LDCS20000 / 2010
IN THE LANDS TRIBUNAL OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
LAND COMPULSORY SALE APPLICATION NO. 20000 OF 2010
BETWEEN
Mass Ventures International Limited Applicant
and
All Lucky Development Limited 1st Respondent
Chu Hok Sum, administrator of the estate of 2nd Respondent
Luk Nai Sun 3rd Respondent
Liang Chaoxuan appointed by Order
4th Respondent
Law Lok Wah and Law Choi 5th Respondent
______________
Coram:
Deputy Judge K H HUI, Presiding Officer and Mr. Kenneth KWOK, Temporary Member of the Lands Tribunal
Dates of Hearing:
7 and 8 November 2011
Date of Handing Down of Judgment:
10 January 2012
_______________
JUDGMENT
_______________
Background
1. This is an application for compulsory sale of all the undivided shares in The Remaining Portion of Section M of Kowloon Marine Lot No. 28 (“the Lot”), known as Yen Lee Building, Nos. 12-22 Fuk Chak Street, Tai Kok Tsui, Kowloon (“the Building”), for the purposes of the redevelopment of the Lot pursuant to s. 3(1) of the Land (Compulsory Sale for Redevelopment) Ordinance, Cap. 545 (“the Ordinance”).
2. There are three pairs of 6-storey composite buildings each served by one common staircaseerected on the Lot. Altogether there are 72 units in the Building and each unit is allotted one share with a total of 72 undivided shares for the Building and the Lot.
3. The Applicant commenced the present proceedings on 17 December 2010. At that time, the 1st Respondent is the registered owner of 1st Floor, Block G of the Building; the 2nd Respondent, 2nd Floor, Block G of the Building; the 3rd Respondent, ⅓ share in Ground Floor, Block E and ⅓ share in Ground Floor, Block K of the Building; the 4th Respondent, ½ share in 2nd Floor, Block D of the Building; and the 5th Respondent, 1st Floor, Block C of the Building. The Applicant owns the remaining units in the Building and 67.83 equal undivided 72nd parts or shares in the Lot representing 94.21%. The Applicant contends that it is entitled to make the present application by virtue of s. 3(2) of the Ordinance.
4. Since then, the Applicant has acquired the interests of the 1st Respondent, the 2nd Respondent, the 3rd Respondent and the 5th Respondent and has discontinued the application against them.
5. As at the date of hearing, the 4th Respondent owns ½ share in 2nd Floor, Block D of the Building ("the 4th Respondent’s premises"). All the remaining shares and units in the Building and the Lot are owned by the Applicant. Thus, the percentage of the undivided shares owned by the Applicant in the Lot is 99.31%.
6. In the Notice of Opposition filed by the 4th Respondent on 20 April 2011, the 4th Respondent did not state any ground of opposition.
7. On the first day of the trial, Mr. Stanley Yeung of Yu Hung & Co. for the 4th Respondent confirms that the 4th Respondent does not oppose this application. Thus, the 4th Respondent did not call any witness or produce any expert report. The 4th Respondent also did not cross-examine any of the Applicant’s witnesses or make any closing submission.
8. In view of the concession made by the 4th Respondent, Mr. C.Y. Li, Counsel for the Applicant, simply called the Applicant’s witnesses to confirm their evidence. During the trial, we raised some questions to the Applicant’s valuation expert, Mr. Alnwick Chan. In response, he produced some further evidence and raised his assessment of the RDV of the Building from $322.39 million to $332.31 million, and then to $333.05 million. The Applicant contends that all the requirements of the Ordinance have been satisfied and asks for an order for sale in terms of the draft order submitted. The Applicant also asks there be no order as to costs.
Section 3 of the Ordinance – Ownership of the Applicant
9. Section 3(1) of the Ordinance requires the Applicant to have not less than 90% of the undivided shares in a lot before it can make an application. As at the date of application, the Applicant owns 94.21% of the shares in the Lot and at the commencement of the hearing, 99.31%. The Applicant is clearly entitled to make the application.
Section 4(2) of the Ordinance - Justification and Reasonable Steps
10. In determining the Applicant’s application, s. 4(2) of the Ordinance requires us not to make an order for sale unless, after hearing the objections, if any, of the 4th Respondent, we are satisfied that:
(a) the redevelopment of the Lot is justified due to the age or state of repair of the Building; and
(b) the Applicant has taken reasonable steps to acquire all the undivided shares in the Lot (including negotiating for the purchase of the undivided share owned by the 4th Respondent on terms that are fair and reasonable).
11. Mr. Li submits that the tests under section 4(2)(a)(i) of the Ordinance have been visited in a number of cases. In the case of Good Trader Ltd v. Hinking Investments Ltd [2007] 3 HKC 219, the Tribunal took the view that "the age" and "state of repair" could each separately constitute a ground to justify redevelopment. Mr. Li shares this view and submits that the Applicant’s case is justified on both grounds. However, as the Court of Appeal in Fineway Properties Ltd v. Sin Ho Yuen Victor [2010] 4 HKLRD 1 has expressed reservations on the correctness of the tests of “age or state of repair” formulated in Intelligent House Ltd v. Chan Tung Shing & Ors [2008] 4 HKC 421, which are based on the concept of “economic lifespan”, Mr. Li invites us to consider the age and state of repair together and to adopt a common sense approach. We are of the view that “the age” and “state of repair” are two separate grounds and even though there may be considerations common to both, we should still consider them separately. Since Mr. Li relies primarily on “state of repair”, we shall deal with this ground first.
State of Repair of the Building
12. The Applicant’s expert, Mr. Raymond Chan of Raymond Chan Surveyors Limited, in his Condition Survey Report, gives his opinion, inter alia , that:
(a) The Building is generally in a dilapidated and potentially dangerous condition. The structural stability of the Building is also affected by the existing defects and unauthorized building works.
(b) The Building was built in 1964 and is more than 40 years old. Although extensive repair works may extend the Building's life span, the continuous maintenance costs are expected to be increasingly high.
(c) The Building is in obsolete design. The substandard in width of the escape staircase, removal of protected lobby to escape staircase and nil provision of accessible lift for person with disability are not up to current legislative requirements. Subject to the existing site constraint, the upgrading works will comprise extensive structural alterations to the existing structural frame of the Building and be in high complexity as the carrying out of upgrading works can only be achieved with substantial change in design layout of existing floors. The upgrading cost will inevitably be enormous.
(d) The roof is generally in poor condition. The waterproofing of the main roof and upper roof should have reached the end of its life expectance as serious water seepage, damp patches and peeling off paint are noted at the ceiling of the topmost storey and stair hood. This indicates that the waterproofing system has failed to function. In addition, the substandard in height of the parapet wall may not effectively serve as a barrier to prevent persons or objects from falling out.
(e) The external walls and light well are generally in fair condition. Site evidence also shows that a lot of unauthorized drying racks, supporting racks or frames at various residential flats remain at the external walls. Subject to weathering, fixing bolts and nails of these metal frames are rusted which might expand and slowly push off the concrete cover and result in more serious concrete defects. Broken windows are found on the external walls. Rainwater can seep to the flats easily.
(f) Some unauthorized building works are noted in the Building. They are not shown in the approved building plans and contravene s.14(1) of the Buildings Ordinance. The unauthorized building works are not safe structures by themselves. They can also affect the structural stability and accelerate the deterioration of the Building. These unauthorized building works should be removed and rectified in accordance with the approved building plans.
(g) The corrugated canopies or sheets located at the external walls and the yards are suspected to contain asbestos. The suspected asbestos containing material should be surveyed and identified by specialist asbestos consultants before any demolition. Any asbestos containing material should be removed by registered asbestos contractors and follow the instruction of asbestos abatement plan prepared by specialist asbestos consultants.
(h) The staircases are in unsatisfactory condition and do not meet the current requirements under the Building Regulations, Means of Escape Code and Fire Resistance Construction Code. The non-compliances with the current standard will impose potential dangers to people using the staircases especially in case of fire as the staircases are the only available means of escape of the Building. For this reason, these non-compliances should not be ignored and the related potential dangers that may result are listed below:
(i) The width of staircase landing is less than 1,050 mm.
(ii) No artificial lighting backed up by emergency lighting system is provided at escape staircase.
(iii) The return along the frontage of the final discharge towards Shop No. 16 on G/F is less than 450 mm.
(iv) Inward swinging metal gate swinging over the steps of staircase at the main entrance.
(v) Exit doors of residential flats opening to the staircase are not fire resisting.
(vi) Electrical cables and devices are housed in the staircase without protection by fire resisting enclosures.
(i) Debonded plaster, screed and defective paint are commonly identified at many internal locations during site inspection. Cracks and concrete spalling are commonly found in the internal areas. Serious cracks and concrete spalling with corroded reinforcement bars greatly exposed are even observed on the structural elements, such as beams and columns. This might affect the structural stability of the Building. Subdivided flats in several units do not comply with the current requirement under Means of Escape Code. The non-compliances with the current standard will impose potential dangers to the people living inside the units in case of fire. For this reason, these non-compliances should not be ignored and the related potential dangers that may result are listed below:
(i) The protected lobby of each residential unit is removed.
(ii) The width of the internal corridor is less than 1,050 mm.
(iii) Insufficient provision of natural lighting and ventilation to the bathrooms of the subdivided flats.
(iv) The doors of the kitchen are not fire resisting.
(v) The walls and doors of the subdivided flats are not constructed by fire rated materials.
13. Based on the result of his condition survey, Mr. R. Chan concludes that the Building is in a state of disrepair with its structural frames in dilapidated condition. Some of the building components and finishes are at the end of their effective life span. Without substantial repairs, the Building is not up to tenantable standard. Indeed, putting aside the astronomical costs required to be incurred for the repair and maintenance of the Building, Mr. R. Chan is also of the opinion that it is not feasible or practical to undertake such a course as it would entail closure of the Building for a substantial period of time. The Building is in potentially dangerous condition and the only sensible solution is to rebuild.
14. The Applicant instructs another expert, Dr. James Lauto prepare Structural Assessment Report. Dr. Lau is concerned about two aspects of the Building. The first aspect is the stability of the Building. To him, the Building should have adequate factor of safety against catastrophic collapse. The second aspect is the strength of essential structural elements in the Building. The failure of individual structural element may lead to partial collapse and then progressive failure of the whole Building.
15. For his desk study, he read the 1962 approved structural plans of the Building. He noted that the Building was designed as a reinforced concrete frame structure based on the London County Council By-law of 1938. This was a reinforced concrete design code commonly used in Hong Kong in the 1960's.
16. Dr. Lau describes in some details the defects that are discovered by him during his inspection as follows:
(a) He inspected the Building on 27 July 2011 with the intention of inspecting the conditions of the Building and to identify locations on the Building for the structural integrity tests.
(b) He found to his discomfort as a structural engineer that lifting gantry was installed in every ground floor shop of the Building. The Building was not designed for the additional lifting loads. The lifting operation would put extra loads and stresses on the structure.
(c) In many parts of the Building, the structure is in very poor conditions. The conditions are worse than a building of similar age. These conditions are caused by years of neglect and poor maintenance. Many slabs, beams and columns have deep cracks and spalling. In some columns, the cracks have extended deep into the cores of the concrete section. The corrosion sometimes extends into the base of the columns and possibly into the footing foundation. The reinforcing steels likewise show an advanced stage of corrosion. The diameters of the steel bars have been reduced significantly due to corrosion. The reduced concrete sections and steel diameters have reduced the strengths of the structural elements.
(d) The stability of the Building is provided by framed actions of the concrete frames. The frames work only if the columns, beams and their connecting joints are intact. From what he could observe, this is clearly not the case. The corrosion has cut into the moment joints and reduced the strengths of the columns, the beams and the joints.
17. In Dr. Lau’s opinion, the Building has to be repaired. His estimate is that it costs $48.1 million to properly repair the Building. It is worthwhile to repair the Building at such a cost if there is a need to preserve the Building due to historical, cultural or artistic reason. Otherwise it is more cost effect to demolish and rebuild the Building.
18. Dr. Lau was assisted in his findings by Stangers Asia Limited, a laboratoryaccredited under The Hong Kong Laboratory Accreditation Scheme, which was asked to carry out various integrity tests on the Building. The tests included covermeter survey, uniaxial compression tests, carbonation tests, determination of chloride contents and opening up inspection of steel reinforcements.
19. The poor state of repair of the Building is also evidenced by a number of building orders registered against the Building, the latest ones being dated 26 November 2010.
20. As the 4th Respondent did not challenge any of the evidence adduced by the Applicant, we accept the Applicant’s evidence in whole. In particular, we are satisfied that based on the evidence of Mr. R. Chan and Dr. Lau, redevelopment of the Lot is justified due to the state of repair of the Building. It is not necessary for us to formulate a general test for state of repair as in the case of Intelligent House . We think that with the evidence before us as aforesaid, the Building is clearly in a very poor state of repair and indeed in dangerous condition. There is no doubt that redevelopment is justified in the present case.
Age of the Building
21. As to the age of the Building, there is no dispute that the Building is 47 years old. The relevant occupation permit was issued on l0 January 1964.
22. Mr. Li submits that we should not consider just the physical age of the Building, but should also consider the physical conditions of the Building. He relies on the remarks of Mr. R. Chan and Dr. Lau that it would cost respectively $7,200,000 and $48,100,000 to properly repair the Building, and that it was more cost effective to demolish and rebuild the Building. We agree with Mr. Li’s submission that the figure of 31%, being the total repair cost of $55,300,000, over the EUV of the Building, which is $180,776,263 as assessed by the Applicant’s valuer (see the discussion below), is a very substantial percentage.
23. Mr. Li also refers us to the findings in Dr. Lau’s report on the obsolete design of the Building. In Dr. Lau’s opinion, the structural system of the Building is one of reinforced concrete framed structure. This type of structural system is very common for buildings built in the 1960's. Unlike buildings that are designed to the modern design codes, these old type of buildings are not designed against progressive failures. In late 1960, a building at Ronan Point, England collapsed in a progressive manner because of the failure of one structural element. In progressive failures, debris from the collapse of one floor in the building overloads the lower floors causing the lower floors to fail in a domino manner. The construction industry over the world was severely alarmed by the possibility of progressive failure. Since then gradually all modem design codes, including those in Hong Kong, ask for designs against progressive failures. This requirement is now inherent in the 1987 and the 2004 Hong Kong codes.
24. Dr. Lau considers that another feature of these old types of buildings is the lack of "redundancy" in the structural design. In the language of structural engineering, it means we cannot afford to have a failure in any load-bearing column. In other words, "every single load-bearing column counts". If you cut away a column, the structure collapses. This happens to the collapse of the old building in Ma Tau Wai some two years ago. The failure of one column leads to the failure of the whole building. Some degrees of redundancies are important to guard against catastrophic failure.
25. It is Dr. Lau’s opinion that another feature of the 1960's reinforced concrete framed structures is that the lateral stability of the Building depends on the integrity of the concrete frames. The Building loses its lateral stability if the concrete frames cease to function. The concrete frames comprise columns and beams that are connected together by moment joints. The concrete frames serve an important function. They are designed to transfer lateral loads such as wind loads from the upper floors to the foundations. For the frame action to function, the columns, beams and joints between the columns and beams need to be intact. To sum up, for a reinforced concrete framed building to be stable, the columns, the beams and the moment joints that connect them must not be allowed to fail.
26. Dr. Lau considers that in structural engineering, moment joints require the continuity of reinforcements between the columns and beams. For the framed structure to work the reinforcing steels in the beams must be intact and continue into the columns with sufficient lap lengths. If reinforcing steels in the beams could not for some reasons pass from the beams into the columns, there would be no frame actions and the Building could not stand. The Building will collapse under lateral loads and fail as a mechanism. If, due to corrosion, the diameter of reinforcing steels that pass from a beam into a column is reduced to an extent, the moment joint ceases to function properly. Even if the Building was properly designed and built 49 years ago, due to aging and poor maintenance, the stability of the Building could still be affected because of corrosion of steel in a beam, in a column or in a moment joint.
27. Thus, Mr. Li submits that the Building should be redeveloped as they are of obsolete design.
28. Again, without formulating any general test as in the case of Intelligent House , we agree with the view of the Tribunal expressed in Top Sail International Limited v . Cheng Kai Ming, executor of the estate of Chan Hue also known as Chan Sum Hiu, deceased (LDCS 18000/2010, 15 November 2011, unreported), which is delivered after the present hearing, that “when the requirement of “the age” of the Building is considered, we should not restrict our consideration to just the physical age of the Building. There are many factors related to the age of a building which should also be considered” and that “the Tribunal has discretion to determine at what stage a building should be redeveloped after considering all the relevant factors concerning the age of the building in question” (para 23).
29. We also agree with Top Sail (supra) that “the physical age of a building is clearly one of the considerations, but it would not be the only consideration. The physical conditions of a building and the amount that would be required to maintain the building are other factors that the Tribunal should consider, as they would affect the decision on whether the life of a building should be ended or prolonged. The obsolete design of a building should also be considered as it has an important impact on whether it is too old to serve a modern society.” In the present case, as in Top Sail , we also have evidence concerning these 3 aspects and hence we need to consider them to see if the redevelopment of the Building is justified due to the age of the Building (para 24).
30. Having considered all the evidence as aforesaid, we are satisfied that the redevelopment of the Building is also justified on the ground of the age of the Building due to the following factors:
(a) the Building is 47 years old;
(b) the Building is in very poor physical conditions and very substantial cost is required to repair or maintain the Building; and
(c) the obsolete design of the Building does not suit the present requirements of a building.
Reasonable Steps to Acquire All the Undivided Shares in the Lot
31. As required by s. 4(2)(b) of the Ordinance, the Applicant is under an obligation to negotiate for the purchase of the 4th Respondent’s undivided share in the Lot on terms that are fair and reasonable.
32. The Applicant has commissioned Knight Frank Petty Limited ("Knight Frank") to assess the value of the units in the Building on the existing use values basis ("EUV"). A valuation report for EUV was prepared by Mr. A. Chan of Knight Frank. The valuation date is 1 October 2010.
33. In the EUV report, Mr. A. Chan also states the redevelopment value ("RDV") of the Lot to be $315,550,000. However, on the evidence, there is no detailed report on this RDV although the valuation date is stated as 1 October 2010.
34. According to the Knight Frank EUV report, the EUV of the Building is $175,799,700. The EUV of the 4th Respondent's premises is $1,952,576. In terms of percentage, the share of the 4th Respondent's premises is 1.11%. Based on the RDV of $315,550,000 as stated in the EUV report, the reasonable offer to be made to the 4th Respondent would be $1,751,303 (i.e. ½ x $315,550,000 x 1.11%).
35. The evidence of the Applicant’s factual witness, Mr. Alex Au-Yeung, shows that:
(a) After the commencement of the proceedings, the Applicant manages to complete the acquisition of all the units in the Building except the 4th Respondent's premises. However, it is not the case that the Applicant has not managed to reach agreement to acquire the 4th Respondent's premises. In fact, they have reached an agreement for the sale and purchase of the 4th Respondent's premises. The acquisition cannot be completed yet simply because there has been no grant of Letters of Administration for the estate of the deceased owner, Leung Fong Sik.
(b) Leung Fong Sik died intestate on 14th February 1966 in Hong Kong. Letters of Administration were issued in the name of Leung Chi Tak, Leung Fong Sik's natural and lawful son, on 30th June 1966.
(c) Leung Chi Tak died on 21st July 1987 in Taishan City, Guangdong Province, PRC without having administered the 4th Respondent’s premises. According to the land search record for the 4th Respondent's premises, Leung Fong Sik acquired his ½ share in the unit on 2nd October 1964.
(d) By a Provisional Agreement dated 29 September 2010 signed between the Applicant and Liang Chaoxuan (the grandson of Leung Fong Sik and the son of Leung Chi Tak), the Applicant agreed to purchase the 4th Respondent's premises for the sum of $1,443,000 and completion shall take place 14 days after the grant of Letters of Administration. The Applicant also agreed to pay a sum of $7,000 as removal allowance to Liang Chaoxuan. The entire purchase price and the removal allowance have already been paid by the Applicant to Liang Chaoxuan’s solicitors, Messrs. Yu Hung & Co. to be held by it as stakeholder pending the completion or otherwise of the sale of the 4th Respondent's premises to the Applicant.
(e) According to the information of the Applicant, Liang Chaoxuan has already applied to the Probate Registry for a Grant De Bonis Non, which application is still in progress.
36. Mr. Li submits that the Applicant has acquired all the remaining interests in the Lot except those of the 4th Respondent. Since the Letters of Administration has not been granted to Liang Chaoxuan, the sale is not yet completed. Mr. Li invites us to adopt the decision of the Tribunal in Hero Progress Limited v. The Estate of Ting Chi Tung (deceased)& Others (LDCS 8000/2009, 25 July 2011, unreported, para 29). Counsel submitted that since no letters of administration has been granted in respect of the estate, no offer can be accepted on behalf of the minority owner due to a lack of the required legal status. We accept Mr. Li’s submission and hold that since the Applicant has agreed to purchase the 4th Respondent's premises from Liang Chaoxuan, the Applicant is not required to make offers to the 4th Respondent.
37. Although we do not have detailed evidence of the RDV of the Lot when the Applicant agreed to purchase the 4th Respondent's premises from Liang Chaoxuan, we are satisfied that, on the evidence available, the price agreed to be paid by the Applicant “falls within the range of what may broadly be regarded as fair and reasonable” as said by Mr. Justice Ribeiro PJ in Capital Well Ltd v. Bond Star Development Ltd (2005) 8 HKCFAR 578 at para. 33. Thus, we conclude that the Applicant has taken reasonable steps to acquire all the undivided shares in the Lot.
Order for Sale
38. By reasons of the matters aforesaid, we are satisfied that an order for sale should be granted in favour of the Applicant. The remaining question is how much we should fix for the reserve price.
Reserve Price
39. In his EUV reported dated 7 December 2010, Mr. A. Chan valued the EUV of the respective units of the Building as at 1 October 2010.
40. In his valuation of the EUV of the ground floor units of the Building, Mr. A. Chan adopted the following methodology:-
(a) He selected the Ground Floor of Block C & I, 18 Fuk Chak Street as the reference unit (“the Reference Shop Unit”). He then took into account of 5 comparable transactions in three different buildings nearby. After making what he regarded as the necessary adjustments (for time, location, building age, building condition, frontage, headroom and size) for all these comparable transactions, he took the average of the adjusted unit rate of the comparables to come to the unit price of the Reference Shop Unit at $109,362/m², which was rounded to $109,000/m².
(b) He then used the unit rate of the Reference Shop Unit to assess the other ground floor units.
41. In his valuation of the EUV of the domestic units of the Building, Mr. A. Chan adopted the following methodology :
(a) He selected 3rd Floor of Block C at No. 18 Fuk Chak Street (“the Reference Domestic Unit”), which was situated on the middle floor of the domestic portion as the reference unit for the purpose of valuing its unit price.
(b) The unit price of the Reference Domestic Unit was first assessed by making reference to market comparables. He took into account of 5 comparable transactions in different buildings nearby. After making what he regarded as the necessary adjustments (for time, age, floor, size, location /accessibility, building condition, view and security) for all these comparable transactions, he took the average of the adjusted unit rate of the comparables to come to the unit price of the Reference Domestic Unit at $41,149/m², which was rounded to $41,000/m².
(c) He further considered the floor difference and internal conditions of the Reference Domestic Unit and the remaining domestic units within the Building to arrive at the EUV of all the domestic units.
42. During the hearing, we queried the Occupation Permit date of 1957 of the Reference Domestic Unit as stated in Mr. Chan’s EUV report when the date of the Reference Shop Unit is stated to be 1964.
43. As a result, Mr. A Chan produced a revised valuation. His revised valuation of the EUV of all the units in the Building are:
Block F
Block L
G/F
$6,563,827
$4,915,104
1/F
$2,087,977
$1,580,267
2/F
$2,047,823
$1,549,582
3/F
$2,007,670
$1,549,582
4/F
$1,927,363
$1,488,213
5/F
$2,087,693
$1,607,039
Block E
Block K
G/F
$7,350,655
$4,915,104
1/F
$2,087,977
$1,549,582
2/F
$2,047,823
$1,549,582
3/F
$2,007,670
$1,518,898
4/F
$1,967,517
$1,488,213
5/F
$2,070,682
$1,539,374
Block D & J
G/F
$12,137,717
Block D
Block J
1/F
$2,087,977
$1,580,267
2/F
$2,047,823
$1,549,582
3/F
$2,007,670
$1,518,898
4/F
$1,887,210
$1,488,213
5/F
$2,115,213
$1,607,039
Block C & I
G/F
$13,002,610
Block C
Block I
1/F
$2,087,977
$1,580,267
2/F
$2,047,823
$1,518,898
3/F
$2,007,670
$1,518,898
4/F
$1,927,363
$1,488,213
5/F
$1,981,621
$1,539,374
Block B & H
G/F
$11,892,510
Block B
Block H
1/F
$2,087,977
$1,580,267
2/F
$2,047,823
$1,518,898
3/F
$1,887,210
$1,518,898
4/F
$1,967,517
$1,488,213
5/F
$2,115,213
$1,539,374
Block A & G
G/F
$13,002,610
Block A
Block G
1/F
$2,087,977
$1,580,267
2/F
$2,047,823
$1,549,582
3/F
$2,007,670
$1,518,898
4/F
$1,927,363
$1,488,213
5/F
$2,115,213
$1,573,207
44. The 4th Respondent took no issue on the EUV report. We are satisfied that the revised EUV valuation of Mr. A. Chan is fair and reasonable. In Best Insight Limited (勤正有限公司) v. the Estate of Tin Hing Lin (田興蓮) (deceased) & Others (LDCS 5000/2011, 5 September 2011, unreported), when the expert for the applicant has revised his EUV valuation, the Tribunal holds that under “section 10 of the Ordinance, the apportionment between the majority owner and the minority owners of the Lot shall be on the basis as specified in Part 3 of Schedule 1 of the Ordinance. Under the said Schedule, the proceeds are to be apportioned on the basis of the EUV as determined by this Tribunal” (para 15). We hold that the proceeds are to be apportioned on the basis of the EUV as determined by us above.
45. Since the EUV as stated in Mr. A Chan’s valuation report dated 1 October 2010 has been revised, we have re-examined the reasonable offer to be made to the 4th Respondent based on the revised EUV. After carefully considering all the evidence, we are satisfied with our earlier conclusion that the Applicant has taken reasonable steps to acquire all the undivided shares in the Lot.
46. In his valuation report dated 20 October 2011, Mr. A. Chan states the RDV of the Lotas at 18 October 2011 to be $322,390,000. At the trial, the 4th Respondent did not object to this valuation.
47. Mr. A. Chan’s valuation method can be summarized as follows:
(a) The valuation is conducted on the assumption that the existing building erected thereon is vacant and to be demolished and redeveloped into certain beneficial usages reasonably reflecting its redevelopment potential. He takes into consideration the Government policies and measures intended to reduce the gross floor area concessions which would also reduce the building bulk and the marketable gross floor area announced on 13 October 2010 as well as the relevant Joint Practice Notes (issued by Building Department, Lands Department and Planning Department) and Practice Notes issued by Building Department or Lands Department in January to March 2011 to that effect.
(b) In assessing the RDV, residual method of valuation is adopted by deducting development costs (including construction costs, professional fees, finance costs, etc.) and developer's profit from the estimated gross development value of a completed development. Mr. Chan has carried out the valuation with reference to market comparable sale evidence assuming that vacant possession of the Lot would be readily available upon completion. Time adjustment is applied with reference to the Private Domestic Price Indices by Class and Private Retail Price Indices prepared by Rating and Valuation Department published in October 2011.
(c) Taking into account the Building (Planning) Regulations, the restrictions of the Outline Zoning Plan affecting the Lot and the comparatively higher residential value in the vicinity and the limited retail potential on upper floors, Mr. Chan is of the opinion that a composite building with shops on ground floor and first floor and residential units on upper floors should be erected.
(d) He then uses the residual valuation method to assess the land value of the intended development.
(e) Retail and domestic comparables are identified and analysed, applying relevant adjustments as appropriate.
(f) Mr. A. Chan uses 9 Ground Floor shop transactions in six buildings nearby as his Ground Floor retail comparables. For 1st Floor shop and upper floor domestic comparables, he uses a total of five 1st Floor shop transactions in three developments and 95 flat transactions in five developments nearby respectively.
(g) The following unit rates are adopted by Mr. A. Chan in assessing the gross development value:
Ground Floor Retail:
$144,000/m²;
1st Floor shop:
$45,000/m²; and
Typical Domestic Unit:
$105,000/m².
(h) Mr. A. Chan then deducts the development costs from the gross development value. Allowing for developer’s profit and discounting for the development period, Mr. A. Chan determines the land value of the Lot on redevelopment basis.
48. One of the objectives of the Ordinance, as Mr. Justice Ribeiro PJ said in Capital Well Ltd v. Bond Star Development Ltd (supra) at para. 21, is “to ensure that the minority owner receives fair and reasonable compensation for his interests in the lot”. In order to achieve this objective, we have to set a reserve price for the public auction. It is our duty to ensure that the valuation put forward by the Applicant reflects the market value of the Lot including its redevelopment value, even, as in the present case, when the 4th Respondent calls no expert to challenge the valuation of the Applicant’s expert.
49. When Mr. A. Chan gave evidence at the trial, we asked Mr. Chan to reconsider the following factors in his RDV valuation:-
(a) Whether the RDV of the Lot would be higher if the valuation were based on Class B site;
(b) Whether his adjustments of building age of 1% for every 5 years for the Ground Floor shop comparables were justified because the comparables were completed in the 1960s and 1970s;
(c) Whether his adjustments of location for the Ground Floor shop comparables were justified because the location of the comparables as shown on the plan in his report was rectified when he gave evidence;
(d) Whether his adjustments of visibility and quantum for the 1st floor shop comparables were justified;
(e) Whether his adjustments for facilities for the residential comparables should be revised if facilities were provided in his hypothetical redevelopment of the Lot.
50. When the hearing resumed on 8 November 2011, Mr. A. Chan filed a Response to Queries answering our questions. He also revised his RDV valuation to $332,310,000. Mr. A Chan makes further submissions that:
(a) He proposes not to change the site classification to class B. Mr. A. Chan shows us comparison valuation that the RDV of a class A site is higher than class B. We agree no change should be made.
(b) He proposes to change his adjustments of building age for the Ground Floor shop comparables to 3% for every 10 years. We agree that as a result there is a net increase in the Gross Development Value.
(c) He produces photos for the different streets of all the Ground Floor shop comparables and explains his rationale in the adjustments. We agree Mr. A. Chan’s adjustments in his 20 October 2011 valuation report are fair reflection of the situation.
(d) As a result of the change in the adjustment, Mr. A. Chan proposes to revise the unit rate for the Ground Floor shop to $150,000/ m². We agree that this is appropriate.
(e) Mr. A. Chan proposes no change to his quantum adjustments for the 1st floor shop comparables. He concludes that if smaller units are provided, it is not advantageous because this will forego 30% of the gross floor area as corridors. We agree there should be no change.
(f) In response to our further query, Mr. A. Chan proposes to change his adjustments for visibility for the 1st floor shop comparables. As a result, the unit rate for the 1st Floor Shop Unit is $49,000/ m². We agree that this is appropriate.
(g) Mr. A. Chan proposes to provide swimming pools in his hypothetical redevelopment of the Lot. As a result, the adjusted unit rate for the Typical Domestic Unit is $107,000/ m². We agree that this is appropriate.
51. Taking into account the changes proposed, Mr. A. Chan further revises his RDV valuation to $333,050,000. We are satisfied that the revised valuation made by Mr. A. Chan is fair and reasonable, reflecting the current redevelopment value of the Lot. Thus, the reserve price of the Lot should be fixed at this value.
Conclusion
52. In the circumstances, we make the following determination:
(a) This Tribunal is satisfied that the value of the 4th Respondent’s premises as assessed in this Application is fair and reasonable and is fair and reasonable when compared with the values of the Applicant's units;
(b) This Tribunal is satisfied that the redevelopment of the Lot is justified due to the age or state of repair of the Building, and that the Applicant has taken reasonable steps to acquire all the undivided shares in the Lot including that of the 4th Respondent;
(c) 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;
(d) Mr. Lung Siu Wing and Mr. Luk Kam Chung Richard, nominated by the Applicant, be appointed trustees (“the Trustees”) to discharge the duties imposed on trustees under the Ordinance in relation to the Lot, and the Trustees be authorized to charge such remuneration for their services in accordance with the terms set out in the letter from Messrs. So, Lung & Associates dated 30th August 2011;
(e) For the purposes of the sale of the Lot by public auction:
(i) The sale of the Lot be on the particulars and conditions of sale substantially the same as those in the draft Particulars and Conditions of Sale to be initialed and approved by the Tribunal;
(ii) The reserve price be set at $333,050,000;
(iii) 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
(f) Liberty to the Applicant, the 4th Respondent and the Trustees to apply to the Tribunal for further directions.
(g) The net sale proceeds as apportioned to the 4th Respondent's share of the premises at 2nd Floor, Block D, Yen Len Building, Nos. 12-22 Fuk Chak Street, Kowloon ("the said premises") according to section 10 of the Ordinance ("the said sum") be paid to the Trustees to be placed in an interest account to be held on trust subject to the following conditions:
(i) The said sum together with interest thereon be paid over to the Applicant upon the Applicant's notification that it has completed the purchase of the 4th Respondent's share of the said premises in accordance with the Provisional Agreement dated 29 September 2010 made between the Applicant and Liang Chaoxuan, the intended personal representative of the estate of the 4th Respondent who has been appointed by the Tribunal to represent the estate of the 4th Respondent, as registered at the Land Registry under Memorial No. 00037401 ("the Provisional Agreement");
(ii) The Trustees shall make application to court for direction on how to deal with the said money upon notification by the Applicant and/ or Liang Chaoxuan that the sale and purchase of the share of the said premises cannot be or will not be completed in accordance with the Provisional Agreement.
53. The Trustees, the Applicant and Liang Chaoxuan shall have liberty to apply to the Tribunal on matter concerning the said sum.
Costs
54. The parties have indicated their respective positions on costs. Thus, we make a costs order nisi that there be no order as to costs for the Application herein. If the parties do not make any further application for costs within 14 days from today, the costs order nisi shall become absolute.
Deputy Judge K H HUI
Mr. Kenneth KWOK
Presiding Officer
Temporary Member
Mr. C Y LI, instructed by M/S K.B. Chau & Co., for the Applicant
Mr. Stanley YEUNG of M/S Yu Hung & Co., for the 4th Respondent