SKY DYNAMIC INTERNATIONAL INVESTMENTS LTD v. HO PING FOOK and WONG SAI MING, the appointed representative of the estate of WONG HANG, deceased

LDCS 12000/2022

[2023] HKLdT 20

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LAND COMPULSORY SALE MAIN APPLICATION NO 12000 OF 2022

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BETWEEN

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REASONS FOR JUDGMENT

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1.  This is an application for a compulsory sale order under the Land (Compulsory Sale for Redevelopment) Ordinance, Cap 545 (“the Ordinance”) (hereinafter referred to as “the Application”) to sell all the undivided shares of Aplichau Inland Lot No 66 (“the Lot”) on which a 6-storey tenement building (“the Building”) with street address of Nos 26 and 28 Ho King Street was built.

2.  The applicant also applied for direction under section 4(6)(a)(i) of the Ordinance so that on the grant of the sale order, the Lot is to be sold together with the adjacent lot situated at Aplichau Inland Lot No 70 (“the Adjacent Lot”) on which a similar tenement building (“the Adjacent Building”) with street address of No 2 Ping Lan Street was built.

3.  Having heard the submission of counsel for the applicant, Mr C Y Li, SC (“Mr Li”) on 28 February 2023 and on the basis of the evidence before me, I made the following order in terms of the Application:

(1) This Tribunal is satisfied that the redevelopment of the Lot is justified due to the “age” or “state of repair” of the Building and that the applicant has taken reasonable steps to acquire all the undivided shares in the Lot including that of the respondent;

(2) All the undivided shares in the Lot, the subject of the Application herein, be sold by way of a single public auction together with the Adjacent Lot for the purposes of the redevelopment of the Lot under s.4(1)(b) of the Land (Compulsory Sale for Redevelopment) Ordinance (“the Ordinance”);

(3) Ms Ng Phoebe Oi Sing and Ms Ip Ho Shan of Messrs Edward Lau Phoebe Ng, Solicitors LLP, nominated by the applicant, be appointed the trustees (“the Trustees”) to discharge the duties imposed on the trustees under the Ordinance in relation to the sale and the Trustees be authorized to charge such remuneration for their services in accordance with the terms set out in the letter of Messrs Edward Lau Phoebe Ng & Chow, Solicitors LLP, dated 14 February 2023.

(4) For the purpose of the sale of the Lot together with the Adjacent Lot by public auction under section 5(1)(a) of the Ordinance:

(i) The sale be on the particulars and conditions of sale substantially the same as those in the draft Particulars and Conditions of Sale to be initialed and approved by the Tribunal.

(ii) The reserve price be set at $157,000,000.

(iii) The proceeds of sale should be apportioned by reference to the EUV assessed in accordance with section 10(3) and Part 3 of Schedule 1 to the Ordinance.

(iv) Subject to further extensions that the Tribunal may subsequently allow upon the application of the purchaser of the Lot together with the Adjacent Lot in a single public auction or its successor in title, the redevelopment of the Lot together with the Adjacent Lot shall be completed and made fit for occupation within a period of 6 years after the date on which the purchaser shall become the owner of the Lot together with the Adjacent Lot.

(v) Liberty to the applicant, the respondent and the Trustees to apply to the Tribunal for further direction(s) under the Ordinance.

(5) Service of the order for sale on Ho Ping Fook be dispensed with.

(6) Within 7 days from the date of the making of the order for sale, the applicant shall publish a Notice in one local Chinese newspaper publicizing the fact that an order for sale of the Lot has been made by the Tribunal and the order for sale can be obtained from Messrs So, Lung & Associates within 7 days from the date of publication of the Notice.

(7) That the applicant shall pay the costs, if any, of Ho Ping Fook and Wong Sai Ming as representative of Wong Hang’s estate.

4.  Here are my reasons.

Particular of the Lot and the Adjacent Lot

5.  The Lot is held under Conditions of Sale No 5619 by the Government for a term of 75 years commencing on 18 March 1957 renewable for a further term of 75 years.

6.  Likewise, the Adjacent Lot is held under Conditions of Sale No 5878 by the Government for a term of 75 years commencing on 25 November 1957 renewable for a further term of 75 years.

7.  Each of the Lot and the Adjacent Lot has a site area of 111.483 sq m and the two lots together have a site area of 222.97 sq m or thereabouts. By their respective Conditions of Sale, the Lot and the Adjacent Lot are restricted for use of non-industrial purposes.

8.  The Building standing on the Lot was issued with an occupation permit dated 30 April 1965 for 2 non-domestic shops on G/F, 2 tenements on each floor for domestic use from 1/F to 5/F whereas the Adjacent Building was issued with an occupation permit dated 11 May 1965 for 1 shop & 1 store for non-domestic use on G/F and 1 tenement on each floor for domestic use from 1/F to 5/F. Each of the two buildings is served by one common staircase.

9.  The approximate saleable area of the units in the Building and the Adjacent Building are as follows:

Floor	The Building	The Adjacent Building
G/F	Flat A: 41.34 sq m Shop B: 52.14 sq m (Yard: 3.46 sq m)	101.72 sq m (Yard: 7.73 sq m)
1/F	Flat A: 46.75 sq m (Flat Roof: 3.81) Unit B: 46.13 sq m (Flat Roof: 17.31)	72.33 sq m (Flat Roof: 15.36 sq m)
2/F	Flat A: 46.75 sq m Unit B: 46.13 sq m	72.33 sq m
3/F	Flat A: 46.75 sq m Unit B: 46.13 sq m	72.33 sq m
4/F	Flat A: 46.75 sq m Unit B: 46.13 sq m	144.67 sq m (Roof: 49.19 sq m)
5/F	Flat A: 46.75 sq m (Roof: 31.42) Unit B: 46.13 sq m (Roof: 29.79)

10.  There is a Deed of Mutual Covenant governing the rights and obligations of all owners of the Building whereby each unit is assigned 1 equal and undivided share. The applicant has acquired all units of the Building on 14 April 2022 save for Flat A on 1/F which is registered in the ownership of the respondent. On the other hand, the applicant has acquired all units of the Adjacent Building, ie 100% ownership of the Adjacent Lot.

The Respondent

11.  Indeed, Flat A on 1/F was held in the name of Hon Sing, Ho Ping Fook, Poon Chi Ping, Wong Hang and Ho Min as joint tenants by assignment dated 28 November 1966. There is evidence of death certificates that Hon Sing, Poon Chi Ping, Wong Hang and Ho Min had all passed away with Wong Hang being the last deceased[1]. However, the position of Ho Ping Fook cannot be verified. According to the applicant, he cannot be found and it is not known whether he had passed away and if he did whether he died before or after Wong Hang.

12.  Hence, by reason of doctrine of survivorship, Mr Li submitted, either Ho Ping Fook or the estate of Wong Hand would be the truthful owner of the respondent’s unit, ie Flat A on 1/F of the Building.

13.  Pursuant to an Order of the Tribunal dated 28 September 2022, Wong Hang’s son, Wong Sai Ming, has been appointed by the Tribunal to represent the estate of Wong Hang in the Application.

14.  Ho Ping Fook has never appeared in the proceedings. There has been order to dispense with services of documents on him.

15.  As for Wong Sai Ming, he has by a letter dated 28 November 2022 informed the Tribunal that he would not attend the proceedings and he would not oppose an order for sale. Thus, it is apparent that the Application has become uncontested.

The Applicant is entitled to make the Application

16.  Section 3(1) of the Ordinance requires an applicant to have not less than 90% of the undivided shares in a lot before he can make an application.

17.  It appeared that on the date of Application, ie 28 June 2022, the applicant had owned 91.67% of the undivided shares of the Lot and therefore was entitled to file the Application.

EUV as at 10 May 2022

Assessment of EUV

18.  In compliance with Part 1 of Schedule 1 to the Ordinance, the applicant filed a valuation report dated 27 June 2022 (ie the Application Report) prepared by Ms Dorothy Chow (“Ms Chow”) to set out the assessed market value of each property on the Lot as at 10 May 2022 —

(a) on a vacant possession basis;

(b) assessed as if the Lot could not be made the subject of an application for an order for sale; and

(c) not taking into account the redevelopment potential of the property or the Lot.

19.  Likewise, Ms Chow has also set out the assessed market value of each property on the Adjacent Lot.

20.  Ms Chow had prepared a Supplemental Report dated 19 December 2022 reviewing the market value of each property on the Lot as at 10 May 2022 by reference to the updating property indices published by the Rating and Valuation Department and additional domestic comparables. During the process, the internal conditions of the properties were also updated. Ms Chow assessed the EUV of the various units in the Building and the Adjacent Building as follows:[2]

	The Building at 26 & 28 Ho King Street		The Adjacent Building at 2 Ping Lan Street
	Flat A	Flat B
G/F	$10,630,000	$12,230,000	$18,520,000
1/F	$5,810,000	$5,930,000	$8,800,000
2/F	$5,880,000	$5,810,000	$8,640,000
3/F	$5,950,000	$5,700,000	$8,730,000
4/F	$5,830,000	$5,580,000	$16,450,000
5/F	$5,480,000	$5,400,000
Total:	$80,230,000		$61,140,000

Conclusion on EUV

21.  The total EUV of the Building and the Adjacent Building is therefore $141,370,000

and the pro rata shares of respondent’s interest is 4.1098%.

Whether Redevelopment of the Lot is Justified on “Age” or “State of Repair”

22.  Section 4(2)(a) of the Ordinance stipulates that the Tribunal shall not make an order for sale unless it is satisfied that redevelopment of the Lot due to the “age or state of repair” of the Building is justified.

Experts’ Evidence

23.  On this issue, the applicant adduced the Condition Survey Report dated 1 December 2022 by Mr Chan Yuk Ming Raymond (“Mr Raymond Chan”), Chartered Building Surveyor and the Structural Assessment Report dated 20 October 2022 by Dr Chan Yin Nin Sammy (“Dr Sammy Chan”), Registered Structural Engineer.

24.  In the Structural Assessment Report, Dr Sammy Chan found as follows:[3]

(1) Cracks and spalling of concrete at 30 locations were observed during the visual inspection of the Building.

(2) The average in-situ cube strength is 17.8 MPa which is lower than the design strength of 20.6 MPa. Such low concrete structure is unacceptable to resist the designed compressive loadings of the building structure.

(3) All tested locations are carbonated with 7 out of those 9 tested locations having carbonation deeper than the depth of embedded reinforcements whereby the concrete cover has lost its function to protect the embedded reinforcements from corrosion.

(4) 5 out of 9 tested locations were having chloride content higher than the specified limit of 0.35%.

(5) The average result of the cement contents for slab (7.93%), beam (10.13%) and column (12.18%) were all lower than the estimated percentage of the design mix (14.3%).

(6) The extent of corrosion for the surface area of 65% of the exposed reinforcements were minimal (Grade 3) and significant (Grade 4), indicating that these exposed reinforcements are (i) bar corroding along its length, (ii) general rusting / local pitting and (iii) minimal loss of section. With such corrosion results, the structural weakening of structural members would be quickened.

25.  On the basis of the above findings, Dr Sammy Chan concluded that the structural elements of the Building were in a degraded condition caused by the continuous corrosion of reinforcement, which had resulted in the reduced structural capacity of the structures. He further concluded that the structural capacity of the Building cannot meet the current safety standard in terms of wind load and robustness. The provisions for durability and fire resistance of the Building do not meet the current statutory requirement.

26.  Dr Sammy Chan was of the opinion that the structural frames of the Building had deteriorated to the final stage of their design working life of 50 years and the deterioration would continue due to extensive carbonation of the concrete.

27.  In the Condition Survey Report, Mr Raymond Chan concluded that[4]:

(1) The Building was built in 1965 and is 57 years old. In spite of the fact that extensive repair works may extend the Building’s life span, the continuous maintenance costs are expected to be progressively high.

(2) The Building was in obsolete design. The substandard in width of the escape staircase, nil provision of protected lobby to escape staircase and accessible lift for person with disability is not up to current legislative requirements and no provision of fire service installations. Any upgrading works, in light of the existing site constraint, would comprise extensive structural alterations to the existing frame of the Building and be in high complexity. The upgrading cost will inevitably be enormous and therefore is unjustifiable in comparison with complete redevelopment.

(3) The Building was in a state of disrepair with its structural frames in dilapidated condition. Without substantial repairs, the Building is not up to a reasonable state of repair condition.

(4) A repair cost up to $15,705,600 or 98.16% of the construction cost for a new similar superstructure would be required.

28.  Having considered the evidence above, I am satisfied that redevelopment of the Building is justified due to the age and state of repair.

Section 4(2)(b) – Whether Applicant has taken reasonable steps

29.  The applicant is under an obligation to take reasonable steps to negotiate on terms that are fair and reasonable for the purchase of the interest of the respondent under section 4(2)(b) of the Ordinance.

30.  As a matter of fact, the applicant had acquired all units except that of the respondent whose ownership cannot be verified. In the circumstances, I am satisfied that the applicant has taken reasonable steps to acquire all the undivided shares in the Lot. There is simply nothing that the applicant can go further.

RDV of the Lots

Hypothetical Development Model

31.  Ms Chow resorted to the residual valuation method in determining the redevelopment value (“RDV”), for instance, of the Lot together with the Adjacent Lot. This can be done by deducting the development cost (including construction costs, professional fees, finance costs etc) and developer’s profit from the estimated gross development value (“GDV”) of the completed optimum development.

32.  In Capital Well Ltd v Bond Star Development Ltd [2005] 4 HKLRD 363, (2005) 8 HKCFAR 578, the Court of Final Appeal had the following remarks:

“39. There is, however, a danger that if the power is so confined the policy objectives of the Ordinance may be undermined. As the Court of Appeal recognized (§17), the minority owner, if sufficiently funded, might be able to bid up the single lot to a highly inflated price thereby exercising “ransom power” through the medium of the public auction. And if the minority owner or a third party actually acquired the auctioned lot, the intended redevelopment might have to be abandoned or face lengthy delays subject to the uncertainties of negotiations with the new owner of the lot. Such consequences plainly run counter to the statutory objectives.

40. If, on the other hand, it were open to the majority owner to combine sale of the Lot with sale of the other lots already owned, the entire developable site would be put up for sale. Such an auction could be expected to attract only bids from genuine developers. There would be no room for ransom-motivated bids. An appropriate reserve price would have to be fixed to ensure that the minority owner receives a proper share of the redevelopment value of the site. But whether the successful bidder should prove to be the majority owner or someone else, a redevelopment of the entire site would be able to proceed without impediment, in line with the objectives of the Ordinance.

41. Plainly, the power coercively to order sale is confined to ordering the sale of a lot or lots in which a majority owner and a minority owner each hold a proprietary interest. However, in cases where a majority owner qualifies for the making of such a compulsory order and wishes to have that lot put up for auction together with adjacent redevelopment lots wholly owned by him, the question arises as to whether, on its true construction, the Ordinance precludes the Tribunal from making an order for sale in respect of the composite site. That matter was not in issue and was not argued before us. In the light of the policy concerns noted above, we wish expressly to leave that question open for possible future consideration.

42. Additionally, if a restrictive construction of the Ordinance is required, we wish expressly to leave it open for possible future consideration whether the Tribunal has a discretion to give suitable directions (under s 4(6)(a) of the Ordinance or otherwise) concerning conduct of the sale designed to secure that the sale of the single lot, the subject of its order, can take place together with the sale of the other redevelopment lots, similar to the directions given by the Court of Appeal in Golden Bay Investment Ltd v Chou Hung [1994] 2 HKC 197 at 200-202, or along analogous lines.” (underline added)

33.  The Tribunal has indeed adopted the observation of the Court of Final Appeal in Capital Well and has in many cases directed the sale of the subject lot of application with adjoining lot(s). One example is Pacific Base Holdings Ltd v Lee Hop Biu & Others, LDCS 14000/2017 (unreported, dated 4 June 2020). Even when the case went to the Court of Appeal though on an unrelated issue[5], the Court of Appeal expressed no disapproval or reservation whatsoever on such practice.

34.  I am satisfied that the proposed direction for sale by the applicant accords with the legislative for facilitating redevelopment and should be adopted.

35.  In her Updated RDV Report dated 9 February 2023, Ms Chow determined the RDV of the Lot together with the Adjacent Lot in the sum of $157,000,000 or an accommodation value of $84,355 per sq m on the basis of the following:

(1) A hypothetical model of a 24-storey residential cum commercial building with a total approximate gross floor area (“GFA”) of 1,861.19 sq m, ie a plot ratio of 8.347 or thereabouts;[6]

(2) Construction cost estimated at $98,776,054 or $53,071 per sq m by reference to the Building Cost Data (December 2022) published by Rider Levett Bucknall[7];

(3) Demolition cost estimated at $2,502,610 or $2,200 per sq m[8];

(4) Professional fee at 6% of construction cost;

(5) Marketing cost at 3% of GDV;

(6) Interest rate at 4.25% per annum;

(7) Developer’s profit at 15% of total costs;

(8) Legal cost: 0.10%;

(9) Stamp duty: 4.25%; and

(10) Development period: demolition period of 0.5 year and construction period of 1.75 years.

36.  Having reviewed the comparables adopted in evaluating the GDV and the parameters adopted by Ms Chow, I agree they are reasonable and am content to adopt $157,000,000 as the RDV which shall be reserve price for the auction sale.

Other Incidental Matters

37.  The applicant proposed to appoint Ms Ng Phoebe Oi Sing and Ms Ip Ho Shan, being partner and associate of Messrs Edward Lau Phoebe Ng, Solicitors LLP, as the sale trustees. Based on the information on their background and experience as set out in their letter dated 14 February 2023[9], I am satisfied that they are proper persons to be appointed as trustees to discharge the duties imposed on the trustees under the Ordinance. The remuneration package proposed in the said letter appears reasonable.

38.  The applicant has prepared a set of draft Particulars and Conditions of Sale of the of the Lot together with the Adjacent Lot[10]. Subject to any amendment that may become necessary as a result of my ruling on the arrangement of auction above, the particulars and conditions of sale of the Lot together with the Adjacent Lot by public auction submitted by the applicant are also reasonable.

39.  Thus, I made the Order accordingly.