repair and the cost of essential repairs is disproportionate to the cost for constructing a new similar building. Even if repair works are carried out, such works will bring about a modest improvement only to the existing condition of the Buildings and the Buildings will continue remain a sub-standard one.

87.  By reason of the matters set out above, this tribunal is satisfied that the redevelopment of the 5^th and 6^th Lots is justified due to the old age and state of repair of the 3^rd Pair of Building.

Whether the Applicant has taken Reasonable Steps

88.  In assessing the reasonableness of the offers, this tribunal has considered the case of Capital Well. In particular, this tribunal has considered §§33 and 36 of the judgment in which Ribeiro PJ stated: -

“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……”

89.  Ms Ngai submits that the applicant has not been able to acquire R4’s undivided share because R4 cannot be found at all. This tribunal agrees.

90.  Regarding R5, the applicant has made 3 offers on 7 April 2020, 29 April 2022 and 19 September 2022 respectively but they were not accepted by R5. Ms Ngai submits that all these offers fall within the range of fair and reasonable compensation for the interest owned by R5. The offer prices have made reference to the independent valuation of Ms Chow and have also reflected the then pro-rata share of the RDV of the Lots as a merged site.

91.  On the evidence available, this tribunal accepts that the offer prices have reflected the proportionate share of the RDV of the Lots and do fall within the range of what may broadly be regarded as fair and reasonable compensation for the interest in question. Although this tribunal may not agree with Ms Chow on each and every item in her assessments, it is a matter of differences in opinion and her valuations before this tribunal have no serious fault.

92.  This tribunal is satisfied that the applicant has taken reasonable steps to acquire all the undivided shares in the 5^th and 6^th Lots.

RESERVE PRICE FOR THE AUCTION – ISSUES (5)

93.  By reason of being satisfied that redevelopment of the 5^th and 6^th Lots is justified and that the applicant has taken reasonable steps to acquire all the undivided shares in the 5^th and 6^th Lots, this tribunal is satisfied that an order for sale of the 5^th and 6^th Lots should be granted in favour of the applicant.

94.  Ms Chow and Mr Lai agree to adopt residual method and update their respective RDV assessments as at 15 September 2022. They agree to develop the Lots on a registered site area of 835.69 square meters with total gross floor area of 7,080.07 square meter (i.e. total plot ratio of 8.4722). They also agree on all the saleable areas of the hypothetical development scheme, being a 25-storey commercial/residential composite building with 10 shop units planned on ground floor, 1 shop unit planned on 1^st floor, 8 domestic units planned on 2^nd to 23^rd floors and 4 domestic units planned on 24^th floor.

95.  The 2 valuation experts disagree on the gross development value (“GDV”) of both the shop units and domestic units. In the residual valuation, they agree on most of the parameters, but disagree on marketing cost and interest rate.

GDV – Shops on Ground Floor and 1^st Floor

96.  Ms Chow and Mr Lai agree on the parameters of the shop reference unit and also agree to adopt the adjusted unit rate of the shop reference unit as the unit rate of all the 10 shops on ground floor. However, they disagree on the selection of some comparables, the adjustments for location and frontage, and whether an additional adjustment should be made for back frontage.

97.  Ms Chow and Mr Lai propose 12 shop comparables and 5 shop comparables respectively, and only 3 of them are common (i.e. Comparables NS1, NS2 and NS3). This tribunal agrees to analyse Comparables NS4 – NS6 and NS8 – NS12 proposed by Ms Chow but would exclude Comparable NS7 (i.e. Flat 29, Ground Floor, Chung Ying Building, Tai Kok Tsui Road / Wai On Street / Lok Kwan Street / Mei On Street) in the assessment. Similar to the EUV assessment, this tribunal considers that the characters of Comparable NS7 located at vehicular dead end and surrounded by mainly engineering workshops are much different from the shop reference unit. Although other comparables proposed by Ms Chow are either inferior than the shop reference unit or were transacted in 2021, they are adopted because there are not many relevant comparables in the assessment. Given that there are limited number of relevant comparables, this tribunal also agrees to adopt Comparables NS13 and NS14 proposed by Mr Lai, though they are relatively far from the shop reference unit.

98.  The 2 valuation experts agree on the adjustment for time with reference to private retail price indices, nil adjustment for return frontage of Comparable NS10, adjustment for size at 1% per 5-square meters, adjustment for headroom at 2% per 1-meter, adjustment for layout to the common comparables, and adjustment for age at 1% per 5-year plus an additional 5% for better condition of the new hypothetical development.

99.  Regarding the adjustment for location, this tribunal agrees with Mr Lai that the location of the hypothetical development upon its completion would have been improved, but there would have slight improvement only. This section of Tai Kok Tsui Road would still remain relatively quiet and affected by the funeral parlour on the opposite side of Tai Kok Tsui Road.

100.  This tribunal agrees with Mr Lai to adjust for location to Comparables NS2 and NS3 at -30% instead of -35% proposed by Ms Chow, but Comparable NS1 along Ivy Street should be adjusted at -20% instead of -30% proposed by Ms Chow and 0% suggested by Mr Lai. Ivy Street is one of the business hubs in the district and is better than the subject section of Tai Kok Tsui Road. Whilst, this tribunal considers that Comparables NS4 – NS11 proposed by Ms Chow are inferior than the shop reference unit and should be adjusted at 10% to 40%, and Comparable NS12 along Li Tak Street opposite to a new residential development is similar to the shop reference unit. On the other hand, Comparables 13 and 14 close to the MTR Olympic Station should be adjusted at -5% and 0% respectively instead of 15% suggested by Mr Lai.

101.  Regarding the adjustment for frontage, similar to the EUV assessment, this tribunal prefers the less sensitive adjustment rate at 2% per 1-meter proposed by Ms Chow to 4% per 1-meter suggested by Mr Lai.

102.  With reference to the depth of each comparable and the agreed layout adjustment rates to the 3 common comparables, this tribunal agrees with Ms Chow to adjust for layout to Comparables NS4, NS5, NS6, NS8, NS9, NS10, NS11 and NS12 at -5%, 0%, 0%, 0%, 0%, -5%, -5% and 0% respectively. Nevertheless, Comparables NS13 and NS14 should be adjusted at -7% instead of -5% suggested by Mr Lai.

103.  Further, we agree with Ms Chow not to adjust for back frontage suggested by Mr Lai. On the conditions that the hypothetical development would not be set back to widen the service lane and in any event the whole length of the existing service lane from Fuk Lee Street to Wai On Street could not be widened altogether in short to medium term because there are 2 mid-rise buildings at the junction with Wai On Street, this tribunal is of the view that the hypothetical development would not be benefited from the proposed design with an additional frontage facing the service lane suggested by Mr Lai.

104.  The valuation of the shop reference unit is listed in Appendix IV of the judgment. Similar to the EUV assessment, since Comparables NS13 and NS14 have cocklofts covering most of their ground floor areas, their respective headroom should be adjusted manually at say 3.6%. The average unit rate of the 13 shop comparables is about $338,274. The average excluding Comparables NS3, NS5, NS6 and NS9, which appears out of line, is $348,589. This tribunal is of the view that the shop reference unit should be assessed at $340,000 per square meter.

105.  For the conversion of the 1^st floor shop that would be linked to a ground floor shop by a lift, this tribunal prefers Ms Chow’s rate at 1/3 of the ground floor unit rate to Mr Lai’s rate at 1/2. This tribunal is of the view that the marketability of such 1^st floor shop in a secondary location would be relatively poor. Accordingly, the 1^st floor unit rate is assessed at $113,333 per square meter.

GDV – Flats on Upper Floors

106.  The 2 valuation experts agree to adopt 22 common comparables in 2 comparable developments, Larchwood and The Quinn . Square Mile. They also agree on the parameters of all comparables except for the net transaction prices of the comparables in Larchwood and the view of Comparables ND2, ND3 an ND3 in Larchwood.

107.  Given that the transactions in Larchwood comprised a rebate by provision of furniture vouchers to the purchasers, this tribunal considers that only a nominal value of the vouchers say $10,000 could be taken into consideration instead of the face value in the sum of $28,000 in each transaction. This tribunal is of the view that the furniture vouchers may not be useful to all purchasers, and the developer would likely get a big discount from the supplier too. On the other hand, with the benefit of site inspection, this tribunal agrees with Mr Lai that the view of Comparables ND2, ND3 an ND3 should be open building only instead of open as suggested by Ms Chow. There are tall buildings not far away from Larchwood.

108.  The 2 valuation experts agree on the adjustment for floor at 0.5% per 1-level, adjustment for size at 1% per 5-square meters, adjustment for age at 1.5% per 1-year, adjustment for headroom at 5% per 1-meter, and the adjustment rates for view, scale / facilities and holding cost.

109.  Regarding the adjustment for time, both Ms Chow and Mr Lai agree to make reference to Private Domestic (Class A) Price Indices published by Rating and Valuation Department and updated on 28 September 2022, but Ms Chow proposes to make further projection with reference to Centa-City Leading Index because the latest indices available in the former was August 2022 only. This tribunal prefers to adopt the Rating and Valuation Department’s indices only in this instance, which are widely accepted by the market. It is odd for a single adjustment to rely on 2 different indices, which have different compositions.

110.  Regarding the adjustment for location, this tribunal agrees with Ms Chow that Larchwood is slightly better than the hypothetical development and the adjustment rates at -2% instead of 10% suggested by Mr Lai. Although Larchwood is close to some industrial buildings, it is closer to the MTR Kwun Tong line and is not so much affected by the funeral parlour opposite to the hypothetical development. This tribunal also agrees with Ms Chow that The Quinn . Square Mile is better than the hypothetical development, but the adjustment rate should be -7.5% only instead of -10% proposed by Ms Chow and 0% suggested by Mr Lai.

111.  Regarding the adjustment for orientation, we agree with Mr Lai that purchasers would generally prefer properties facing south, southwest and southeast, but the adjustment rate should be say -1% instead of -2% suggested by Mr Lai.

112.  The valuation of the domestic reference unit is listed in Appendix V of the judgment. The average unit rate of the 2 comparable developments is about $232,812. This tribunal is of the view that the domestic reference unit should be assessed at $230,000 per square meter.

113.  In the comparison between the domestic reference unit and the other domestic units in the hypothetical development, the 2 valuation experts disagree on the adjustment for noise to some units only. While Ms Chow applies -3% to all units facing Tai Kok Tsui Road, Mr Lai considers that only the units on 2^nd to 4^th floors would be affected by noise. Given that there is a flyover along Tai Kok Tsui Road, we agree with Ms Chow that all the units facing Tai Kok Tsui Road irrespective of their level would be affected by noise. Even if there are mitigation measures to lower the effect of noise, noise generated by the heavy vehicular traffic along the flyover is still a detrimental factor. Installation of double-glazed windows as submitted by Ms Ting would not have good mitigation effects unless such windows are closed all the time only.

114.  Accordingly, this tribunal agrees with Ms Chow that the average unit rate should be about 0.27% only above the adjusted unit rate of the domestic reference rate, and the average unit rate adopted in the assessment should then be about $231,000 per square meter after rounding.

RDV of the Lots as at 15 September 2022

115.  In the residual valuation, Ms Chow and Mr Lai agree on the development period of 3.5 years (i.e. demolition period of 0.75 year and construction period of 2.75 years), demolition cost of $9,406,496 (i.e. $2,200 per square meter), construction cost of $313,767,000 (i.e. $44,317 per square meter), professional fees at 6%, developer’s profit at 15%, stamp duty and legal cost on residual land value at 4.25% and 0.10%.

116.  Regarding the marketing cost on GDV, Ms Chow proposes 4% but Mr Lai adopts 3% only. This tribunal prefers 3.5% in this assessment because it is rather difficult to market the shops and flats in this area as at the valuation date. In addition, all the domestic comparables in the subject GDV assessment are first hand sales transactions and their transaction prices would likely have comprised the higher agency fees offered by the developer.

117.  Regarding the interest rate, this tribunal agrees with Mr Chow that there is a trend of increasing finance costs as at the valuation date, and 4.25% is a reasonable figure to defer the values and costs in the residual valuation. In fact, the central banks of many developed countries have been increasing their interest rates, HIBOR has been increasing and banks in Hong Kong have also increased their best lending rates on 23 September 2022, shortly after the valuation date.

118.  Based on the agreements of the 2 valuation experts and the above determinations, the residual valuation of the Lots as at 15 September 2022 is listed in Appendix VI of the judgment. The Lots as at 15 September 2022 are assessed at $697,000,000, equivalent to an accommodation value of about $98,445 per square meter (i.e. about $9,146 per square foot), which should be the reserve price of the Lots as a merged site by way of public auction.

ORDERS

119.  For reasons given in this judgment, this tribunal is satisfied an order for sale for the 5^th Lot and the 6^th Lot should be granted, and this tribunal therefore makes the following orders: -

1)  All the undivided shares in the 5^th Lot and the 6^th Lot, the subject of the application, be sold together with the 1^st Lot, the 2^nd Lot, the 3^rd Lot, the 4^th Lot, the 7^th Lot and the 8^th Lot wholly owned by the applicant by way of public auction as a merged site for the purposes of redevelopment of the Lots;

2)  Mr Anthony WK Chow and Ms Anna SH Chow, nominated by the applicant, 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 letters of Messrs Guantao & Chow dated 21 and 22 September 2022;

4)  For the purpose of the sale of the Lots as a merged site by way of 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 $697,000,000;

5)  The applicant do publish notices once in a Chinese language newspaper (and in the Chinese language) and once in an English newspaper (and in the English language) circulating generally in Hong Kong within 7 days from the date of the sealed judgment informing the 4^th respondent and all persons claiming to be the owners of the 5^th and 6^th Lots: -

a)  that the tribunal has made an Order for sale of the 5^th Lot and the 6^th Lot;

b)  that the 5^th Lot and the 6^th Lot be sold together with the 1^st Lot, the 2^nd Lot, the 3^rd Lot, the 4^th Lot, the 7^th Lot and the 8^th Lot as a merged site in one public auction; and

c)  where and the times during which copies of the Order for sale can be obtained;

6)  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 5^th and 6^th Lots 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

7)  Liberty to the applicant, the respondents, the Trustees and the purchaser of the Lots or its successor in title to apply to the tribunal for further directions.

COSTS

120.  Following Good Faith Properties Ltd and Others v Cibean Development Co Ltd [2014] 5 HKLRD 5340, this tribunal makes a costs order nisi that the applicant do pay the 5^th respondent the costs of these proceedings, including all reserved costs and the costs of this trial with certificate for counsel, to be taxed on High Court scale if not agreed. The said costs order nisi shall become absolute if none applies to vary it within 14 days from the date of this judgment.