CITY FAIR DEVELOPMENT LTD AND OTHERS v. MAK KAM FOON AND OTHERS

LDCS 20000/2018

[2022] HKLdT 9

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LAND COMPULSORY SALE MAIN APPLICATION NO 20000 OF 2018

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JUDGMENT

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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 Kowloon Inland Lot No 4148 (“the Lot”) together with a building erected thereon known as Nos 14, 14A and 16 Ha Heung Road, Nos 1, 3, 5 and 7 Lai Wa Street and Nos 2, 4, 6 and 8 Mei Wa Street, Kowloon (“the Building”).

2.  The Building is an 8-storey tenement block served by 3 common staircases. 2 staircases are leading to Mei Wa Street and 1 staircase is leading to Lai Wa Street. Occupation permit No K223/60 was issued for the Building on 24 October 1960, granting permission to occupy its ground floor as 3 shops for non‑domestic use and 8 tenements for domestic use, and its 1^st floor to 7^th floor as 11 tenements per floor for domestic use.  According to the assignment plans, Ground Floor of No 14 Ha Heung Road is sub-divided into 3 sub-divided units (i.e. Shops A1, A2 and A3), 1^st Floor of No 16 Ha Heung Road is sub-divided into 3 sub-divided units (i.e. Portions C1, C2 and C3), and 7^th Floor of No 6 Mei Wa Street is sub-divided into 2 sub-divided units (i.e. Flats F1 and F2).

3.  The Lot together with the Building standing thereon is allocated 89 undivided shares. Each of the units is given 1 undivided share, and the Roof is also given 1 undivided share, making up a total of 89 undivided shares.

SECTION 3 OF THE ORDINANCE – OWNERSHIP OF THE APPLICANTS

4.  At the time of filing of the Notice of Application (“NOA”) on 11 September 2018, there were 11 respondents and the applicants owned 90.64% (i.e. 80 and 2/3 out of the total 89) undivided shares in the Lot.

5.  After the filing of the NOA, the applicants acquired units from the 2^nd respondent, the 3^rd respondent, the 4^th respondent, the 5^th respondent, the 6^th respondent, the 7^th respondent, the 8^th respondent and the 10^th respondent, and subsequently discontinued the proceedings against them.

6.  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%. 

7.  I am satisfied that as at the date of application, the applicants owned more than 90% of the undivided shares in the Lot.  I am therefore satisfied the applicants are entitled to make the present application under section 3 of the Ordinance.

THE REMAINING RESPONDENTS

8.  At trial, the applicants owned 96.63% (i.e. 86 out of the total 89) undivided shares in the Lot. The following 3 respondents remain in the present action: -

Respondent		Premises
1st Respondents	(“R1”)	2nd Floor of No 1 Lai Wa Street (“R1’s Property”)
9th Respondents	(“R9”)	4th Floor of No 4 Mei Wa Street (“R9’s Property”)
11th Respondent	(“R11”)	Roof of the Building (“R11’s Property”)

9.  R1 and R9 are legally represented, and they accepted the applicants’ open offer made in court on 14 January 2022. Leave was granted by the tribunal on 20 January 2022 in terms of the consent summons filed by them and the applicants respectively on 19 January 2022. Both R1 and R9 withdrew their opposition to the application and all the documents filed by them in these proceedings.

10.  R11 is a missing owner. Substituted service of the application on R11 was effected on 18 December 2018 pursuant to the Order of the tribunal dated 7 December 2018. No one has shown up after the expiration of the 1-month period as specified in the notices.

11.  By reason of the aforesaid, there is no live respondent remaining on record and actively opposing the application.

ISSUES FOR DETERMINATION BY THE TRIBUNAL

12.  The remaining issues to be decided in this case are as follows:

1)  What was the respective existing use value (“EUV”) of all units in the Building as at 16 July 2018, the valuation date adopted in the application valuation report dated 4 September 2018, as assessed in accordance with Part 1 of Schedule 1 of the Ordinance?

2)  Whether the redevelopment of the Lot is justified due to age and/or state of repair of the Building in accordance with section 4(2)(a) of the Ordinance?

3)  Whether the applicants have taken reasonable steps to acquire all the undivided shares in the Lot on terms that are fair and reasonable in accordance with section 4(2)(b) of the Ordinance?

4)  If an order for sale should be granted, what should be the reserve price (i.e. redevelopment value (“RDV”) of the Lot) for the purpose of auction sale?

DETERMINATION OF THE EUV OF ALL UNITS IN THE BUILDING

13.  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.”

14.  The applicants appoint Mr Alnwick Chan of Knight Frank Petty Limited as their valuation expert. Mr Chan assesses the EUV by direct comparison method with reference to the transactions in the vicinity. He values all the ground floor units for non-domestic use and allow 1/8 of the 7^th floor domestic unit rate as the top roof unit rate.  He opines that the total EUV of the Building as at 16 July 2018 is 446,775,300 and the EUV of R11’s Property, the Roof, is $5,138,500 (i.e. 1.1501% of the total EUV).

15.  Although R9 withdrew their evidence during the trial, the applicants agreed at trial to adopt the EUV valuation as assessed by Mr Paul Varty, the valuation expert appointed by R9. Basically, Mr Paul Varty has adopted the valuation approach similar to that of Mr Alnwick Chan, but he assesses the total EUV of the Building at $434,090,000 and the EUV of R11’s Property at $5,100,000 (i.e. 1.1749% of the total EUV).

16.  Having reviewed the valuations and reports prepared by Mr Alnwick Chan and the agreement of the applicants to adopt the EUV as assessed by Mr Paul Varty, I agree to adopt Mr Paul Varty’s EUV too. I am of the view that in the circumstances the value of R11’s Property is not less than fair and reasonable and not less than fair and reasonable when compared with the applicants’ properties.

EUV of All Units in the Building

17.  The EUV of all units in the Building as at the relevant date of valuation, i.e. 16 July 2018, and adopted by this tribunal are appended below: -

Floor	Street No	Unit	EUV
G/F	14 Ha Heung Road	A1	$5,890,000
G/F	14 Ha Heung Road	A2	$3,170,000
G/F	14 Ha Heung Road	A3	$2,820,000
G/F	14A Ha Heung Road	-	$12,510,000
G/F	16 Ha Heung Road	-	$15,440,000
G/F	1 Lai Wa Street	-	$6,060,000
G/F	3 Lai Wa Street	-	$5,070,000
G/F	5 Lai Wa Street	-	$4,980,000
G/F	7 Lai Wa Street	-	$6,450,000
G/F	2 Mei Wa Street	-	$6,270,000
G/F	4 Mei Wa Street	-	$5,660,000
G/F	6 Mei Wa Street	-	$7,310,000
G/F	8 Mei Wa Street	-	$7,180,000
1/F	14 Ha Heung Road	-	$6,080,000
1/F	14A Ha Heung Road	-	$4,910,000
1/F	16 Ha Heung Road	C1	$2,790,000
1/F	16 Ha Heung Road	C2	$1,950,000
1/F	16 Ha Heung Road	C3	$1,360,000
1/F	1 Lai Wa Street	-	$4,200,000
1/F	3 Lai Wa Street	-	$4,060,000
1/F	5 Lai Wa Street	-	$3,690,000
1/F	7 Lai Wa Street	-	$5,520,000
1/F	2 Mei Wa Street	-	$4,090,000
1/F	4 Mei Wa Street	-	$3,900,000
1/F	6 Mei Wa Street	-	$3,860,000
1/F	8 Mei Wa Street	-	$5,220,000
2/F	14 Ha Heung Road	-	$5,970,000
2/F	14A Ha Heung Road	-	$4,820,000
2/F	16 Ha Heung Road	-	$6,220,000
2/F	1 Lai Wa Street	-	$4,130,000
2/F	3 Lai Wa Street	-	$3,990,000
2/F	5 Lai Wa Street	-	$3,620,000
2/F	7 Lai Wa Street	-	$5,420,000
2/F	2 Mei Wa Street	-	$4,020,000
2/F	4 Mei Wa Street	-	$3,830,000
2/F	6 Mei Wa Street	-	$4,030,000
2/F	8 Mei Wa Street	-	$5,130,000
3/F	14 Ha Heung Road	-	$5,860,000
3/F	14A Ha Heung Road	-	$4,730,000
3/F	16 Ha Heung Road	-	$6,110,000
3/F	1 Lai Wa Street	-	$4,050,000
3/F	3 Lai Wa Street	-	$3,800,000
3/F	5 Lai Wa Street	-	$3,340,000
3/F	7 Lai Wa Street	-	$5,310,000
3/F	2 Mei Wa Street	-	$3,940,000
3/F	4 Mei Wa Street	-	$3,760,000
3/F	6 Mei Wa Street	-	$3,950,000
3/F	8 Mei Wa Street	-	$5,030,000
4/F	14 Ha Heung Road	-	$5,740,000
4/F	14A Ha Heung Road	-	$4,490,000
4/F	16 Ha Heung Road	-	$5,990,000
4/F	1 Lai Wa Street	-	$3,970,000
4/F	3 Lai Wa Street	-	$3,840,000
4/F	5 Lai Wa Street	-	$3,480,000
4/F	7 Lai Wa Street	-	$5,210,000
4/F	2 Mei Wa Street	-	$3,750,000
4/F	4 Mei Wa Street	-	$3,790,000
4/F	6 Mei Wa Street	-	$3,870,000
4/F	8 Mei Wa Street	-	$4,930,000
5/F	14 Ha Heung Road	-	$5,630,000
5/F	14A Ha Heung Road	-	$4,540,000
5/F	16 Ha Heung Road	-	$5,870,000
5/F	1 Lai Wa Street	-	$3,890,000
5/F	3 Lai Wa Street	-	$3,770,000
5/F	5 Lai Wa Street	-	$3,520,000
5/F	7 Lai Wa Street	-	$5,110,000
5/F	2 Mei Wa Street	-	$3,790,000
5/F	4 Mei Wa Street	-	$3,610,000
5/F	6 Mei Wa Street	-	$3,800,000
5/F	8 Mei Wa Street	-	$4,690,000
6/F	14 Ha Heung Road	-	$5,520,000
6/F	14A Ha Heung Road	-	$4,450,000
6/F	16 Ha Heung Road	-	$5,760,000
6/F	1 Lai Wa Street	-	$3,810,000
6/F	3 Lai Wa Street	-	$3,690,000
6/F	5 Lai Wa Street	-	$3,450,000
6/F	7 Lai Wa Street	-	$5,010,000
6/F	2 Mei Wa Street	-	$3,710,000
6/F	4 Mei Wa Street	-	$3,330,000
6/F	6 Mei Wa Street	-	$3,720,000
6/F	8 Mei Wa Street	-	$4,740,000
7/F	14 Ha Heung Road	-	$5,140,000
7/F	14A Ha Heung Road	-	$4,020,000
7/F	16 Ha Heung Road	-	$5,030,000
7/F	1 Lai Wa Street	-	$3,550,000
7/F	3 Lai Wa Street	-	$3,230,000
7/F	5 Lai Wa Street	-	$3,110,000
7/F	7 Lai Wa Street	-	$4,660,000
7/F	2 Mei Wa Street	-	$3,250,000
7/F	4 Mei Wa Street	-	$3,290,000
7/F	6 Mei Wa Street	F1	$1,560,000
7/F	6 Mei Wa Street	F2	$1,900,000
7/F	8 Mei Wa Street	-	$4,280,000
Roof	-	-	$5,100,000

18.  I therefore accept the total EUV of the Building is $434,090,000. 

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

19.  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).”

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

Whether development of the Lot is justified due to the age and/or state of repair of the Building

21.  The applicants adduce expert evidence of Mr Sammy Ng, a structural engineer of AECOM Asia Company Limited, and Mr Dennis Wong, a building surveyor of Prudential Surveyors International Limited. Mr Sammy Ng conducted a structural survey of the Building and prepared a Structural Assessment Report on 1 June 2021.  Mr Dennis Wong conducted a condition survey of the Building and prepared a Condition Survey Report on 1 June 2021. 

22.  After R9 withdrew all their evidence in this regard, none of the respondents adduced expert evidence to rebut the reports complied by Mr Sammy Ng and Mr Dennis Wong.  

23.  Having considered the reports of Mr Sammy Ng and Mr Dennis Wong, I accept their expert opinion. The Building, being erected more than 61 years ago, is in poor condition and has come to the end of its design life.  The design of the Building has become obsolete over time in many aspects, both physically and functionally, and fails to conform to modern safety standards and statutory requirements.

24.  I am also of the view the Building is in poor state of repair and the costs of repair to bring the Building to tenantable condition is disproportionate to the costs for constructing a similar new building.   Even if repair works are carried out, such works will bring about a modest improvement only to the existing condition of the Building and the Building will continue remain a sub-standard one.

25.  By reason of the matters set out above, I am satisfied the redevelopment of the Building is justified.   

Whether the applicants have taken reasonable steps

26.  Ms Nancy Ngai, counsel for the applicant, submits that the applicants have not been able to acquire the undivided share owned by R11 because R11 cannot be found.  She further submits that after the applicants have successfully reached settlement with R1 and R9 whereby R1 and R9 agree to sell their respective properties to the applicants, the applicants have taken reasonable steps to acquire all the undivided shares in the Lot.  I agree.

27.  I am satisfied the applicants have taken reasonable steps to acquire all the undivided shares in the Lot.

RESERVE PRICE FOR THE AUCTION

28.  By reason of being satisfied that redevelopment of the Lot is justified and that the applicants have taken reasonable steps to acquire all the undivided shares in the Lot, I am satisfied an order for sale should be granted in favour of the applicants.

29.  Mr Alnwick Chan assesses the RDV of the Lot as at 8 December 2021 by residual method at $785,400,000. He proposes to build a 25-storey composite building with shops on ground floor and 1^st floor, clubhouse on 2^nd floor and domestic units on upper floors, on a site area of 904.25 square meters including all private right of way (i.e. the service lane next to the Building, Lai Wa Street and part of Mei Wa Street) with total gross floor area of 7,708.37 square meters and plot ratio of 8.5244.

30.  Similar to the EUV assessment, although R9 withdrew their evidence during the trial, the applicants agreed at trial to adopt the RDV valuation as assessed by Mr Paul Varty.  Basically, Mr Paul Varty has adopted the valuation approach similar to that of Mr Alnwick Chan, but he assesses the RDV of the Lot at a higher value of $925,000,000.

31.  Having reviewed the valuations and reports prepared by Mr Alnwick Chan and the agreement of the applicants to adopt the RDV as assessed by Mr Paul Varty, I agree to adopt Mr Paul Varty’s RDV too.  $925,000,000 is the highest RDV proposed by the remaining respondents.

32.  Although I have doubt about the inclusion of the service lane within the Lot as part of the developable site area because the Lot, on the basis with inclusion of Lai Wa Street and Mei Wa Street for calculation of plot ratio, would be a Class A site that would normally require a service lane and such service lane would normally be excluded from the developable site area, I am of the view that the adoption of RDV at $925,000,000 would not prejudice the minority owners.  In this instance, the remaining respondent R11 would have a chance to get a higher compensation if the Lot can be sold by public auction.

RDV of the Lot as at 8 December 2021

33.  The RDV of the Lot adopted by this tribunal is $925,000,000, equivalent to an accommodation value of about $120,000 per square meter (i.e. about $11,148 per square foot), which is close to the determination by this tribunal on the compulsory sale of the adjacent lot in the case LDCS 11000 of 2019[1] on 15 October 2021 at the accommodation value of $112,838 per square meter. I consider that $925,000,000 should be the reserve price for public auction.

ORDERS

34.  For reasons given in this judgment, I have set out reasons why I am satisfied an order for sale should be granted and I therefore make the following orders: -

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

2)  Mr Anthony WK Chow and Ms Anna SH Chow, 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 Lot;

3)  The Trustees be authorized to charge such remuneration for their services in accordance with the terms set out in the letter of Messrs Guantao & Chow dated 25 November 2021;

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

a)  the sale of the Lot 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 $925,000,000;

5)  The applicants 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 11^th respondent and all persons claiming to be the owners of the Lot: -

a)  that the tribunal has made an Order for sale of the Lot;

b) that the Lot be sold by public auction; and

c)  where and the times during which a copy 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 Lot or its successor in title, the redevelopment of the Lot 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 Lot becomes the owner of the Lot; and

7)  Liberty to the applicants, the 1^st respondent, the 9^th respondents, the 11^th respondent and the Trustees to apply to the tribunal for further directions.

COSTS

35.  Following Good Faith ^[2], I make a costs order nisi that the applicants do pay costs of these proceedings to the respondents, on High Court scale with certificate for counsel and including any reserved costs, to be taxed if not agreed.  Unless any parties apply by summons to vary, the costs order nisi shall be made absolute upon expiry of 14 days from the date of this judgment.

[1] [2021] HKLdT 68

[2] Good Faith Properties Ltd and Others v Cibean Development Co Ltd [2014] 5 HKLRD 5340