MAIN LIGHT LTD v. TIME RICHIE INVESTMENT LTD

LDCS 3000/2013

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LAND COMPULSORY SALE MAIN APPLICATION

NO 3000 OF 2013

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J U D G M E N T

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BACKGROUND

1.  This is an application for compulsory sale of all the undivided shares of and in the Remaining Portion of Section C and Sub-section 5 of Section D of Quarry Bay Inland Lot No 4 (“Lot 1”) and the Remaining Portion of Section D of Quarry Bay Inland Lot No 4 (“Lot 2”, Lot 1 and Lot 2 are collectively referred to as “the Lots”), with a building erected thereon known as Nos 852 – 854 King’s Road, Hong Kong (“The Building”), for the purposes of redevelopment pursuant to Section 3(1) of the Land (Compulsory Sale for Redevelopment) Ordinance, Cap 545 (“the Ordinance”).

2.  The Building is a 6-storey commercial/residential composite building with two shops for non-domestic use on Ground Floor and two flats for domestic use on each upper floor from 1^st Floor to 5^th Floor.   Each of the shops on Ground Floor is attached with yard, and each of the flats on 1^st Floor and 5^th Floor is attached with flat roof and roof respectively.

3.  The Building, served by a common staircase, was completed in 1960 with Occupation Permit No H98 issued on 26 May 1960[1]. The shop and each of the flats on No 852 King’s Road is given 1 undivided share, making up a total of 6 undivided shares for Lot 1.  The shop and each of the flats on No 854 King’s Road is also given 1 undivided share, making up a total of 6 undivided shares for Lot 2. 

4.  The applicant filed the Notice of Application (“the NOA”) on 19 February 2013.  At the time of filing of the NOA and hearing, the applicant owned all the undivided shares in Lot 1 and 5 out of 6 undivided shares in Lot 2, amounting to an average of 91.67% of the undivided shares in the Lots. 

5.  The respondent is the only minority owner in this case.  It is the registered owner of the flat on 4^th Floor of No 854 King’s Road, holding 1 out of 6 undivided shares in Lot 2.

6.  Notwithstanding that a Notice of Opposition was filed on 15 March 2013[2], the respondent had subsequently applied to be excused from filing any evidence as well as attending the trial. Leave was granted by the tribunal on 7 July 2014[3].  By two letters to the applicant’s solicitors and to the tribunal dated 3 July 2014 and 4 July 2014 respectively, the respondent confirmed that it would not be opposing the subject application[4].

7.  At the hearing, since there was no expert evidence filed by the respondent in these proceedings, Ms Lan for the applicant simply called the witnesses to prove the applicant’s case.  The applicant contends that all the requirements of the Ordinance have been satisfied and asks for an order for sale of the Lots.

SECTION 3 OF THE ORDINANCE – OWNERSHIP OF THE APPLICANT

8.  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 owned on average 91.67% of the undivided shares in the Lots. We are satisfied that the applicant is entitled to make the application.

DETERMINATION OF THE EXISTING USE VALUES (“EUV”) OF ALL UNITS IN THE BUILDING

9.  Pursuant to section 3 of the Ordinance, the NOA was accompanied by a valuation report dated 15 February 2014 (“Application Report”)[5] prepared by Mr Brian Kam Pui Law of Prudential Surveyors International Limited (“Mr Law”), the applicant’s valuation expert, containing assessments of values of all units (which are conveniently termed as the existing use values, the “EUV” of all units) of the Building as at 8 January 2013. The report was prepared not earlier than 3 months before the filing of the NOA in accordance with section 3 of the Ordinance.

10.  Under section 4(1)(a)(i), if there is a dispute between the parties on the EUV of the units in the Building on the Lots, the tribunal has to determine the values. Section 4(1)(a)(ii) further provides that, in the case of any minority owner of the Lots who cannot be found, the majority owner of the Lots 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.”

11.  Before the hearing, the respondent confirmed that it would not oppose the subject application. There is also no minority owner who cannot be found. Therefore, Ms Lan submitted in her skeleton submission that it is not necessary for the tribunal to determine the EUV.

12.  It is true that there is no EUV dispute to be resolved. However, that does not mean the EUV proposed by the applicant will be automatically accepted by the tribunal. The tribunal has jurisdiction to consider what evidence it will accept for disposal of an issue, particularly when the EUV is of the nature of expert opinion the worth of which lies in the logics and reasoning of the expert’s analyses and his application of a theory or his professional knowledge.   Further, under section 4(2)(b) of the Ordinance, the tribunal shall not make an order for sale unless the tribunal is satisfied that the majority owner had taken reasonable steps to acquire all the undivided shares in the lot.  In the subject case, since the applicant relied on, inter alia, the EUV to prove the reasonableness of its offers to the respondent, we consider that the tribunal do have a duty to review the EUV, particularly if there are apparent inconsistencies or problems with valuation principles. If there is any flaw in the assessment which ultimately affect the reasonableness of the applicant’s offers, this tribunal is entitled to come to a conclusion that the statutory requirement not satisfied.  

13.  In the Application Report, Mr. Law explained his valuation method and the assessment process to arrive at the EUV of each unit in the Building as at 8 January 2013.

14.  In his valuation of the EUV of the domestic units, Mr. Law adopted the following methodology :

(1)   He selected the 4^th Floor of No 854 King’s Road (“Reference Domestic Unit”), which is the respondent’s unit and has never been inspected internally by him, as the reference unit; 

(2)   He then assessed the unit price of the Reference Domestic Unit by making reference to market comparables.  He took into account 8 comparable transactions in nearby buildings of similar age.  After making what he regarded as the necessary adjustments (for time, living environment, accessibility, age, quantum, floor and view) for all these comparable transactions, he came to a unit price of $76,900/sq m for the Reference Domestic Unit, which is close to the average of the adjusted unit rates of the comparables[6];

(3)   He further considered the differences in floor, quantum, view and internal condition (-5% adjustment was made to those units with poor internal condition and nil adjustment was made to those units with no internal inspection) between the Reference Domestic Unit and the other domestic units of the Building and arrived at the EUV of all the domestic units[7].

15.  In assessing the EUV of the two Ground Floor shops , Mr. Law adopted the following methodology:

(1)   He selected the Ground Floor of No 854 King’s Road (“Reference Shop Unit”) as the reference unit and assessed its unit price by reduced zoning method.  He then took into account 6 comparable transactions in the same district, i.e. Quarry Bay, and in the adjacent district, North Point. After making what he regarded as the necessary adjustments (for time, age, location / accessibility, quantum, headroom and frontage, and conversion for yard / flat roof and ancillary area) for all these comparable transactions, he came to a zone A unit price of $584,000/sq m for the Reference Shop Unit, which is close to the average of the adjusted zone A unit prices of the comparables[8];

(2)   He further considered the differences in quantum and frontage, etc. between the Reference Shop Unit and another shop to arrive at the EUV of the two Ground Floor shops[9].

16.  Mr. Law updated his EUV assessments by a supplemental report dated 24 July 2014 (“Supplemental Report”)[10]. He inspected one more unit (i.e. Ground Floor of No 852 King’s Road) internally in the Building; revised the saleable area and ancillary area of the shops on Ground Floor; revised the ancillary area of the flats on 1^st Floor and 5^th Floor; took into account more shop comparable transactions; and made reference to the updated property index prepared by the Rating and Valuation Department in the valuation.  In the valuation of the Reference Shop Unit, Mr. Law changed the basis of his valuation from reduced zoning method to direct comparison method by analysis of saleable area. In particular, he added adjustments for “frontage”, “depth to frontage ratio” and “layout” at the same time.  Mr. Law finally revised the unit price of the Reference Domestic Unit to $77,900/sq m[11] and the unit price of the Reference Shop Unit to $330,000/sq m[12], and then updated the EUV of each unit in the Building[13].

17.  At the hearing, Mr Law advised the tribunal that in the valuation of shops he would prefer direct comparison method by analysis of saleable area to reduced zoning method. He was of the view that such change of methodology would not adversely affect the interest of the respondent in the Application Report[14].  

18.  We consider that the reduced zoning method should only be used in exceptional case in Hong Kong, such as when there is no relevant comparable and/or the property to be valued has an irregular shape like that in the case Secretary for New Territories v Lee Pui Leung[15]. In the present valuation, we accept it is more appropriate to adopt the direct comparison method by analysis of saleable area.

19.  Mr. Law was asked to explain why in assessing the EUV of shops in Appendix 8 of the Supplemental Report[16] he made adjustments for both frontage and frontage to depth ratio. He then supplied the tribunal with an additional assessment without the frontage adjustment but with a revision of the frontage to depth ratio adjustment from 5% on 0.8 ratio difference to 5% on 0.7 ratio difference[17]. Mr Law concluded that the respondent’s share of 4.81% by reference to the EUV remained unchanged in the two assessments.[18]

20.  The adjustments for layout of shop particularly by frontage to depth ratio have recently been the subject matter of comments by differently constituted panels of the tribunal in Supergoal Investment Limited v Five F Ming House Limited and Others [2014] 1 HKLRD286[19] and Main Light Limited v Chow Chiao Shing Tseng and Others[20]. In the latter case Mr Law was also the valuation expert.

21.  In both cases, the tribunal discussed the limitations of adopting a mechanical adjustment for frontage to depth ratio.   As rightly pointed out by Ms Lan at the hearing, frontage to depth ratio only show the relativity of these two factors but such ratio cannot always reflect the impact which each factor may have on the valuation of a particular premises.

22.  We consider that there was double counting of frontage adjustment when adjustments for both frontage and frontage to depth ratio were made as Mr Law did in his valuation. Although Mr Law has provided another assessment to the tribunal without adjustment for frontage[21], Mr Law has still used the frontage to depth ratio to do the adjustment in his supplemental assessment despite its inherent limitation as correctly observed by counsel in the preceding paragraph.

23.  On the other hand, Mr Law has at the same time applied a rather substantial adjustment for quantum which, we consider, has balanced off certain effect of the frontage to depth ratio adjustment. In this regard, we agree with the comments in Supergoal Investment Limited[22] that in respect of the same factor it is inappropriate to adopt two or more subjective adjustments simultaneously having the effect of compensating each other. These simultaneous adjustments would present a picture of false accuracy and mask up errors.

24.  Conceptually, Mr Law has not been able to explain the rationale of his adjustments satisfactorily. Although these proceedings are not contested, we do not find any merits and justifications to apply an adjustment for frontage to depth ratio (with or without an additional adjustment for frontage) and a rather substantial adjustment for quantum at the same time.  We consider a straight forward method could be used for the valuation of shop in the present case. Appropriate adjustments in respect of frontage, depth and quantum should be made in a manner which should not have the effect of doubling the adjustment or compensating each other.  

25.  In the present case, this tribunal considers adjustments for frontage and depth should be made separately without any frontage to depth ratio adjustment. Further, only a moderate adjustment for quantum is necessary.

26.  By our calculation[23], we come to an assessment which is more or less the same as that arrived at by Mr Law, namely $330,000/sq ft. In the circumstances, we accept the unit price of the Reference Shop Unit at $330,000/sq m and the EUV of the two shop units as listed in Appendix 15 of the Supplemental Report[24]. However, the tribunal has to make it clear that we do not agree with the ways by which Mr. Law came to his results.

27.  The EUV of all units in the Building as at the relevant date of valuation, i.e. 8 January 2013, are reproduced below: -

Shop Units

Market Value (HK$)
		No 852 King’s Road			No 854 King’s Road
G/F		$41,130,000			$36,620,000
Sub-total:					$77,750,000

Domestic Units

Market Value (HK$)
		No 852 King’s Road			No 854 King’s Road
1/F		$7,550,000			$7,550,000
2/F		$7,230,000			$7,230,000
3/F		$7,080,000			$7,080,000
4/F		$6,930,000			$7,300,000
5/F		$8,050,000			$8,050,000
Sub-total:					$74,050,000

 

Sub-total for Shop Units:	$77,750,000
Sub-total for Domestic Units:	$74,050,000
Grand Total:	$151,800,000

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

28.  In determining the application, section 4(2) of the Ordinance empowers the tribunal to make an order for sale if it is satisfied that :

(1)   the redevelopment is justified due to age or state of repair of the Building; and

(2)   the applicant has taken reasonable steps to acquire all the undivided shares in the Lots (including negotiating for the purchase of the undivided shares owned by the respondent on terms that are fair and reasonable).

SECTION 4(2)(A) - AGE AND STATE OF REPAIR

29.  This tribunal has taken into consideration the expert evidence of Mr. Wong Wing Cheung, Dennis (“Mr. D Wong”), a qualified building surveyor and Mr. Wong Chi Ming (“Mr. CM Wong”), a qualified structural engineer adduced by the applicant. 

Structural Assessment Report by Mr CM Wong

30.  Mr. CM Wong had conducted a structural assessment of the Building and prepared a Structural Assessment Report dated 24 July 2014[25]. Various tests including visual inspection, open-up inspection, covermeter survey, core compression test, depth of carbonation test and chloride content test were carried out to find out the state of the concrete and the state of corrosion of the steel reinforcement.  Findings of Mr CM Wong are summarized as follows: -

(1)   43 locations containing cracks, spalling. Severe water seepage stains were found during the visual inspection of 10 units and common area of the Building. The recorded 43 locations of defects might be lower than that could have been observed due to re-plastering and existence of false ceilings.

(2)   24 out of 43 locations of defects containing spalling, which were due to corrosion of the steel reinforcement bars.

(3)   14 out of 43 locations of defects related to cracks. It was expected that the corrosion of the steel reinforcement bars might continue and become more severe, and eventually extensive spalling of the concrete might occur.

(4)   Unauthorised building works including additional partition walls, additional concrete filing for raising the floor to accommodate the sub-divided flats and drain pipes respectively, and additional toilets and kitchens that have structural implications were identified.

(5)   All steel reinforcement bars were suffering from different degree of corrosion with 76% of mild corrosion.

(6)   44% of the tested samples of the structural element had 0.5% excess voidage.

(7)   Carbonation had reached the concrete surrounding the steel reinforcement bars in all the tested samples of slabs whilst over 80% of the beams and 60% of the columns tested had the same symptoms.  More significant cracking and spalling of concrete would occur in coming years if no improvement works were carried out.

(8)   22% of the tested samples had a chloride content exceeding 0.4%.

(9)   22% of the tested samples were found to pose a high risk of corrosion of the steel reinforcement bars whilst 61% of the bars were at moderate risk.

(10)   7% of structural members were found to have concrete cover less than the design figure. It was also noted that 95% of the samples from slabs and 59% of samples from beams were found to have concrete cover less than the minimum required of under the current design standard.

(11)   The average cement content for the Building was calculated to be 254.4kg/m3, lower than the current standard of 290kg/m3 as specified in the HK2004, and therefore the design life of the Building could be shorter than 50 years as stated in the code.

31.  Based on the above findings, Mr C M Wong concluded that the structural elements of the Building were in a poor condition. The irreparable problems such as high carbonation depth and high chloride content might cause the condition of the Building to further deteriorate quickly in the near future.

32.  Mr C M Wong further believed that corrosion of the steel reinforcement bars had been initiated and was likely to have entered the propagation phase.  As cracks, spalling and corroded steel bars have been found indicating that the process had already begun, Mr C M Wong anticipated that more defects would develop in the near future.

33.  Mr C M Wong considered that the Building, which was 54 years age old as at the date of his report, had lived longer than its designed life.  With the corrosion of the steel reinforcement bars having entered the propagation phase, extensive maintenance and repair works would be required in order to bring the building structure meeting the current standards.

34.  In addition, although the Building had wind forces resistance design, the magnitude of the wind forces which it was designed to withstand originally was below current standard.  On the other hand, ductility and robustness were not considered in those days when the Building was designed.  Thus, the structure of the Building fails to meet current safety standards.

35.  Based on the aforementioned problems, Mr C M Wong recommended that hammer tapping should be carried out to find out the extent of spalling and cracking in the structural members, and all revealed cracks and spalling should be patch repaired.  He estimated the costs of repair to be $158,780. However, the problems such as severe carbonation and high chloride content cannot be dealt with because such repairs would be both technically and financially impracticable. They would also cause extensive disturbance during the repair works.

Condition Survey Report by Mr D Wong

36.  Mr. D Wong had conducted a condition survey of the Building.  In the Condition Survey Report prepared in July 2013[26], he concluded that :

(1)   The 54 years old Building had many problems as a result of its age which impaired its appearance and function.

(2)   Due to changes in statutory requirements, advanced technology and higher expectations over the years, the Building had become sub-standard with many problems affecting the hygiene, safety, convenience and enjoyment of the Building.

(3)   The physical and functional hazards of the Building were a result of deficiencies in the planning, design, use of material, facilities and workmanship of the Building when it was first constructed.

(4)   The problems were further aggravated due to unauthorized building works, lack of maintenance and the absence of proper building management, and these had rendered the Building to be well below a habitable standard and fall short of many basic requirements expected in new buildings.

(5)   Some of the problems, e.g. overloading of the structure due to unauthorized sub-division of the flats and unprotected electrical installations, were of hazardous nature which might lead to disasters and tragedies like the previous fires of 111 Ma Tau Wai Road and 188 – 198 Fa Yuen Street.

(6)   The Building was obviously below a tenantable standard with its structural frames in poor condition and most of its components, finishes and services deteriorated towards the end of their effective life spans.

(7)   The overall state of repair of the Building was poor showing deterioration beyond reasonable repair.

(8)   The Building was in a state of disrepair and demolition of the Building would relieve the owners from heavy repair responsibilities, which evidently had been neglected for a long time.

(9)   The fact that the Building had been left in a state of disrepair for so long had aggravated the problems which would require more substantial repairs to be undertaken to reinstate the condition of the Building to a tenantable standard.

(10)   The economic benefits brought about by the repair to the existing derelict building were far less than the option of redevelopment.

(11)   The carrying out of the essential repairs would cause considerable disturbance and would require a very long implementation period, and during which the occupation and enjoyment of the units would be affected intermittently.

(12)   Even after the essential repair works had been implemented, the Building would remain an old building with its design and construction out-dated and below market expectations, which would constitute continuing repair liability to the owners

37.  Mr. D Wong assessed the cost of essential repairs at $8,587,720 (i.e. about $7,042.54/sq m), about 38.14% of the unit cost of $18,465.68/sq m for constructing a new building.  He came to the conclusion the high cost of immediate repairs showed that the Building is in a dilapidated condition.  He also concluded that the overall state of repair of the Building was poor with many of its components, finishes and services installations showing deterioration beyond reasonable repair.  In the circumstances, he opined that demolition of the existing derelict building was not only economically more viable, but would also improve the living standard of the new occupants, contribute to the renewal of the neighbourhood and enhance the overall environment.

38.  We accept the unchallenged evidence of the applicant in these respects.  We are satisfied that, based on the evidence of Mr. CM Wong and Mr. D Wong, redevelopment of the Lots is justified due to the poor state of repair of the Building and disproportionate costs to repair and maintain.  We are also satisfied that redevelopment of the Lots is justified due to the age of the Building.  This 54-year old Building is in a poor condition and in fact has come to the end of its life. Its design has become obsolete over time in many aspects both physically and functionally and failed to conform to modern standards and requirements in many material respects.

SECTION 4(2)(B) - REASONABLE STEPS TAKEN

39.  The applicant is under an obligation to take reasonable steps to negotiate on terms that are fair and reasonable for the purchase of all the undivided shares of the Lots under Section 4(2)(b) of the Ordinance.

40.  Before the commencement of the present proceedings, the applicant made the following 2 offers to the respondent: -

(1)   1^st letter dated 22 January 2013 offering $10,153,000

(2)   2^nd letter dated 5 February 2013 offering $10,239,000

41.  After the commencement of proceedings, the applicant made the 3^rd and 4^th offers both at $10,460,000 by 2 letters dated 13 August 2014 and 28 August 2014 respectively.

42.  The applicant contends that the offers made to the respondent are fair and reasonable. The applicant submitted that the offers were determined by reference to the opinion of the applicant’s valuation expert. The applicant further submitted that the offers were all higher than the then EUV and the then market value reflecting the proportionate share of merged site redevelopment potential of Nos 852 – 858 King’s Road[27]; a 5% premium was added to the 1^st and 2^nd offers and a 20% premium was added to the 3^rd and 4^th offers.

43.  The applicant also contends that the applicant’s calculation is most favourable because the marriage value benefited from a joint development with adjoining sites is more generous than that provided for under the Ordinance.  If the redevelopment value of the Lots alone instead of that of the merged site is adopted in making the offer, Mr Law opined that the market values of the respondent’s unit were only $8,034,809 and $8,139,163 at the time of the 3^rd and 4^th offers respectively, which were much lower than the said offers.

44.  In assessing the reasonableness of the offers, Ribeiro PJ stated   in Capital Well Limited v Bond Star Development Limited[28] that :

“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.”[29]

45.  There is no evidence before this tribunal that Mr. Law’s assessments are faulted.  Although we have reservations on some adjustments made by Mr. Law, our assessment is that they will have insignificant effect on his final valuation.  In the circumstances, we are satisfied that the offers made by the applicant fall within the range of what may broadly be regarded as fair and reasonable and the applicant has taken reasonable steps to acquire all the undivided shares of the Lots including the respondent’s unit. 

ORDER FOR SALE

46.  We are satisfied that redevelopment of the Lots is justified in terms of both age and state of repair of the Building and the applicant had taken reasonable steps to acquire all the undivided shares of the Lots and had negotiated for the purchase of the respondent’s unit on terms that are fair and reasonable.  In these circumstances, we agree that an order for sale should be granted in favour of the applicant.

RESERVE PRICE FOR THE AUCTION

47.  The applicant submitted that the reserve price for the auction of the Lots should be fixed at $169,250,000, which is based on Mr. Law’s assessment of the redevelopment value (“RDV”) of the Lots as at 27 August 2014 in his Valuation Report dated 29 August 2014[30].

48.  Mr. Law has adopted the Residual Method to assess the RDV of the Lots.  Residual Method is the assessment of land value by deducting the development costs (including construction costs, professional fees, financial costs and profit, etc.) from the estimated gross development value (“GDV”) of the proposed development, as if completed, as at the date of valuation.

49.  Mr. Law opined that the optimum redevelopment on the Lots comprised a block of 26-storey commercial/residential composite building with shops, lift lobby and plant rooms on ground floor, shops and plant rooms on 1^st floor, recreational facilities and landscape garden on 2^nd floor, 2 domestic units on each of 3^rd to 23^rd floors and a duplex domestic unit on 24^th to 25^th floor.  Details of the hypothetical development with the proposed total gross floor area of 2,112.693 sq m and plot ratio of 8.684, the GDV assessed (i.e. $412,000/sq m saleable area for shops on ground floor, $127,800/sq m for shops on 1^st floor and $195,361/sq m saleable area for domestic units), the development costs adopted (i.e. $34,090/sq m gross floor area) and the residual valuation were set out in the Appendices of his Valuation Report dated 29 August 2014[31]. The residual land value was assessed at $169,250,000, which is equivalent to an accommodation value of about $80,111/sq m gross floor area.

50.  Mr Law adopted the Direct Comparison Method to cross check the result of the Residual Method. He analysed and made reference to two site sales comparables, (1) Nos 180-182 Shau Kei Wan Road, Sai Wan Ho (“Site Comparable 1”), and (2) Golden Horse Mansion, Nos 21-39 Mansion Street, Quarry Bay (“Site Comparable 2”), in his RDV valuation[32].

51.  Site Comparable 1, with smaller site area, is similar to the subject property. A hypothetical commercial/residential composite development was assumed by Mr. Law. Site Comparable 2 is adjacent to the subject property. It was sold pursuant to a compulsory sale order, and a hypothetical development for sole residential purpose was assumed.  Having considered the differences in location, view and development scale, Mr Law derived an adjusted accommodation value of $79,170/sq m gross floor area by the Direct Comparison Method. However, he adopted the higher value arrived at by the Residual Method as his RDV valuation.

52.  In his Supplementary Report, Mr Law considered another site transaction of Shau Kei Wan Inland Lot No 854 (“the said Shau Kei Wan comparable”), with unblocked seaview and limited to only private residential development, was not of much relevance for direct comparison. However, he chose Site Comparable 2, which was assumed for residential development only, for direct comparison in his Valuation Report dated 29 August 2014. He was therefore asked why there was an apparent contradiction in his choice of comparables. He then supplied the tribunal with a supplementary assessment with the analysis of the said Shau Kei Wan comparable [33] included.  He further explained that the said Shau Kei Wan comparable, because of its unblocked seaview, is not of much relevance as a comparable in the present valuation.

53.  In our view, we consider the said Shau Kei Wan comparable, which is a purely private residential development, is not helpful in the subject case for the obvious reason that the residential accommodation value it provides is not useful in the present valuation which involves a hypothetical commercial/residential composite development. Obviously, this comparable is irrelevant for assessing the commercial portion of the subject hypothetical composite development.  The same rationale is also applicable to Site Comparable 2, which we are also of the view to be of little relevance in the present valuation.

54.  At the hearing, Mr Law was also enquired why all the comparables adopted in his GDV assessments of ground floor and 1^st floor of the hypothetical subject development were all transacted long before the valuation date of 27 August 2014.  The comparables adopted for ground floor were actually the same as those for the EUV valuation in his Supplementary Report. They were all transacted between 3 March 2012 and 11 June 2013[34]. Those adopted for the 1^st floor were transacted between 15 March 2012 and 9 April 2013[35].

55.  Mr Law replied that there was no relevant comparable close to the valuation date of 27 August 2014 and therefore comparables transacted earlier were adopted.  Mr Law then provided to the tribunal lists of comparables which he had reviewed but considered not relevant in the present valuation[36].

56.  We have serious doubt on the alleged absence of relevant comparables close to the valuation date, and are not convinced of the simple answer provided by Mr Law.  In the context of Hong Kong, absence of relevant comparables for such a long period of time is unusual and exceptional. In fact, Mr Law could extend his research scope. For example, for the 1^st floor comparables, Mr Law has provided his research of recent transactions. It was shown they were restricted to North Point only, unlike his research for ground floor comparables which covered transactions in both North Point and Quarry Bay. However, in the absence of contention in these proceedings, the tribunal is constrained to rely on evidence provided by the applicant.

57.  Although we are concerned about the relevance of the aged comparables and absence of recent transactions, Mr Law has applied time adjustments to these comparables with reference to the time index, which is acceptable, though reluctantly, when no recent comparable is available for consideration.  On the other hand, despite our comments on the adjustments for frontage, frontage to depth ratio and quantum in paragraphs 19 – 26 above that should also be applicable to the GDV assessment of the ground floor shop[37], we accept the unit price of the ground floor shop in the GDV assessment being $412,000/sq m.  We accept that the market value of the Lots reflecting its redevelopment potential on their own, i.e. the RDV of the Lots, as at 27 August 2014 was $169,250,000, which should be the reserve price for the auction of the Lots.

ORDER

58.  This tribunal make the following determinations :

(1)   This tribunal is satisfied that redevelopment of the Lots is justified due to the age and state of repair of the Building, and that the applicant has taken reasonable steps to acquire all the undivided shares in the Lots including that of the respondent;

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

(3)   Mr. Chow Wing Kin Anthony and Ms. Chow Suk Han Anna, nominated by the applicant, be appointed trustees (“the Trustees”) to discharge the duties imposed on trustees under the Ordinance in relation to the Lots and the Trustees be authorized to charge such remuneration for their services in accordance with the terms set out in the letter from Messrs. Peter C. Wong, Chow & Chow dated 22 August 2014[38];

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

(a) The sale of the Lots be on the particulars and conditions of sale the same or substantially the same as those in the draft Particulars and Conditions of Sale (as set out in pages 302 - 325 of Bundle A) to be approved and initialed by the tribunal;

(b) The reserve price be set at $169,250,000;

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

(d) Liberty to the applicant, the respondent and the Trustees to apply to the tribunal for further directions.

COSTS

59.  The applicant did not ask for costs.  We make a costs order nisi that there be no order as to costs and such order be make absolute after 14 days if no application is made to vary the said costs order.