GROUP LEADER LTD AND OTHERS v. HUI SUN FAT AND OTHERS

LDCS27000/2011

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LAND COMPULSORY SALE MAIN APPLICATION NO. 27000 OF 2011

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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 in The Remaining Portion of Section A of Inland Lot No. 834 (“the Lot”) for the purposes of redevelopment pursuant to Section 3(1) of the Land (Compulsory Sale for Redevelopment) Ordinance, Cap. 545 (“the Ordinance”). Currently erected on the Lot are two blocks, namely Block A and Block B, of 11-storey commercial/residential buildings with shops on Ground Floor and domestic units above.

2.  The two blocks, collectively known as Western Court and hereinafter referred to as “the Buildings”, are situated as 450, 450A-G, 452, 452A-G, 454, 454A-G, 456, 456A-G Queen’s Road West in the Western District, Hong Kong. Each block is served by four lifts and eight common staircases.

3.  According to an occupation permit issued on 31 May 1961, there are, in each block, 2 shops for non-domestic use abutting Queen’s Road West and 14 tenements for domestic use on Ground Floor, 16 residential units at each level on 1^st to 10^th Floors.  Therefore, the Buildings comprise altogether 4 shops and 348 residential units plus roof on each block.

4.  Whereas each shop unit is assigned 2 equal and undivided shares of the Lot, each domestic/residential unit is assigned 1 equal and undivided share of the Lot and the Roofs and Exterior Walls of the Buildings are assigned 8 equal and undivided shares of the Lot.  When the applicants filed the Notice of Application (“the NOA”) in this case on 3 August 2011, the applicants altogether had already owned 345 out of the total of 364 shares of the Lot, ie 94.78% except for the following units:

(1)   6^th Floor, 450B Queen’s Road West (“R1’s Unit”) owned by the 1^st respondent (“R1”);

(2)   9^th Floor, 450B Queen’s Road West (“R2’s Unit”) owned by the 2^nd respondent (“R2”);

(3)   10^th Floor, 450D Queen’s Road West (R3’s Unit”) owned by the 3^rd respondent (“R3”);

(4)   2^nd Floor, 452 Queen’s Road West (R4’s Unit”) owned by the 4^th respondent (“R4”);

(5)   3^rd Floor, 452E Queen’s Road West (R5’s Unit”) owned by the 5^th respondent (“R5”);

(6)   6^th Floor, 452F Queen’s Road West (R6’s Unit”) owned by the 6^th respondent (“R6”);

(7)   4^th Floor, 452G Queen’s Road West (R7’s Unit”) owned by the 7^th respondent (“R7”);

(8)   10^th Floor, 454 Queen’s Road West (R8’s Unit”) owned by the 8^th respondent (“R8”);

(9)   5^th Floor, 454E Queen’s Road West (R9’s Unit”) owned by the 9^th respondent (“R9”);

(10)     9^th Floor, 454E Queen’s Road West (“R10’s Unit”) owned by the 10^th respondent (“R10”);

(11)     3^rd Floor, 450B Queen’s Road West (R11’s Unit”) owned by the 11^th respondent (“R11”);

(12)     Roofs and exterior walls (“Roofs and Exterior Walls”) owned by the Incorporated Owners of the Building, ie the 16^th respondent (“R16”).

5.  The applicants had subsequently acquired the undivided shares owned by R1, R4, R5, R6, R8, R9 and R11 resulting in an ownership of 352 of the 364 undivided shares in the Lot, representing 96.703% of all the undivided shares of the Lot.  Proceedings against them have either been withdrawn or discontinued.

R2, R3, R10, R12 to R15

6.  R2 passed away on 9 March 1999 but Probate or Letters of Administration has never been granted in respect of her estate.

7.  R3 passed away on 29 October 1981 but Probate or Letters of Administration has never been granted in respect of his estate.

8.  R10 passed away on 5 January 1994 and Li Xuemin (“Mr Li”) was appointed by the Lands Tribunal to represent the estate of R10 for the purposes of these proceedings.  Mr Li appeared on the first day of trial and indicated that he had no objection to this application and asked for the proceeds of sale to be apportioned to R10’s Unit be held by the trustee to be appointed by the Lands Tribunals pending final determination of the proceedings in the adverse possession claim by the 15^th respondent (“R15”).  Mr Li’s attendance for the rest of the trial had been excused.

9.  As regards the 12^th respondent (“R12”), he is the occupier of R2’s unit but has instituted proceedings in the District Court under action DCCJ 3456 of 2011 claiming possessory title to R2’s Unit on the ground of adverse possession. 

10.  Likewise, the 13^th respondent (“R13”) is the occupier of R3’s unit but has instituted proceedings in the High Court under action HCMP 2384 of 2011 claiming possessory title to R3’s Unit on the ground of adverse possession.

11.  The 14^th respondent (“R14”) represents the Government of the Hong Kong Special Administrative Region (“the Government”) who may have acquired the respective estates of R2 and R3 and hence R2’s Unit and R3’s Unit by way of bona vacantia under section 4(9) of the Intestates’ Estate Ordinance, Cap 73.  R14 has not filed any Notice of Opposition in these proceedings and has all along taken a neutral stance.

12.  R15 alleges that she has been the occupier of R10’s Unit and has instituted proceedings in the High Court under action HCA 1121 of 2011 claiming possessory title to R10’s Unit on the ground of adverse possession.

13.  R12, R13 and R15 have indicated in the Notice of Opposition that they are not opposing this application save and except asking for the proceeds of sale to be apportioned to their respective units be held by the trustee to be appointed by the Lands Tribunals pending final determination of the proceedings in their respective adverse possession claim[1].

R7

14.  The 1^st named R7 is missing.  The 2^nd named R7, through Messrs Betty Chan & Co. informed the applicants that she and the 1^st named R7 held R7’s Unit as the executors of the estate of Chu Kam, deceased and that she had to act jointly with the 1^st named R7 in dealing with R7’s Unit.  In the absence of the 1^st named R7, the 2^nd named R7 was unable to take part in mediation with the applicants.[2]  The 2^nd named R7 had not taken part in these proceedings.

R16 and R17

15.  R16 is the Incorporated Owners of Western Court which owns 8/364^th equal and undivided shares in the Lot together with the exclusive right and privilege to hold, use, occupy and enjoy the Roofs and Exterior Walls.

16.  By an Assignment dated 22 February 1996 and registered in the Land Registry by Memorial No UB6553098 (“the Assignment”), R16 acquired the Roofs and Exterior Walls from the then Governor of Hong Kong subject to and with the benefit of the Deed of Mutual Covenant dated 15 September 1961 and registered in the Land Registry by Memorial  No UB351901[3].

17.  By Clause 2 of the Assignment, R16 as assignee expressly covenanted (“the Restrictive Covenants”), inter alia:

“(1) Not to assign, mortgage, charge, underlet, part with the possession of or otherwise dispose of [the Roofs and Exterior Walls] or any part thereof or any interest therein without the prior written approval of [the Government].

(2) Not to collect any rent or premium in the event of any assignment, underletting or any agreement so to do by [R16].

(3) To remove any existing unauthorized structures erected on any part or parts of [the Roofs and Exterior Walls] if and when such structures become vacant or unused at the costs of [R16].”

[emphasis added and parenthesis substituted]

18.  Messrs Lo & Lo, on behalf of the applicants, sent a letter dated 29 January 2013 to R16 requesting it to assign the Roofs and Exterior Walls to the applicants or anyone of them at nil consideration and to furnish them with the written approval of the Government required under the Restrictive Covenants.

19.  On or about 17 April 2013, Messrs Lo & Lo received from R16’s solicitors, Messrs Yam & Co, a copy of the letter dated 12 April 2013 from the 17^th respondent (“R17”) who asserted that the Government would only consider granting approval to R16 for assigning the Roofs and Exterior Walls to the applicants or the successful bidder at public auction (if an Order for sale of the Lot should be made by the Tribunal) subject to payment by R16 of an administrative fee and premium to be assessed and other additional terms and conditions which might be imposed in granting the approval[4].

20.  In its Notice of Opposition filed on 8 May 2013, R16 averred inter alia that:

(a)   The market value of the Roofs and Exterior Walls on their existing uses basis as at 8 February 2013 was “NIL”;

(b)   Because of the Restrictive Covenants, R16 would not be entitled to any financial benefits from an assignment of the Roofs and Exterior Walls to the applicants or anyone of them or to the successful bidder of the Lot in the auction sale if an Order for sale of the Lot should be granted by the Tribunal under the Ordinance.

21.  On 10 May 2013, Messrs Lo & Lo wrote to the Department of Justice who acts for R17 expressing the applicants’ concern on whether R17 would agree with the applicants and R16 on their position about the existing use value of the Roofs and Exterior Walls, suggesting if not inviting R17 to be joined in the Application to take care of the Government’s position.[5]

22.  Upon the application of the applicants by way of Summons filed on 9 September 2013[6] (“the Summons”) and by consent of R17, the Tribunal ordered that R17 be joined in these proceedings[7] (“Judge Ko’s Order”).

23.  By way of a consent order dated 29 October 2013, leave was granted for R17 to file its expert valuation report in respect of the Roofs and Exterior Walls[8].

24.  At the hearing on 21 January 2014[9], it was ordered that the applicants and the respondents who had filed their Notices of Opposition do file and serve an Agreed List of Issues for Trial on or before 6 March 2014.

25.  An Agreed List of Issues For Trial signed by the applicants, R13 and R15 to R17 was filed on 6 March 2014[10] which consisted of Section A to D, namely :

A.    Issues not in dispute but subject to proof by the applicants;

B.    Additional Issues to be determined by the Tribunal;

C.    Issues in dispute between the applicants and R17 only and to be determined by the Lands Tribunal; and

D.    Issues in dispute between R16 and R17.

26.  Section C of the Agreed List of Issues involved the following 3 areas of dispute :

(1)   Whether the Roofs of the Buildings have a market value (“EUV”);

(2)   If answer to (1) above is “yes”, how much is the EUV of the Roofs; and

(3)   What are the respective EUVs of 5 named properties.

27.     Section D of the Agreed List of Issues involved 3 areas of dispute :

(1)   Whether or not R17 is a minority owner as defined in the Ordinance and whether R17 has any proprietary interests in the Roofs and Exterior Walls;

(2)   Whether R17 is entitled to receive a premium and administrative fee under the Restrictive Covenants; and

(3)   If answer to (2) above is “yes”, how much are the premium and administrative fee payable by R16 to R17.

28.  At the hearing on 13 March 2014, it was ordered that “the Trial of this Application (except for the issues between R16 and R17) be fixed for trial[11] (“Judge Wong’s Order”).

29.  Before the Pre-Trial Review held on 5 August 2014 (“PTR”), the applicants had taken out a summons dated 21 July 2014 asking for 2 additional issues to be heard and determined by the Lands Tribunal at trial.  They are :

(1)   Whether the Lands Tribunal has any jurisdiction and power to hear and determine R17’s claim against R16 incidental to and arising out of the Restrictive Covenants in these proceedings; and

(2)   Whether the issues in dispute between R16 and R17 as listed under Section D of the Agreed List of Issues for Trial filed in these proceedings on 6 March 2014 should be resolved in proceedings other than the subject proceedings.

30.  At the PTR, this court had asked counsels for the applicants and R17 as to what happened at the hearing before Judge Wong and why the issues of locus concerning R17 as well as the 2 additional issues suggested by the applicants are not being directed to be dealt with as a preliminary issue.  Yet, both counsels failed to point out the fact that Judge Wong’s Order had in fact rendered issues between R16 and R17 as stipulated in Section D of the Agreed List of Issues should not be dealt with at this trial. 

31.  This resulted in the order dated 5 August 2014[12] that 3 additional issues, ie the 2 issues raised by the applicants in §29 above as well as the locus of R17, are to be heard at the trial of this Application in order not to upset the trial dates fixed for this case.

Locus of R17 and Extent of its Involvement

Applicants’ Contention

32.  It is the submission by the applicants that R17 does not have the locus to pursue any claim or to advance any argument other than on the question about its locus standi in this case and has no right to dispute the existing use value (“EUV”) of the Roofs since it is not a “minority owner” anticipated under the Ordinance.

33.  In support of this contention, Ms Ngai for the applicants relied on the wordings of s.4 of the Ordinance and the case of Pacific Crown Enterprises Ltd v Man Yu On, both at first instance and on appeal [2013] 1 HKLRD 833 and HCMP 2846 of 2012 dated 7 February 2013 (unreported).

34.  It is the contention of Ms Ngai that Judge Ko’s Order was a consent order and should not be considered as an order of the Judge (Hong Kong Civil Procedure 2014 at 3/5/1).

35.  In any event, upon an order for sale, it is the trustee appointed by the Tribunal who were to deal with the assignment of the properties (s.11(1)(b)), including the Roof and the Exterior Walls and not R16.  So, the Restrictive Covenants do not bite and is wholly irrelevant in this Application. 

36.  And since none of the live respondents dispute the EUV of the units in the Buildings including the Roofs and the minority owner of the Roofs, ie R16 is not missing, s.4(1)(a)(i) and (ii) do not kick in so the Tribunal is obliged to adopt the EUV assessed by the applicants’ expert.

Respondent’s Contention

37.  Mr Chan for R17 submitted that it is the applicants who had made an application to join R17 as a necessary and proper party to the present proceedings on the basis that this Tribunal would need to deal with the issues arising from the Restrictive Covenants.  In making the application, the applicants must have accepted that this Tribunal has the jurisdiction to deal with the dispute between R16 and R17 arising from the Restrictive Covenants. 

38.  Upon the application by the applicants, Judge Ko had granted leave to join R17 and there was no appeal against Judge Ko’s Order.  If the learned judge did not think the Lands Tribunal had jurisdiction to deal with the dispute, he would not have acceded to the application.  So R17’s locus as a proper and necessary party comes from Judge Ko’s Order and the issue of jurisdiction had already been resolved.  There is nothing in Judge Ko’s Order that R17’s participation would be limited in the way the applicants are now trying to say.  The locus of R17 should no longer be a live issue in these proceedings and it is not open for the applicants to renege from their previous position.

39.  Furthermore, the 2 issues in dispute between R16 and R17 ie :

(1)   Whether the Roofs has market value and if so, what is the value as at 9 June 2011 (“the 1^st Issue”); and

(2)   Who should receive the portion of the proceeds of sale attributable to the Roofs and the Exterior Walls (“the 2nd Issue”),

are issues that arise from and are in relation to the Application for an order for sale.  The 1^st Issue is relevant to the determination of the EUV and whether the applicants had taken reasonable steps to acquire the undivided shares representing the Roofs and the External Walls whilst the 2^nd Issue is something the Tribunal has jurisdiction to decide concerning the proper distribution of the proceeds of sale (s.4(9)).  The Tribunal should deal with the 2^nd Issue before an order for sale is made rather than leave it to the trustees to make the application for directions.

40.  Hence, this Tribunal has the jurisdiction to and should deal with these issues.  S.4(9) of the Ordinance also confers on the Tribunal the jurisdiction to deal with issues that are not provided for under the Ordinance but nevertheless require determination as part and parcel of an application for an order for sale.

41.  The case of Pacific Crown should be distinguished from the present dispute between R16 and R17 and ought not apply to the present case since there are specific provisions in the Ordinance stipulating that a tenant’s claim would only be dealt with after the Tribunal has made an order for sale.

Discussion

42.  It is not in dispute that R17 is not a minority owner as defined in s.2 of the Ordinance.  The issue is therefore whether only a minority owner has locus to be heard in an application for compulsory sale under the Ordinance.

43.  The case of Pacific Crown relied upon by Ms Ngai is a case involving a tenant seeking leave to join as a party to the proceedings concerning the order for sale under the Ordinance.  Judge Ko, who was presiding at the first instance hearing, having considered the 4 distinct phases involved in an application for compulsory sale as found by Ribeiro PJ in Capital Well Ltd v Bond Star Development Ltd (2005) 8HKCFAR 578 at §10-12, found that :

“the legislative scheme does not normally anticipate the participation of a tenant … in a main application” (§18).

44.  Judge Ko’s finding is upheld on appeal and the Hon Yuen JA, in giving the judgment of the Court, found that :

“…it is clear beyond peradventure that the Ordinance does not contemplate a tenant being involved at this stage of the proceedings. References to ‘disputes’ (s.4(1)) and ‘objections’ (s.4(2)) relate to the minority owners only. In determining an application for an order to sell, the Tribunal is prohibited from even taking into account any statutory provisions relating to the rights of any tenants whose tenancies are terminated or are sought to be terminated (s.4(3)).” (§8)

45.  We agree with Mr Chan for R17 that Pacific Crown involved a tenant’s application which is governed by specific provisions in the Ordinance which disallowed any participation of any tenants in the main application.  Given this special circumstance, the ruling in Pacific Crown should not be taken as a general principle that s.4 of the Ordinance only referred to minority owners, hence only minority owners had the locus to be heard in a main application.

46.  s.4 of the Ordinance stipulated the consideration of a Tribunal in a determination of an application for sale under s.3(1).  From the wordings of the Ordinance, the Tribunal is only obliged to consider any dispute (s.4(1)(a)) or objection (s.4(2)) from any minority owner.  The Ordinance apparently anticipated a dispute between the majority owner and the minority owner at the stage when the Tribunal considered whether to grant an order for sale.  R17, not being a minority owner, is not a party anticipated by the Ordinance to have an involvement in the main application as of right.  However, to construe the Ordinance in the narrow perspective that only minority owners have the locus and restricting anyone having an interests in the matter to make representation will be in total ignorance of the provision of Order 15 rule 4 of the Rules of High Court, which is the basis relied upon by the applicants in joining R17.

47.  It is the applicants who had instigated the joining of R17 as a party in this case.  From the correspondence exchanged between the applicants and R17 before the joining of R17 as a party[13], the applicants found “it is necessary and fair to offer an opportunity to the Government or the Director to make her informed decision whether she would have her own view to tender for the Tribunal’s consideration”[14].  R17, in reply, said that “the Director shall be given an opportunity to address the Lands Tribunal on the proposed amount as a party that could be affected by the Main Application”[15].

48.  This leads to the taking out of the Summons by the applicants for joining R17 as a respondent pursuant to O. 15 r. 4 RHC which provides for parties to be joined as plaintiffs or defendants with the leave of the Court.  According to the Hong Kong Civil Procedure 2014, “persons who claim an interest in the subject matter of the action, or who have, or are alleged to have, an interest therein, may be made defendants”[16].

49.  It is not in dispute that the amount of premium R17 is entitled to charge according to the Restrictive Covenants will be dependent on the value of the Roofs and Exterior Walls found by this Tribunal in the determination of the EUV and RDV.  R17 does have an interest in the outcome of the assessment of the EUV and RDV of the Roofs and Exterior Walla.  Under such circumstances, even though R17 is not entitled to make any objection under the Ordinance as of right like a minority owner, with leave of court, R17 should be added as a respondent so that R17 will have an opportunity to be heard in respect of the market value and redevelopment value.

50.  Judge Ko’s Order is one made pursuant to O. 15 r. 4 granting leave for R17 to be joined.  We do not agree with Ms Ngai’s suggestion that a consent order should not be considered as an order of the judge.  The authority relied upon by Ms Ngai does not support such a contention.  We find, without an appeal to upset the same, Judge Ko’s Order is a valid order binding on all parties in this case and on this Tribunal. 

51.  We find that leave had already been granted and rightly granted for R17 to be joined as a party conferring on R17 the locus to be heard in this case.

52.  Having said so, it is apparent from Judge Ko’s Order that although R17 is allowed to be joined as a party, nothing touched upon the ambit of R17’s involvement.  This is in fact being dealt with by way of Judge Wong’s Order which stipulated that Section D on the Agreed List of Issues involving R17 should not be heard in this hearing.  This has the effect of confining R17’s involvement to those issues under Section C of the Agreed List of Issues.  Judge Wong’s Order is also binding on all parties and this Tribunal.

53.  Like Judge Ko’s Order which rendered the issues on locus of R17 being determined and parties are not entitled to re-visit the same issue, Judge Wong’s Order stands the same treatment.  Given the fact that Judge Wong’s Order is binding on us and the parties, the order made at the PTR without full disclosure of such a fact cannot be used to over-rule Judge Wong’s Order which is, without an appeal, still valid.

54.  As for the argument by R17 that the 1^st and 2^nd Issues are the dispute between R16 and R17 that required this Tribunal’s determination, we beg to differ.  Whilst we agree that the 1^st Issue is something we have to rule on according to Section C of the Agreed List of Issues, the 2^nd Issue had in fact been specifically covered by Judge Wong’s Order and directed not to be dealt with at this trial.  The 3 additional issues agreed at the PTR (particularized at §29 & 31 above) also do not cover the 2^nd Issue.

55.  R17’s entitlement to charge premium cannot be considered an issue arising from and in relation to the present application for an order for sale since this is not something required to be considered by the Tribunal under s.4 of the Ordinance.  The jurisdiction of this Tribunal is well defined in s.8 of the Lands Tribunal Ordinance.  The claim by R17 against R16 for the premium is a contractual claim which does not fall within any of the provisions under s.8.  It is beyond argument that this Tribunal does not have jurisdiction over the issue as to whether R17 is entitled to claim for the premium or how much is it.  Parties cannot confer jurisdiction on the Tribunal.  And we agree with Ms Ngai that with a compulsory order for sale, R17’s consent in the sale need not be forthcoming.  According to s.11(1)(b) of the Ordinance, the trustee appointed by the Tribunal is the assignor to the assignment and not any minority owner. The assignment of the Roofs and Exterior Walls is not done by R16 so the Restrictive Covenants do not come into play.  We agree with Judge Wong’s Order that Section D of the Agreed List of Issues should not be considered at this trial and disagree with R17 that the 2^nd Issue arises from and are in relation to the Application or formed part and parcel of it.

56.  As for s.4(9) of the Ordinance relied upon by R17, we find the argument is misplaced.  S.4(9) empowers the trustees under an order for sale,  to apply to the Tribunal for directions in case of doubt or difficulty.  We cannot see how R17 can rely on this subsection when it is not the trustee and no order for sale had been made yet.

57.  Taking Judge Ko’s Order and Judge Wong’s Order together, we found R17 does have the locus to make representation in this case concerning the 1^st Issue as well as those issues listed in Section C of the Agreed List of Issues and nothing more.

Section 3 of the Ordinance – Ownership of the applicants

58.  s.3(1) of the Ordinance requires the applicants to have not less than 90% of the undivided shares in a lot before it can make an application.  As at the date of the Application, the applicants owned 94.78% of the shares in the Lot.  We are satisfied that the applicants are entitled to make the application.

Determination of the existing use values (“EUV”) of all units in the Buildings

59.  Pursuant to s. 3 of the Ordinance, the NOA was accompanied by a valuation report dated 25 July 2011 (“Application Report”) prepared by Mr Charles C K Chan of Savills Valuation and Professional Services Limited (“Mr C Chan”), the applicants’ valuation expert, containing the assessments of the values of all units (which are conveniently termed as the existing use values, the “EUV” of all units) in the Buildings on the Lot as at 9June 2011[17]. The report was prepared not earlier than 3 months before the filing of the NOA in accordance with s. 3 of the Ordinance.

60.  Under s. 4(1)(a)(i), if there is a dispute between the parties on the EUV of the units in the Buildings on the Lot, the Tribunal has to determine the values. s.4(1)(a)(ii) further provides that, in the case of any minority owner of the Lot who cannot be found, the majority owner of the Lot is required to satisfy the Tribunal that the value of the minority owner’s property as assessed in the application is :

“(A) not less than fair and reasonable; and

 (B) not less than fair and reasonable when compared with the value of the majority owner’s property as assessed in the application.”

61.  MsNgai on behalf of the applicants submits that this Tribunal is not called upon to determine the EUV assessment of the units and the Roofsas none of the live respondents including the 2^nd named R7, R10 and R14, had filed any notice of opposition to put in dispute the EUV of the units and the Roofs as assessed in the Application Report.

62.  The IO ie R16 is neutral in respect of the Application and the Government ie R17 does not raise any objection as well. Indeed the latter has agreed with the applicants to adopt the ‘market value” ie the EUV as stated in the Application Report (save for the Roofs).

63.  Even though none of the live respondents raised any objection to the Application nor put the EUV in issue, there are missing owners, including R2, R3, R7 and R10.  So the majority owners of the Lot is required to satisfy the requirement under s.4(1)(a)(ii) of the Ordinance.

The Applicants’ Assessment

64.  In the Application Report, Mr C Chan explained the method of valuation and the process of his assessment to arrive at the EUV of each unit of the Buildings.

65.  In assessing the EUV of all the 4 Ground Floor units at No. 450 Queen’s Road West, No. 452 Queen’s Road West, No. 454 Queen’s Road West and No. 456 Queen’s Road West respectively,  Mr C Chan adopted the following methodology:

(a)   He selected G/F, No. 450 Queen’s Road West as the Reference Shop Unit.  He then took into account 6 comparable transactions all in different buildings nearby. After making what he regarded as the necessary adjustments (for time, location, quantum, frontage/depth and headroom) 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 $497,000/sq m;

(b)   He then used the unit rate of the Reference Shop Unit to assess the other ground floor units[18].

66.  In his valuation of the EUV of the domestic units of the Buildings, Mr C Chan adopted the following methodology :

(a)   He selected 5/F, No 454CQueen’s Road West (“the Reference Domestic Unit”), which was 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 7 comparable transactions all in two buildings nearby, 6 of which from Wing Wah Mansion, Nos 425G-425Z Queen’s Road West.  After making what he regarded as the necessary adjustments (for time, location, floor level, building age, quantum, physical condition and building management, view,top floor shortcomings, lighting and ventilation, accessibility (lift service), tranquility, etc) for all these comparable transactions, he took the average of the adjusted unit rate of the comparables to arrive at the unit price of the Reference Domestic Unit at $73,000/sq m;

(c)   He further considered the floor difference, quantum, internal conditions, view, top/lowest floor shortcomings,  lighting and ventilation, accessibility (lift service) and tranquility of the Reference Domestic Unit and the remaining domestic units within the Buildings and made adjustments to arrive at the EUV of all the domestic units;

(d)   He did not assign any value to the Roofs and Exterior Walls.

67.  Mr C Chan updated the Application Report by a supplemental report dated 21September 2012[19] (“1^stSupplemental Report”) in which he revised the EUV of all the units in the Buildings after taking into account the inspection of 53 more residential units and the 4 shops in the Buildings and the updated property index prepared by the Rating and Valuation Department. In the 1^stSupplemental Report, Mr C Chan repeated the exercise he did in the Application Report with the new information and set out his revised assessments of the EUV of each unit as at 9June 2011.  For instance, Mr C Chan revised the unit price of the Reference Shop Unit to $622,000/sq m and revised the unit price of the Reference Domestic Unit to $78,000/sq m.  Again, Mr C Chan did not assign any value to the Roofs and Exterior Walls.

EUV of the Roofs and Exterior Walls

68.  Mr Po Chi Lok Thomas (“Mr Po”), a project surveyor of the Estate Management Section of Lands Department, prepared however a valuation report dated 13 December 2013 on behalf of R17[20]. This valuation report, hereinafter referred to as the 1^st Premium Report, according to its §2.7, was prepared for the purpose of determining the premium to be charged for granting the approval by R17 for the assignment of the Roofs and Exterior Walls. For instance, according to §5.4.1 of the 1^st Premium Report, Mr Po stated that the premium for the approval should represent the apportioned value of the Lot following the basis under s.10(3) and Part 3 Schedule 1 of the Ordinance, ie the proceeds of sale of the Lot shall be apportioned on a pro rata basis in accordance with the values of the respective properties of each majority owner and each minority owner (ie the EUV) as assessed in the Application. In effect, R17 would not give its consent to sell the Roofs except on the basis that all the purchase money for the Roofs would be paid to the Government.[21]

69.  We have explained in §55 above that in the Application, we have no jurisdiction to deal with the premium to be charged by R17. However, we found R17 does have the locus to make representation on the EUV of the Roofs and the Exterior Walls, so we shall still make reference to the 1^st Premium Report and the evidence of Mr Po.

70.  At §8.1.1 of the 1^st Premium Report, Mr Po expressed his no objection to the assessment in the 1^st Supplemental Report other than the Roofs. He agreed with Mr C Chan assigning no value to the Exterior Walls.

71.  Mr Po, after making reference to various cases of this Tribunal under the Ordinance, is prepared to agree the EUV of the Roofs as 1/8 of the average unit rate of the 10^th Floor (ie top floor) units, ie $79,628/sq m x 1/8 = $9,953.5/sq m.

72.  In reply to the 1^st Premium Report, Mr C Chan prepared a report dated 13 January 2014, hereinafter referred to as the 1^st Rebuttal Report[22].  Firstly, Mr C Chan pointed out correctly that Mr Po had chosen the wrong date as referenced to the EUV; the relevant date according to s. 3 of the Ordinance should be 9June 2011 instead of 21 September 2012 which was the date Mr C Chan adopted for the economic test to determine whether redevelopment of the Lot is justified. So the average unit rate of the 10^th Floor (ie top floor) units should be $75,094/sq m instead.

73.  Mr C Chan stated at §4.2.4 of the 1^st Rebuttal Report that, should there be a market value for the Roofs:

“In the absence of relevant direct comparable regarding disposal of similar roof, I agree with Mr Po’s valuation approach to arrive at the EUV of the Roofs by adopting a conversion factor of 1/8 of the domestic units immediately underneath.”

74.  On the other hand, Mr C Chan stated his view that :

(a)   If the IO is not entitled to receive any rent or premium in letting or selling the Roofs, there is no incentive at all for the IO to put the Roofs into the market for letting or sale. There is simply no “willing seller” and the Roofs do not have any “market value” at all in such circumstances;

(b)   The area of the Roofs measured by Mr Po did not comply with the Supplement to the Code of Measuring Practice dated 22 November 2012 published by the Hong Kong Institute of Surveyors which requires the area of the roof to be measured from the interior of its boundary lines, and where boundary consists of a wall, then the area shall be measured from the interior of such wall;

(c)   Part of the Roofs should be set aside and reserved for use as passages/access to various building services which include the water tanks, light wells, motor rooms etc on the Roofs. Therefore, for the purpose of assessing the EUV of the Roofs, it is appropriate and reasonable to adopt the residual area of the Roofs (ie area of the Roofs exclusive of the areas occupied by the stairhoods, motor rooms, water tanks, stair leading to the motor rooms, light wells, the enclosing parapet walls on the Roofs and the areas to be reserved for use as passages/access to the building services);

(d)   The Roofs is large in size when compared with the others referred to in precedent Tribunal cases and therefore a quantum adjustment should be applied;

(e)   The Net Area of the Roofs is fragmented and irregular in shape.

75.  Mr Po prepared a supplemental report dated 30 July 2014 (2^nd Premium Report)[23] in reply.[24]

76.  In this 2^nd Premium Report, Mr Po revised the area of the Roofs to 965.48 sq m in compliance with the Supplement to the Code of Measuring Practice published by the Hong Kong Institute of Surveyors. This is marginally higher than the 924.56 sq m as measured by Mr C Chan[25].

77.  Mr Po disagreed on the setting aside of passages/access to various building services on the Roofs as there is no such contractual or statutory requirement. A practical arrangement to allow access to building services is by appointment.

78.  Mr Po also disagreed on any quantum discount being applicable as a prudent owner would consider sub-dividing/partitioning the Roofs into smaller portions for disposal so as to achieve the highest value and also reduce the effect of irregular /fragmented layout.

79.  We agree with Mr Po on this latter points despite the applicants had called MrWong Wing Cheung Dennis (“Mr D Wong”), the Chartered Building Surveyor and Authorized Person, to advise on the requirement for setting aside and reserving for use as passages/access to various building services under the Building (Construction) Regulations. We have pointed out to Mr D Wong that should there be no physical subdivision/partitioning, the Building (Construction) Regulations will not be applicable. Mr D Wong conceded. We also consider such requirement would not be applicable when access to building services can be made by appointment.

80.  In his 2^nd Supplemental Report dated 1 August 2014[26] (“the 2^nd Supplemental Report”), Mr C Chan repeated his view that if the IO is not entitled to receive any rent or premium in letting or selling the Roofs, there should be no incentive at all for the IO to put the Roofs into the market for letting or sale so that there is simply no “willing seller” of the Roofs.[27]

81.  In addition, Mr C Chan stated, as the Assignment has been registered in the Land Registry against the Roofs and Exterior Walls, the Restrictive Covenants as contained in the Assignment would prevent any reasonable or prudent person from running the risk of buying the Roofs. There can simply be no “willing buyer” of the Roofs.

82.  We do not agree with Mr C Chan as regards his referral to no “willing seller”. The term “market value” as defined by the International Valuation Standards and followed by the HKIS Valuation Standards regards the “willing seller” as a hypothetical owner where the factual circumstances of the actual Property owner are not a part of this consideration. Therefore the incentive of the IO is irrelevant.

83.  On the other hand, the point raised as regards “willing buyer” by Mr C Chan in §81 above has its merit. A “willing buyer” is the buyer who purchases in accordance with the realities of the current market and with current market expectations, rather than on an imaginary or hypothetical market which cannot be demonstrated or anticipated to exist when not taking into account the redevelopment potential of the property or the lot pursuant to Part 1 Schedule 1 of the Ordinance.

84.  In this regard, both parties referred us to the appellate judgment of the Australian High Court in Spencer v Commonwealth (1907) 5 CLR 418 cited by Gordon N Cruden, Land Compensation & Valuation Law in Hong Kong (3^rd Ed, 2009) p100.  It said:

“In my judgment the test of value of land is to be determined … by inquiring ‘what would a man desiring to buy the land have had to pay for it on that day to a vendor willing to sell it for a fair price but not desirous to sell?’

The necessary mental process is to put yourself as far as possible in the position of persons conversant with the subject at the relevant time, and from that point of view to ascertain what, according to the then current opinion of land values, a purchaser would have had to offer for the land to induce such a willing vendor to sell it, or, in other words, to inquire at what point a desirous purchaser and a not unwilling vendor would come together.

To arrive at the value of the land at that date, we have, as I conceive, to suppose it sold then, not by means of a forced sale, but by voluntary bargaining between the plaintiff and a purchaser, willing to trade but neither of them so anxious to do so that he would overlook any ordinary business consideration. We must further suppose both to be perfectly acquainted with the land, and cognizant of all circumstances which might affect its value, either advantageously or prejudicially, including its situation, character, quality, proximity to conveniences or inconveniences, its surrounding features, the then present demand for land, and the likelihood, as then appearing to persons best capable of forming an opinion, of a rise or fall for what reasons so ever in the amount which one would otherwise be willing to fix as the value of the property.” (underline added)

85.  Gordon N Cruden then drew his conclusion at p101 that: “The law therefore presumes that both parties are informed and willing but not eager buyers or sellers.”  We agree.

86.  More importantly, at §17 of Director of Lands v. Yin Shuen Enterprises Ltd and Nam Chun Investment Co Ltd (2003) 6 HKCFAR 1, Lord Millett NPJ summarized the relevant principles of English Law which govern the assessment of compensation for compulsory acquisition of land based on its “open market value”. One of the four principles is that:

“(4) Where land is subject to restrictions which affect its value, the claimant is not entitled to be paid the unrestricted value of the land. While, however, the existence of the restrictions must be taken into account, so too must the possibility of obtaining a discharge or modification of the restrictions: see Corrie v. MacDermott [1914] AC 1056. In such a case the costs as well as the risks and delays involved in obtaining any necessary consents must also be taken into account: see Maori Trustee v. Ministry of Works”.

87.  Further, in §§18 & 19, his Lordship said:

“18. In the absence of s.12(c), therefore, compensation for the subject lands would be based in the first instance on their value subject to the restrictions in the relevant lease. But regard would also have to be paid not only to the likelihood or otherwise of the Government granting a modification of the terms of the lease, without which the development potential of the lands could not be realised, but also to the costs of obtaining such modification, including the payment of any premium which the Government might demand as the price of modification.

19. Two further considerations are relevant at this point. First, the user covenants in the Crown leases are absolute. They are not qualified by any requirement that the Crown's consent is not to be unreasonably withheld; and the statute law of Hong Kong does not subject user covenants in leases to any such requirement. Secondly, in deciding whether to grant or withhold its consent to a modification of the terms of a lease, the Government does not exercise a public law function but acts in its private capacity as landlord: see Hang Wah Chong Investment Co. Ltd v. Attorney-General [1981] HKLR 336 (PC). It thus has an absolute right if it chooses to demand a premium, however large, for granting a modification of the terms of the lease, or to withhold its consent altogether, however unreasonably: see Viscount Tredegar v. Harwood [1929] AC 72.”

88.  The same observation was repeated by Lord Millett NPJ of the Court of Final Appeal in Dragon House Investment Limited & Another v Secretary for Transport and Housing (2005) 8 HKCFAR 668 at §12. Further, at §13, the Court of Final Appeal elaborated as follows:

“Accordingly the compensation payable on the resumption of land held under a Government lease which restricts its use, if based on the open market value of the land, would take account of the value of the land subject to the restrictions together with the prospects and cost (including the payment of any premium) of obtaining a modification of the terms of the lease. The greater the likelihood of obtaining a modification to allow a more beneficial use, the greater the open market value of the land.”

89.  We appreciate that we are not here dealing with the compensation to be determined under the Lands Resumption Ordinance, Cap 124. However we consider the concept of open market value or “market value” should also be applicable in the context of this case.

90.  Whereas it has been R17’s position that it would not give its consent to sell the Roofs except on the basis that all the purchase money for the Roofs would be paid to the Government, there would be no market for the sale of the Roofs. Indeed, Michael Wong, the Senior Estate Surveyor of the Lands Department, who was called as factual witness to give evidence confirmed that the imposition of the Restrictive Covenants was to prevent the IO from disposing of the Roofs and Exterior Walls so as to facilitate the IO to manage the Roofs for use as roofs for the common benefit and enjoyment of the co-owners of the Buildings.

91.  The applicants who have been purchasing the units in the Buildings with the view to redeveloping the Lot cannot be taken as “willing buyer” for the purpose of assessing the requisite EUV prescribed by Part I Schedule 1 to the Ordinance. R17’s insistence of the Roofs having a market value is wrongly premised on the prospect for sale of the Buildings for redevelopment attributable to the undivided interest of Roofs[28].

92.  We cannot agree with Mr Po’s evidence at trial that a prospective purchaser for the Roofs would pay $9,100,000[29] whether or not the Roofs are subject to the Restrictive Covenants. It fully defies common sense and also the remarks by Lord Millett NPJ in Director of Lands v. Yin Shuen Enterprises Ltd and Nam Chun Investment Co Ltd, supra and Dragon House Investment Limited & Another v Secretary for Transport and Housing, supra.

93.  Therefore, we agree with Mr C Chan that the EUV of the Roofs and Exterior Walls should be nil.

94.  In view of the above, we consider the EUV of each unit of the Buildings as contained in the 1^st Supplemental Report[30] of Mr C Chan should be adopted for determining the value of the minority owners’ property as assessed in the Application and we are satisfied, insofar as it is necessary, that the value of the following respondents’ units as assessed by Mr C Chan is not less than fair and reasonable and not less than fair and reasonable when compared with the value of the applicants’ properties:

(a)   9^th Floor, No 450B Queen’s Road West (R2’s Unit) – assessed at $3,060,000 (representing 0.2730% of the total EUV of all units);

(b)   10^th Floor, No. 450D Queen’s Road West (R3’s Unit) – assessed at $3,010,000 (representing 0.2686% of the total EUV of all units);

(c)   4^th Floor, No 452G Queen’s Road West (R7’s Unit) – assessed at $3,030,000 (representing 0.2704% of the total EUV of all units);

(d)   9^th Floor, No 454E Queen’s Road West (R10’s Unit) – assessed at $2,870,000 (representing 0.2561% of the total EUV of all units); and

(e)   the total EUV of all units - assessed at $1,120,760,000.

95.  On the other hand, if our interpretation of “market value” be wrong, we agree with Mr Po that the setting aside passages/access to various building services on the Roofs should not be required and neither would there be any quantum discount on size or layout. Should this be the case, we agree with Mr Po’s assessment of the EUV of the Roofs at $9,100,000[31] and the total EUV of all units will become $1,129,860,000 (ie an increase of less than 1%). 

96.  Even if this be the case, we are satisfied, insofar as it is necessary, that the value of the outstanding respondents’ units as assessed by Mr C Chan is not less than fair and reasonable and not less than fair and reasonable when compared with the value of the applicants’ properties.

Section 4(2) of the Ordinance – Justification and Reasonable Steps

97.  In determining the application, s.4(2) of the Ordinance empowered the Tribunal to make an order for sale unless, after hearing the objections of the respondent, it is satisfied that :

(a)   the redevelopment is justified due to age or state of repair of the Buildings; and

(b)   the applicantshave taken reasonable steps to acquire all the undivided shares in the Lot (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

98.  This Tribunal has taken into consideration the expert evidence of Mr D Wongand Mr Wong Chi Ming (“Mr CMWong”), the Structural Engineer adduced by the applicants. 

99.  Mr CM Wong had conducted a structural assessment of the Buildings and prepared a report dated 20September 2012[32]. He found the following defects in the Buildings:

(a)   36% of open up test samples were found to have honeycomb concrete the existence of which weakens the performance of concrete and encourages corrosion of the reinforcement bar;

(b)   70% of core samples of the structural element have ‘considerable’ or ‘numerous’ voids which means the steel reinforcement will start to corrode faster;

(c)   Cracks and spalling at 296 locations were observed during the visual inspection of the 268 units (out of 348 units) and common area of the Buildings;

(d)   40% of the steel reinforcement bars are suffering from mild to severe corrosion, significantly reducing the flexural and shear strength of the structural elements and hence the effectiveness of the structural elements in the Buildings;

(e)   Carbonation has reached the concrete surrounding the steel reinforcement in 100% of the test samples of slabs and 95% of the test samples of beams, rendering the steel reinforcement susceptible to corrosion as it has destroyed the passive alkaline layer of protection provided by the concrete cover;

(f)    22% of the core samples have chloride content exceeding 0.40% the presence of which fosters an environment that aids the corrosion of the steel reinforcement;

(g)   Of the core samples taken, 20% pose a ‘high’ risk of corrosion to the steel reinforcement;

(h)   24% of structural members were found to have concrete cover less than the design cover as a result of which the protection to the steel reinforcement bars is less than that anticipated in the original design.

100.  Based on his findings, Mr CM Wong concluded that the structural elements of the Buildings were in a poor condition.   He opined that the structural elements had passed their design working life of 50 years and were inferior to the current standard.   The corrosion of the reinforcement bars had entered the propagation phase and extensive maintenance and repair works are required in the near future.   He said that the design and construction of the structural frames had become obsolete over time and the structure failed the current safety standard.   He recommended that hammer tapping works be carried out to all the structural members and all revealed cracks and spalling should be patch repaired.

101.  Mr CM Wong estimated the cost of repair to the Buildings in their current state is $2,264,200 but this estimated repair cost did not include the repair of problems such as carbonation, honeycombing and chloride content because they were impractical.

102.  Mr D Wong, in his Condition Survey Report dated 21September 2012[33], stated that :

(a)   The Buildings are 51 years old, have many problems as a result of their age which impair their appearance and function.

(b)   Physical and functional hazards have resulted from deficiencies in the planning, design, use of material, facilities and workmanship of the Buildings when they were first constructed. These are further aggravated due to unauthorized building works, lack of maintenance, absence of proper building management. These hazards are detrimental to the safety of the users of the Buildings as well as the general public.

(c)   The Buildings are obviously below a tenantable standard with its structural frames in poor condition and most of its components, finishes and services having deteriorated towards the end of their effective life spans beyond reasonable repair.

(d)   The Buildings are currently in a state of disrepair and demolition of the Buildings will relieve the owners from heavy repair responsibilities, which evidently have been neglected for a long time. 

103.  He assessed the total cost of essential repairsat $93,755,070 which is about 38.4% of the cost of constructing a new building similar to the Buildings.  He came to the conclusion that the high cost of immediate repairs indicates that the Buildingsare in a dilapidated condition. Also, the carrying out of the essential repairs will cause considerable disturbance and will require a very long implementation period. It is inevitable that the occupation and enjoyment of the flats will be affected intermittently during the course of the repair. In fact, for flats with substantial unauthorized building works, the occupants will have to be evacuated during the carrying out of works for safety reasons. Even after the essential repair works have been implemented, the Buildings will remain as old residential cum commercial buildings with its design and construction outdated and below market expectations and constitute a continuing repair liability to the owners.

104.  The applicants also relied upon two economic tests, ie the age test and the repair test, conducted by Mr C Chan as contained in the 1^st Supplemental Report to demonstrate that redevelopment is justified. 

105.  For the age test, Mr C Chan assessed the total existing use value (“EUV”) at $1,200,170,000 whilst the redevelopment value (“RDV”) is at $2,622,000,000 as at 21September 2012. Given the RDV much exceeds the EUV, Mr C Chan opined that redevelopment of the Lot is warranted[34].

106.  For the repair test, adopting the findings by Mr D Wong that the total estimated cost to restore the Buildings to tenantable standard is at$93,755,070, Mr C Chan deducted the cost for the removal of the unauthorized building works ($374,220) from it and found the net repair costs to be $93,380,850.  Based on the repair works recommended by Mr D Wong and research on the price movement of residential developments which have undergone major renovation works in recent years, Mr C Chan opined that there would be about 5% enhancement to the domestic portion of the Buildings and only nominal enhancement to the value of retail portion.  Whilst the expected enhancement in EUV after the repair is about $54,186,500, it would be insufficient to cover the estimated net repair cost, therefore the carrying out of repair works is not economically justified[35].

107.  We accept the applicants’ evidence in whole.  In particular, we are satisfied that based on the evidence of Mr CM Wong and Mr D Wong, redevelopment of the Lot is justified due to the state of repair of the Buildings which are in a very poor state of repair and indeed in dangerous condition.

108.  As for the requirement of “the age” of the Buildings, this Tribunal agrees with the observation by Judge Wong in the case of Top Sail International Limited v Cheng Kai Ming, executor of the estate of Chan Hue also know as Chan Sum Hiu, deceased,LDCS 18000/2010(unreported, dated 15 November 2011) that,

“we should not restrict our consideration to just the physical age of the Buildings… we are of the view that the absence of a specific physical age in the Ordinance indicates 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.

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 the 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”.

109.  Having considered the evidence, we are satisfied that redevelopment of the Lot is also justified due to age in view of the following factors:

(a)   The Buildingsare more than 53 years old and in a very poor condition.

(b)   Its design has become obsolete over time in many aspects both physically and functionally and failed to conform to modern construction and statutory standards and requirement.

(c)   The Buildingsare in serious disrepair and is not tenantable and disproportionate cost is required to repair and maintain the Buildings.

Section 4(2)(b) - Reasonable Steps Taken

110.  The applicants are under an obligation to take reasonable steps to negotiate on terms that are fair and reasonable for the purchase of the remaining minority owners’ units under s. 4(2)(b) of the Ordinance.

111.  Ms Ngai for the applicants submits that the fact that the applicants have successfully acquired the units previously occupied by R1, R4, R5, R6, R8, R9 and R11 after commencement of the Application is a strong indication that they have taken reasonable steps to acquire their undivided shares in the Lot.

112.  As for R2, R3, R10, R12, R13, R14 and R15, it is uncertain which 3 of them are the “minority owners” of R2’s Unit, R3’s Unit and R’10 Unit unless and until the following three proceedings are finally disposed of :

(1)    DCCJ 3456/2011;

(2)    HCMP 2384/2011; and

(3)    HCA 1121/2011.

113.  Ms Ngai submits therefore it is unsafe and impossible for the applicants to negotiate with R2, R3, R10, R12, R13, R14 and R15 or make any payment to them. She also submits that, in order to determine whether the applicants have taken reasonable steps to acquire R2’s Unit, R3’s Unit and R’10 Unit, the fact as to whether the applicants have carried out negotiation with the aforesaid respondents or made any offer to them is less important (if not entirely irrelevant).

114.  The 2^nd named R7 had actual knowledge of these proceedings.  Ms Ngai submits that it is open for the 2^nd named R7 to seek independent legal advice and to take necessary and appropriate action to resolve the difficulty mentioned in the letter from Messrs Betty Chan & Co dated 26 October 2012 (including but not limited to seeking appropriate order or directions from the Court). However, she has not taken any positive step to enable her to take part in the present proceedings or to deal with R7’s Unit.

115.  Since the 2^nd named R7 has no capacity to validly sell R7’s Unit, Ms Ngai submits that in order to determine whether the applicants have taken reasonable steps to acquire R7’s Unit, the fact as to whether the applicants have carried out negotiation with the 2^nd named R7 or made any offer to her is less important (if not entirely irrelevant).

116.  In any event, according to the applicants’ witness Lui Wing-Yan, Senior Property Development Manager of the applicants’ holding company, Henderson Land Development Co Ltd, the applicants made the following offers to R2, R3, R7 and R10 which are summarized as follows:-

117.  As demonstrated from the table above, the prices offered by the applicants were higher than the EUVs of the units as at 9 June 2011 assessed by Mr C Chan and particularly included the respective proportionate shares in the redevelopment value of the Lot.

118.  In view of the above circumstances, we are satisfied that the offers made by the applicants fell within the range of what may broadly be regarded as fair and reasonable and the applicants have taken reasonable steps to acquire all the undivided shares of the Lot including R2, R3, R7 and R10’s units. 

119.  We are also satisfied that the applicants had tried to convince R16 or R17 to assign the Roofs and Exterior Walls to them at nil value which may broadly be regarded as fair and reasonable to no avail.

Order for Sale

120.  We are satisfied that redevelopment of the Lot is justified both in terms of age and state of repair of the Buildings and the applicants had taken reasonable steps to acquire all the undivided shares of the Lot and had negotiated for the purchase of those shares as are owned by that minority owner on terms that are fair and reasonable.  Under such circumstances, we found an order for sale should be granted in favour of the applicants.

Reserved Price for the Auction

121.  Whereas none of the live respondents has put forward any positive case on the quantum of the reserve price for the sale of the Lot, nor have they adduced any expert evidence on the recent redevelopment value (“RDV”) of the Lot, the applicants submit that the reserve price for the auction of the Lot should be fixed at $2,957,000,000, based on the assessment by Mr C Chan of the RDV of the Lot in his 2^ndSupplemental Report.

122.  We have carefully considered Mr C Chan’s valuation of the RDV of the Lot.  Despite Mr C Chan reported two land sale transactions in Sai Ying Pun district, one at South Lane and the other at Eastern Street, we agree with him that they are not suitable for direct comparison since there are substantial disparities between the Lot and the two land sale transactions in terms of transaction time, location or development scale.

123.  Where there is no relevant land sale transaction in the vicinity for direct comparison, we agree with Mr C Chan that as a last resort, the residual method has to be employed as the method of assessment of the RDV of the Lot. This is done by deducting development costs (including construction costs, professional fees, finance costs etc) and developer’s profit from the estimated gross development value of the completed development.

124.  Mr C Chan opined that the optimum development on the Lot comprised a block of 40-storey commercial/residential composite building with car park in basement, shop units on ground floor, recreational facilities on first floor, a refuse floor and residential units on the remaining upper floors.  Details of the hypothetical development and residual valuation are set out in Appendix VI of the 2^nd Supplemental Report[36], and details of the comparables with adjustments in Appendix IX[37] (for shops), Appendix X[38] (for new residential units)and Appendix XI (for car parking spaces)[39]. Mr C Chan also adopted the Development Cost Pro-forma recently promulgated by the Hong Kong Institute of Surveyors to facilitate consideration of construction costs in land value assessments in Appendix VII[40]. 

125.  Having gone through his valuation in details, we accept his valuation, including the valuation assumptions he has adopted, the values and the costs parameters that he has used in his valuation.  We accept that the open market value of the Lot reflecting its redevelopment potential, ie the RDV of the Lot, as at 29July 2014 is $2,957,000,000, which should be the reserve price for the auction of the Lot.

Disposal of Sale Proceeds

126.  Since the interests of R2, R3, R10, R12, R13, R14 and R15 are yet to be determined, we found it necessary for the sale proceeds concerning R2’s Unit, R3’s Unit and R’10 Unit be kept by the trustees pending the determination of the 3 separate proceedings named in §112 above.

127.  As for the Roofs and the Exterior Walls, since it is our findings that these parts command no market value, the question of who should receive the proceeds as between R16 and R17 does not arise.

128.  And even if the Roofs and Exterior Walls did command a market value, since it is our findings that we do not have jurisdiction to rule on the question as to whether R17 is entitled to charge a premium and the amount of the same, all sales proceeds for the Roofs and Exterior Walls, if any, should also be kept by the trustees pending any claim by R17 against R16.

Order

129.  This Tribunal make the following orders :

(1) This Tribunal is satisfied that the value of the respondents’ units as assessed in this Application is fair and reasonable and is fair and reasonable when compared with the values of the applicants’ units;

(2) 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 applicants has taken reasonable steps to acquire all the undivided shares in the Lot including that of the respondents;

(3) 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 Lots;

(4) Mr Chow Wing Kin Anthony (周永健) and Ms Chow Suk Han (周淑嫻), nominated by the applicants, be appointed trustees (“the Trustees”) to discharge the duties imposed on trustee 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. Peter C Wong, Chow & Chow dated 4 January 2013;

(5) Messrs Michael Cheuk, Wong & Kee be appointed as the solicitors for the Trustees (“the Trustees’ Solicitors”) to assist the Trustees in discharging their duties imposed by the Ordinance and the Trustees’ Solicitors be authorized to charge such renumeration for their services in accordance with the terms set out in the letter of Messrs Peter C. Wong, Chow & Chow dated 9 January 2013 and 17 July 2014;

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

(a)   The sale of the Lot be on the particulars and conditions of sale substantially the same as those in the draft Particulars and Conditions of Sale (as set out in page 537-571 of Bundle B) initialed and approved by the Tribunal;

(b)   The reserve price be set at $2,957,000,000;

(c)   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;

(7) The relevant part of the net proceeds of sale of the Lot due to 9^th Floor, No. 450B Queen’s Road West, Hong Kong be held by the Trustees pending final determination of the proceedings in DCCJ 3456 of 2011;

(8) The relevant part of the net proceeds of sale of the Lot due to 10^th Floor, No. 450D Queen’s Road West, Hong Kong be held by the Trustees pending final determination of the proceedings in HCMP 2384 o 2011;

(9) The relevant part of the net proceeds of sale of the Lot due to 9^th Floor, No. 454E Queen’s Road West, Hong Kong be held by the Trustees pending final determination of the proceedings in HCA 1121 of 2011;

(10) Liberty to the applicants, the respondents and the Trustees to apply to the Tribunal for further directions.

(11) There shall be no order as to costs between the applicants and R2, R3, R7, R10, R12 to R16 whilst costs of R17 be borne by the applicant.  This is a costs order nisi.  Unless any of the parties apply by summons to vary it, the costs order nisi shall be made absolute upon expiry of 14 days.

Appendix A

[1] Bundle A(I)/40-50 and 69-74

[2] Bundle A(III)/199-38 – 199-39

[3] Bundle A(IV)/217-9 - 217-19

[4] Bundle A(IV)/217-103

[5] Bundle A(IV)/217-109 to 217-111

[6] Bundle A(IV)/217-85 to 217-90

[7] Bundle A(III)/214-216

[8] Bundle A(IV)/217-117 to 217/120

[9] Bundle A(II)/114-117

[10] Bundle A(I)/87-93

[11] Bundle A(II)/118-123

[12] Bundle A(II)/124-128

[13] Bundle A(IV)/217-104 to 217-115

[14] Bundle A(IV)/217-110

[15] Bundle A(IV)/217-113

[16] Vol. 1 §15/4/5 at p.298

[17] Bundle E1/3299-3349

[18] Bundle E1/3338

[19] Bundle E1/3350-3514

[20] Bundle E2/3749-3793

[21] §4.3 at Bundle E2/3752 & §5.4.1 at Bundle E2/3754

[22] Bundle E2/3794-3811

[23] Bundle E2/3819-3826.

[24] R16 had also instructed a surveying company to advise on the EUV of the Roofs and Exterior Walls (Bundle E2/3748-1 – 3748-19) and comment on the 1^st Premium Report and the Rebuttal Report (Bundle E2/3813-3818). However, as the responsible surveyor was not called to give evidence and be cross-examined, we shall not refer to such reports. Neither would we put any weight on the reports prepared by this other surveyor.

[25] §4.3.4 at Bundle E2/3801.

[26] Bundle E3/3826-1 - 4078

[27] §§2.2.6-2.2.7 at Bundle E3/3844-3845

[28] See §§35, 37 to 38 of R17’s closing submission.

[29] The figure in §5.1.1 of the 2^nd Premium Report at Bundle E2/3823.

[30] See the tables at Bundle E1/ 3355-3357 which is reproduced as Appendix A of this judgment

[31]Bundle E2/3823

[32] Bundles D1/2579 – D3/3298

[33] Bundles C1/577 – C9/2578

[34] Bundle E1/3373-3379

[35] Bundle E1/3372-3373

[36] Bundle E3/3874-3876

[37] Bundle E3/3891-3892

[38] Bundle E3/3894-3896

[39] Bundle E3/3898

[40] Bundle E3/3878-3881