BILLION GLORY PROPERTIES LTD AND OTHERS v. LI BAOZHU AND OTHERS

LDCS 23000/2019

[2024] HKLdT 68

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LAND COMPULSORY SALE MAIN APPLICATION NO 23000 OF 2019

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D E C I S I O N

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1.  This relates to an application for a compulsory sale order under the Land (Compulsory Sale for Redevelopment) Ordinance, Cap 545 (“the Ordinance”) to sell all the undivided shares of Section C of Inland Lot No 2147 (“the Lot”) on which building known as the Haven Court stands with the address of Nos 2-30 Haven Street & Nos 128-138 Leighton Road, Hong Kong.

2.  After a trial of 7 days in September last year, judgment was handed down on 29 February 2024 (“the Judgment”) which, inter alia, granted an order for sale of the Lot by way of a public auction (“the Order for Sale”) subject to a reserve price of $2,425,000,000 (“the Reserve Price”). Also by the Order for Sale, Mr Anthony Chow and Ms Anna Chow of Messrs Guantao & Chow, Solicitors & Notaries, nominated by the Applicants, were appointed trustees (“the Trustees”) to discharge the duties imposed on trustees under the Ordinance in relation to sale of the Lot.

3.  Pursuant to the Order for Sale, the Trustees held an auction on 17 April 2024 but no bid was received in the auction. That is, the auction became abortive or failed.

4.  By Summons filed by the Applicants on 29 April 2024, the Applicants applied to extend the effect of the Order for Sale for 3 months from 29 May 2024 to 29 August 2024 and for leave to re-fix the Reserve Price. Then by order made on 31 May 2024 by the Tribunal, the Order for Sale was extended for 3 months to 29 August 2024 but leave to re-fix the Reserve Price was refused.

5.  In the meantime, the Applicants applied for leave to appeal to the Court of Appeal against the Tribunal’s refusal to grant leave for the application to re-fix the Reserve Price. Whereas the Tribunal considered this involving the interpretation of the Ordinance which is a question of great general importance or in the interests of justice, such leave was granted to appeal to the Court of Appeal against the Tribunal’s refusal to grant leave for the application to re-fix the Reserve Price.

6.  Perhaps owing to the above, the Applicants informed the Trustees that they are of the view that the Trustees are not under any obligation to arrange for another auction to sell the Lot after the failed auction. Further, the Trustees were informed that they are not going to bid at the auction pursuant to the Order for Sale as extended notwithstanding the effect of the Order for Sale has been extended. The Applicants themselves have no intention to arrange for another auction at the Reserve Price.

7.  As a result, on 15 July 2024, the Trustees applied to the Tribunal in reliance on section 4(9) of the Ordinance to seek direction as to:

(1)  whether the Trustees should proceed to arrange a 2^nd Auction as the Order for Sale has been duly extended to 29 August 2024;

(2)  whether the Tribunal will consider ordering a stay of the Order for Sale as extended, pending determination of the intended appeal by the Applicants and/or further order of the Tribunal.

8.  The Trustees informed the Tribunal that they encountered difficulties in determining whether under the Order for Sale as extended, the Trustees are bound to arrange for a new auction bearing in mind that no bid was attracted at the last auction, the Order for Sale has not been stayed though the Applicants have expressed their position of no intention to arrange for another auction at the Reserve Price. More importantly, if a new auction is arranged and it ends up as a failure again, the costs and auction expenses incurred would be wasted.

9.  On 19 July 2024, the Tribunal directed that “the Trustees should proceed to arrange a 2^nd Auction of (the Lot) at the reserve price” (“the Direction”). The Applicants then on 2 August 2024 sought to set aside the Direction by applying for a review pursuant to section 11A of the Ordinance.

Review Procedure

10.  The Tribunal has the power to review its decision pursuant to section 11A of the Lands Tribunal Ordinance, Cap. 17 (“the LTO”). Section 11A(1) to (4) of the LTO stipulates that: -

“(1) The Tribunal may, within 1 month from the date of any decision by it, decide to review that decision and, on such grounds as it may think sufficient, may set aside, reverse, vary or confirm it.

(2) The Tribunal may act under subsection (1)-

(a) on the application of any party; or

(b) on its own motion,

and on notice to all other parties to the proceedings.

(3) If the Tribunal shall have decided, within 1 month from the date of any decision, to exercise its power of review in respect thereof, such power may be exercised at any time thereafter whether within such period of 1 month or otherwise.

(4) The Tribunal may, in any review, hear and receive any evidence it thinks fit for the purpose of determining the issue between the parties.”

11.  As decided by Lam J in CLP Power Hong Kong Limited v. Commissioner of Rating and Valuation, LDRA 536/1999 & 48 others (unreported), the review process under section 11A of the LTO is a two-stage process. First, the Tribunal has to consider whether an application for review should be entertained. If the Tribunal decided that there should be a review, then the review will proceed. That will be the second stage. At the second stage, as provided under section 11A(4), the Tribunal may hear and receive evidence it thinks fit for the purpose of determining the issues between the parties.

Grounds for Review

12.  By the Affirmation of Tse Wai Hang dated 1 August 2024, the Applicants submitted that the Ordinance does not impose on the Trustees any duty to organize a 2^nd auction. The Applicants referred to section 5(1) of the Ordinance which requires the Trustees to organize a public auction sale (or another permitted method of sale) “where an order for sale is granted”. After the grant of the Order for Sale on 29 February 2024, the Trustees had already held the auction which failed. According to the Applicants, the Trustees had fulfilled their obligation under section 5(1). Further, according to the Applicants, the order to extend the effect of the Order for Sale under section 5(4) is not a grant of a sale order and does not trigger off the operation of section 5(1) for a second time.

13.  The Applicants also complained that the Trustees should not have initiated or taken any step to organize a 2^nd auction upon the grant of the order of the Tribunal on 31 May 2024 to extend the effectiveness of the Order for Sale to 29 August 2024, including asking for a direction from the Tribunal, without having first securing the consent of all the unit owners and/or that of the Applicants. Insofar, the Trustees only obtained the consent of the 26^th respondent to organize a 2^nd auction; the 10^th respondent does not oppose the application for review while the other respondents have been non- responsive.

14.  The Applicants particularly referred to section 10(1)(a) of the Ordinance whereby in the event of no purchaser of the lot in any auction, the cost of the auction is to be borne solely by the Applicants. Thus, the Applicants argued it is important for the Trustees to obtain the consent of the Applicants to organize a 2^nd auction.

15.  Further and/ or alternatively, the Applicants submitted that the Tribunal in the circumstances should not have given the Direction and/or should not have given the Direction without first hearing from the Applicants and the remaining respondents on (1) whether the Trustees are under any obligation to organize a 2^nd auction upon the granting of the order on 31 May 2024 to extend the effectiveness of the Order for Sale to 29 August 2024 and/or (2) whether each of the Applicants and the remaining respondents is consenting to the Trustees’ suggestion of holding a 2^nd auction.

Reasons for Decision

16.  As rightly pointed out by the Trustees in their letter to the Tribunal on 15 July 2024, their duties as trustees have not been released from the Order for Sale as extended. The Trustees have been appointed by the Tribunal (instead of by the Applicants) under section 4(1)(c) of the Ordinance “to discharge the duties imposed on trustees under this Ordinance in relation to the lot”.

17.  Section 5(1) of the Ordinance provides as follows:

“(1) Where an order for sale is granted and the trustees under the order have complied with section 7(1) in respect of the lot the subject of the order—

(a) subject to paragraph (b), the lot shall be sold by public auction in accordance with the conditions specified in Schedule 2; or

(b) if the whereabouts of each minority owner of the lot is known, the lot may be sold by any other means—

(i) agreed in writing by each minority owner and majority owner of the lot;

(ii) approved by the Tribunal in its absolute discretion; and

(iii) in accordance with such conditions, if any, as the Tribunal specifies in directions.”

18.  Thus, by the order made on 31 May 2024 by the Tribunal, the Order for Sale is extant. Apart from where the lot is to be sold by any other means other than auction, agreement in writing by each minority owner and majority owner of the lot is not required. The Trustees retain their fiduciary position as trustees under the Ordinance[1].

19.  In their letter dated 8 August 2024, while the Trustees stated that they are assuming a neutral stance to the Applicants’ application for review, they submitted and I agree that, the Ordinance does not differentiate an order for sale initially granted from an order for sale pursuant to which an auction had been held but found no purchaser and an order for sale that continues to be effective upon being extended by the Tribunal.

20.  The Trustees further submitted, and I agree, that they, being appointed by the Tribunal under the Order for Sale, do not need the consent of all the owners to sell by public auction as provided in the Ordinance.

21.  Order 15 Rule 14(1) of the Rules of High Court (which is applicable in the Lands Tribunal) read as follows:

“Any proceedings, including proceedings to enforce a security by foreclosure or otherwise, may be brought by or against trustees, executors or administrators in their capacity as such without joining any of the persons having a beneficial interest in the trust or estate, as the case may be; and any judgment or order given or made in those proceedings shall be binding on those persons unless the Court in the same or other proceedings otherwise orders on the ground that the trustees, executors or administrators, as the case may be, could not or did not in fact represent the interests of those persons in the first-mentioned proceedings.” (underline added)

22.  Similarly, in Man Mi Sang & Another v Man Shek Tong & Others, HCA 881/2012 (unreported, dated 28 December 2018), the 1^st and 2^nd Defendants as managers of a Tso had great difficulties in looking for potential tenants for the land owned by the Tso. It was particularly difficult to find outsiders who had no connection with the Tso to lease the land. The Court of First Instance found at §105 that there was no custom that required the managers of the Tso to obtain the consent of the members before leasing out any piece of Tso’s lands.

23.  More importantly, the Trustees relied on section 4(9) of the Ordinance to apply to the Tribunal in any case of doubt or difficulty or in any matter not provided for under this Ordinance. The section does not require the consent of all the owners or the Applicants specifically.

24.  The above should readily rebut the complaint by the Applicants against the Trustees in seeking the direction of the Tribunal on 15 July 2024.

25.  As regard to the Applicants’ concern that the Applicants would have to bear the costs of the 2^nd auction, it is provided in the Ordinance that the costs and expense of and incidental to the 2^nd auction will be borne by the successful bidder and all the owners if there be a successful bidder in the 2^nd auction. The Trustees should not assume that there is no bidder other than the Applicants in the 2^nd auction as the 2^nd auction is and remains a public auction open to all potential bidders.

26.  On the other hand, on a purposive approach to interpret Section 5(1) of the Ordinance, the Trustees have a fiduciary duty to see that the Lot is sold by public auction.

27.  As observed by Lam J, as he then was, in the first instance judgment in Man Fong Hang v Man Ping Nam, HCA 7935/1998, (unreported, 11 December 2003) at §167:

“ … It is common ground that the Defendants were under a duty to get a proper price for the sale of the land. It may be more precise to say that the proper price should represent the true market value of the land (see Cuckmere Brick v Mutual Finance [1971] 1 Ch 949 at p. 966F). The duty is not an absolute one. It is a duty to use due diligence and reasonable care in the management of the trust property which an ordinary prudent man of business would exercise. Hence, if the sale were eventually found to be at undervalue despite due diligence and reasonable case, the trustee would not be liable. That is an objective standard. The court would test the conducts of the trustee against that of an ordinary prudent man of business instead of the standard actually adopted by the trustee in the conduct of his affairs. However, the court would apply that test against the facts and circumstances at the time when the trustee had to act and with reference to matters known or ought to have been known to the trustee at that time. Hence, the duty is not discharged merely by showing that the trustee acted in good faith and with sincerity (see Medforth v Blake [2000] Ch 86). The duty is a duty in equity rather than a common law duty (see Tse Kwong Lam v Wong Chit Sen [1983] 1 WLR 1349).” (underline added)

28.  In the present case, the Applicants relied heavily on the fact that the auction on 17 April 2024 failed to attract any bids. However, unlike a normal public auction, it is a common phenomenon that the majority owner(s) is/are the only bidder in an auction resulted from a compulsory sale under the Ordinance when other potential bidders consider not worth the trouble to compete. But this does not distract from the purpose of the Ordinance to attract bids from genuine developers who are not necessarily connected with the Applicants. The purpose of fixing a reserve price based on the redevelopment value before any auction is held is just to safeguard against abuse by an applicant. On the other hand, whether the Applicants would be going to bid at the auction pursuant to the Order for Sale as extended is neither here nor there.

29.  By Tse Kwong Lam v. Wong Chit Sen [1983] 1 WLR 1349 at 1355G, even when a property was sold at auction, it does not of itself render the sale proper. It is thus utmost to see how the Trustees proceed with arranging the auction so as to take reasonable care to secure the 2^nd auction. The Trustees have the burden of proving that they had used their best endeavours to secure the 2^nd auction in due course.

Conclusion

30.  Having stated the above, I consider no ground to review the Direction.

Costs

31.  As this decision is made on papers without a hearing pursuant to the Practice Directions issued by the President of the Tribunal: Review No 1/2009, I shall make no order as to the costs.