FAMOUS CONCEPT DEVELOPMENT LTD v. THOUSAND TREASURE INVESTMENT LTD AND OTHERS

LDCS 30000/2019

[2021] HKLdT 72

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LAND COMPULSORY SALE MAIN APPLICATION NO 30000 OF 2019

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J U D G M E N T

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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 the following lots at Nos 1-7 Po Tuck Street, Hong Kong:

-     The Remaining Portion of Inland Lot No 4912 (“Lot 4912RP”)

-     The Remaining Portion of Inland Lot No 4913 (“Lot 4913RP”)

-     The Remaining Portion of Inland Lot No 4914 (“Lot 4914RP”)

-     The Remaining Portion of Inland Lot No 4915 (“Lot 4915RP”)

which are hereinafter collectively referred to as “the Lots”.

2.  Erected thereon is one single 8-storey commercial/residential composite building (“the Building”) served by 2 common staircases with shops on ground floor fronting onto Po Tuck Street.

3.  The occupation permit for the Building was issued on 21 November 1966 whereby permission was granted to occupy and use the ground floor (“G/F”) of the Building for two shops for non-domestic use and the upper floors each with 5 tenement units for domestic use. The two shop units on G/F have been subdivided into 4 shops, A, B, C and D respectively, all abutting Po Tuck Street to the northeast around its corner with Hill Road to the northwest. Owing to the topography of the site however, the pavement leading from Hill Road, through Shop D, Shop C and Shop B to Shop A is interposed by steps.

4.  The Building on the Lots is governed by a Deed of Mutual Covenant (“DMC”) dated 7 December 1966 which has allotted one equal and undivided share to each of the units (including the sub-divided shop units) mentioned above.

5.  Mr C Y Li, SC (“Mr Li”), together with Mr Li Pak Hei, act on behalf of the applicant whereas the minority owners (ie the respondents in the present case) outstanding are represented by the following counsel:

Respondent:	Corresponding Ownership	Undivided Share	Represented by Counsel
1st Respondent (“R1”)	Shop D ,G/F	1/39	Mr Jeremy Kwong (“Mr Kwong”)
2nd Respondent (“R2”)	Shop C, G/F	1/39	Mr Ross M Y Yuen (“Mr Yuen”) leading Ms Emily Ting
3rd Respondent (“R3”)	Shop B, G/F	1/39
4th Respondent (“R4”)	Shop A, G/F	1/39
5th Respondent (“R5”)	Flat E, 5/F	1/39	Mr Adrian But (“Mr But”)
6th Respondent (“R6”)	Flat D, 6/F	1/39
7th Respondent (“R7”)	Flat C, 5/F	1/39

The Issues in the Application

6.  According to the openings of the various respondents, the following issues shall be determined by the Tribunal, namely: -

(1)     What is the market value (which is usually termed by the valuation profession as the Existing Use Value or just “EUV”) of each of the units in the Building as at 1 August 2019 as assessed in accordance with Part 1 of Schedule 1 to the Ordinance;

(2)     if an order for sale of the Lots be granted, what the redevelopment value (“RDV”) of the Lots should be for the purpose of setting the reserve price of the public auction according to clause 2 of Schedule 2 to the Ordinance.

7.  In addition, Mr But, on behalf of R5, R6 and R7, submitted that the applicant bears the burden in proving the fulfillment of statutory requirements to the satisfaction of the Tribunal: -

(a)     Whether the applicant is the “majority owner” of the Lots pursuant to section 3 of the Ordinance?

(b)     Whether redevelopment is justified due to the age and state of repair of the Building?

(c)     Whether “reasonable steps” were taken to acquire the shares of the minority owners and whether it negotiated for the purchase on “fair and reasonable” terms?

The Evidence

8.  The applicant has filed the following documents in support of the Application:

(a)     a witness statement of Mr Ng Norman Tang Fai, representative of the applicant, filed on 30 September 2020;

(b)     a Building Condition Survey Report by Mr Benson Wong (“Mr Wong”) dated 3 August 2020;

(c)     a Structural Survey Report by Mr K S So (“Mr So”) also dated 3 August 2020;

(d)     the following reports by Mr Henry H Y Cheng (“Mr Cheng”) of Cushman & Wakefield Limited (“Cushman & Wakefield”);

(i)     an Application Report pursuant to Part 1 of Schedule 1 to the Ordinance dated 5 September 2019;

(ii)     a Supplemental EUV Report dated 5 August 2020 on the revised EUV as at 1 August 2019;

(iii)     a Valuation Report on RDV dated 5 September 2019;

(iv)     a Rebuttal Report dated 11 January 2021 on Mr Patrick Lai of AA Property Services Ltd (“Mr Lai”)’s EUV and RDV report dated 10 December 2020;

(v)     Supplemental Valuation Report on RDV dated 26 July 2021.

9.  The respondents relied on the following reports:

(a)     a witness statement of Ms Kwok Chui Wah Ranee, the Director of R2, filed on 10 October 2020;

(b)     a witness statement Mr Leung Kwok Tim Timothy of R5, filed on 9 November 2020;

(c)     a witness statement Ms Hung Yuen Ling, ie R6, filed on 9 November 2020;

(d)     a witness statement Mr Wu Siu Lun Edwin, ie R3, filed on 9 February 2021;

(e)     the following reports by Mr Lai:

(i)      a Valuation Report on the EUV as at as at 1 August 2019 and RDV dated 10 December 2020;

(ii)     a Supplemental Valuation Report on RDV dated 19 July 2021.

10.  Mr Cheng and Mr Lai have also prepared a joint statement one dated 8 February 2021 setting out their agreements and disagreements on EUV, followed by another one dated 6 August 2021 on RDV (“2^nd Valuation Joint Statement”).

11.  Mr Cheng and Mr Lai revised their assessments of EUV and RDV on the basis of their Valuation Joint Statements.

Whether the Applicant is entitled to make the Application

12.  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.

13.  Section 3(2) of the Ordinance provides thatan application under subsection (1) may cover—

(a)     2 or more lots where the majority owner owns not less than the percentage specified in subsection (1) of the undivided shares in each lot; or

(b)     2 or more lots—

(i)      on which one building is connected to another building by a staircase intended for common use by the occupiers of the buildings; and

(ii)     where the average of—

(A)    the percentage of the undivided shares owned by the majority owner in the lot or lots on which one of the buildings stands; and

(B)     the percentage of the undivided shares owned by the majority owner in the lot or lots on which the other of the buildings stands,

is not less than the percentage specified in subsection (1).

14.  Section 3(5) of the Ordinance provides that the Chief Executive in Council may, by notice in the Gazette, specify a percentage lower than the percentage mentioned in section 3(1) in respect of a lot belonging to a class of lots specified in the notice.

15.  The Land (Compulsory Sale for Redevelopment (Specification of Lower Percentage) Notice was gazetted on 22 January 2010 and came into operation on 1 April 2010 (“the Notice”).  Section 3 of the Notice lowered the threshold for compulsory sale in respect of the classes of lots specified in the Notice from 90% to 80%.  Those classes of lots include “a lot with each of the building erected on the lot issued with an occupation permit at least 50 years before the relevant date (ie the date of the application under the Ordinance)”. 

16.  As the occupation for the Building was issued on 21 November 1966, not less than 50 years before the date of the Application, the Notice is applicable and the threshold percentage should be 80%.

17.  The applicant, owning 32 out of 39 (ie 82.05%) undivided shares of the Lots, was entitled to file the Application under section 3(2)(a) of the Ordinance which may cover two or more lots.

18.  However, Mr But cast doubt on the above in his opening submission and closing submissions. Mr But referred to a recent judgment in Wah Ha Property Development Limited & Others v Rosehawk Group Limited & Others, LDCS 25000/2018 (unreported, 30 April 2021) where the Tribunal held that the applicants’ application for an order for sale of eight contiguous lots was unsuccessful by reason of their failing to acquire the requisite percentage of undivided shares in compliance with section 3(2) of the Ordinance.

19.  In this Wah Ha case, there are five adjoining residential buildings known as Stewart Terrace, Nos 81-95 Peak Road, Hong Kong (“the Development”). where, for instance, two of them[1] were not connected to any other buildings by a staircase intended for common use by the occupiers of the buildings. Each of these two buildings stands on one lot (“RBL 299” and “RBL 306” respectively)[2] only.  One of the applicants in that case owned about 52% to 55% of the undivided shares of RBL 299[3]; the applicants collectively owned about 37.9% to 36% undivided shares in RBL 306 only[4]. Since none of these two buildings was inter-connected with the other buildings by any common staircase, the applicants in that case could not make use of the average ownership percentage of the lots under section 3(2)(b) of the Ordinance but must acquire over 80 or 90% of RBL 299 or RBL 306 in order to be qualified for making the application. However, the applicants failed to do so.

20.  Neither could the applicants in that case rely on section 3(2)(a) of the Ordinance which requires the majority owner to own not less than the percentage specified in subsection (1) of the undivided shares in each lot. They owned about 52% to 55% of the undivided shares of RBL 299 and about 37.9% to 36% undivided shares in RBL 306 only.

21.  Returning to the present case, the Building stands on four lots; the applicant owns not less than the percentage specified in subsection (1) of the undivided shares in each of the Lots under section 3(2)(a) of the Ordinance as there can be no physical demarcation of the Building into sub-buildings. As submitted by Mr Li in response, there is no apportionment whatsoever. Thus, to the extent that the above has been satisfied, Mr But’s referral just to a portion of the ground floor, ie part of Shop C and the entire Shop D lying apparently on one lot, ie Lot 4912RP only[5] not interconnected by any common staircase to other portion of the Building regardless of the upper floor residential units above is neither here or there. To the contrary, this assertion by Mr But is not true as the rear end of Shop D straddles Lot 4912RP and Lot 4913RP. Indeed, according to the occupation permit, there was originally one shop (which was later subdivided into Shop C and Shop D) together with part of the two common staircases straddling Lot 4912RP, Lot 4913RP and a portion of Lot 4914RP:

Lot No	Frontage/ width of Lot[6]	Longest Width of Shop[7]
Lot 4912RP	15’1” (4.59 m)	Shop D: 11’11” (3.63 m)
Lot 4913RP	15’5” (4.70 m)	Shop C: 23’6” (7.16 m)
Lot 4914RP	15’5” (4.70 m)	35’5” (10.80 m)
Lot 4915RP	15’5” (4.70 m)	which is longer than 30’6” (9.29 m)

22.  Mr But also postulated that the entirety of the floor areas of Flats C, D and E (or at least part of them) of the upper floors also stand on Lot 4912RP[8] and therefore the undivided shares of Shop C, Shop D, Flats C, D and E on the upper floors should only be counted towards Lot 4912RP[9]. He argued that Shop C, Shop D, Flat C on 5/F, Flat E on 5/F and Flat D on 6/F are all owned by minority owners and therefore the applicant only owns 18 units out of 23 undivided shares within Lot 4912RP (ie 78.26% which is less than the threshold of 80%).

23.  With respect, should it be the case, this portion of the Building comprising Shop C, Shop D, Flats C, D and E on the upper floors is connected to another portion of the Building by two staircases intended for common use by the occupiers of the buildings, satisfying the requiring of section 3(2)(b) of the Ordinance.

24.  Mr But further postulated that the two common staircases are located physically within the boundaries of Lot 4913RP and Lot 4914RP and therefore this portion of the Building comprising Shop C, Shop D, Flats C, D and E on the upper floors is not connected to another portion of the Building by the two staircases. Firstly, this is, as a matter of fact not true. As demonstrated in the table at §21 above, Shop C and Shop D together with part of the two common staircases straddling Lot 4912RP, Lot 4913RP and a portion of Lot 4914RP.Should Mr But be correct, Flats C, D and E on the upper floors (ie up to 7/F) are not served by any staircase, common or otherwise, which is absurd. The retail portion and the domestic portion of the Building are not standalone property.

25.  With respect, Mr But’s novel assumption is misconceived. The situation of the Wah Ha case is distinguished and cannot be applied in the present case.

EUV as at 1 August 2019

Assessment of EUV of G/F Units

26.  By reference to the Valuation Joint Statement dated 8 February 2021, Mr Cheng and Mr Lai agreed the particulars of the G/F units of the Buildings as follows[10]:

* Based on the average of 59.86 m² and 61.93 m² as the suggested by Mr Cheng and Mr Lai respectively.

27.  Whereas Shop A on G/F of the Building is chosen by the valuation experts as the Reference Shop Unit, the following comparables are adopted for valuation on direct sales comparison basis:[11]

* PASP stands for provisional agreement for sale and purchase.

28.  To arrive at the effective unit price above, the appropriate conversion factor for the open yard of the premises was agreed at 1/6 of G/F unit rate. Mr Cheng assessed the EUV of the Reference Shop Unit as at 1 August 2019 at $200,300 per sq m while Mr Lai arrived at $213,900 per sq m.

29.  Mr Cheng and Mr Lai had the following agreements/ disagreements on adjustments[12]:

30.  Thus, the only differences between the two experts lie in their adjustments for location.

31.  Comparable E1 is in effect Shop B of the Building. To the extent that the two experts are content to adopt this as a comparable, this should be the best comparable. On site, this shop unit appears to be occupied partly as a beauty parlour with no frontage display or shop signage. This demonstrates the trading potential is weak. It is closer to the junction of Po Tuck Street and Hill Road and I agree that it is marginally or nominally superior to Shop A which is the Reference Shop Unit.

32.  Comparable E2 is situated at the far end of Po Tuck Street which is a cul-de-sac and the retail potential is poor. I consider there should not be too substantial difference in retail potential when one bothers to walk into Po Tuck Street. As admitted by Mr Lai, both the traffic or pedestrian flow along Po Tuck Street are quiet and even quieter than Hill Road. I prefer Mr Cheng’s adjustment of 20%.

33.  Both comparables E3 and E4 are situated at the mid-section of Clarence Terrace which is another cul-de-sac running parallel to Po Tuck Street one block down Hill Road. Retail potential appears to be even worse though Clarence Terrace is more or less level while Po Tuck Street slopes upwards from its junction with Hill Road. There are no shops on the opposite side of the street though at its junction with Hill Road is the Shek Tong Tsui Municipal Services Building where a wet market is situated. I agree again with Mr Cheng’s adjustment of 25%.

34.  Thus, the adjustments for the comparables are as follows:

* By multiplication.

35.  As said, Comparable E1 is the best comparable and I am prepared to place more weight on it as a result of which I determine the unit value of the Reference Shop Unit at $200,000 per sq m.

36.  Mr Cheng and Mr Lai have agreed on most of the adjustment factors for the other shops of the Building save that on the layout for Shop C which comprises a recessed area of about 12 sq m some 2 metres into the shop. In addition, according to the approved building plan, there should be a square open yard of some 2.49 sq m right in the middle of the shop but this open yard has now been covered and physically indistinguishable from the rest of the shop. According to the witness statement of KOK Chui Wah, Ranee, a director of R2, the yard had been occupied likewise at least since 2012 when R2 purchased the unit. There has not been any enforcement action taken by any government authority. In regard of the latter, I am prepared to consider the covered yard as part of the saleable area of the shop but then, taking into account the recessed area as well, I agree with Mr Cheng that a -5% adjustment is justified.

37.  Whereas Shop A, being the Reference Shop Unit, is located inside Po Tuck Street, I agree there should be adjustments to reflect that the shop units closer to the junction of Po Tuck Street and Hill Road should attract higher values. Thus, my assessment of the EUV of the various shop units of the Building is as follows:

Assessment of EUV of Upper Floor Domestic Units

38.  The two valuation experts had agreed that Flat B, 4/F which had a good internal condition is the Reference Domestic Unit. This unit is facing southeast.

39.  Mr Cheng assessed the EUV of the Reference Domestic Unit as at 1 August 2019 at $148,800 per sq m while Mr Lai got $159,900 per sq m. The following comparables are adopted for valuation on direct sales comparison basis:[13]

* PASP stands for provisional agreement for sale and purchase

40.  As a result, they have also the following agreements/ disagreements on adjustments[14]:

41.  From the above, it is manifested that the major difference in opinion between the two experts is on the adjustment for location. In this regard, I agree with Mr Cheng that the comparables are more convenient as they are readily served by a variety of traffic and even with buses traversing within a stone’s throw. But for the same reason, their living environment is not as good when compared with the subject. As well, there is a flight of narrow staircases leading from the end of Po Teck Street to Pok Fu Lam Road in close proximity to the main campus of the University of Hong Kong. The subject location would attract students and professors, both local and overseas. On balance, I prefer to adopt Mr Lai’s suggestion of nil adjustment which is more consistent with Mr Cheng’s 0% adjustment for his comparable at No 15 Western Street in his determination of the RDV.

42.  In respect of comparable 5, I agree with Mr Cheng that it is situated at another district far away from the subject. All the more, the location characteristic of this “comparable” is vastly different from the units in the Building. This “comparable” lies on a busy street with 3-lane traffic with all modes of public transport and shops of all types serving the area.  In contrast, units in the Building enjoy a relatively secluded and peaceful environment save from the traffic on the flyover right next to the Building, leading vehicular traffic from Bonham Road at Mid-levels along Hill Road towards the seashore.

43.  Mr Lai argued that this comparable was required so that the Tribunal could have a comparable indicating what the value would be for a unit up to 6/F. With respect, to the extent that this comparable is situated at a faraway location, it would only serve the purpose if Mr Lai could also provide another such comparable on lower floor for the sake of paired comparison which he failed to do. Otherwise, the analysis of this comparable would be affected by the very important factor of location which is unaccounted for[15]. Indeed, 3 out of the 4 common comparables are on 4/F. I agree with Mr Cheng that this comparable should be disregarded.

44.  As regards the experts’ difference in orientation adjustment, I tend to agree with Mr Lai as the -1% or 1% adjustment is negligible and hard to justified.

45.  Although the two experts agreed that “Reference Unit’s internal condition is considered to be good whilst Comparables’ internal conditions are assumed to be fair”, they had disagreement on the adjustment percentage to be applied: Mr Cheng adopted 3% while Mr Lai adopted 5%. But in light of the relatively old premises where purchasers might not be so concerned about the internal condition of the unit as it exists, I prefer an adjustment of 3%.

46.  Again, my assessment of the EUV of the Reference Domestic Unit is shown as follows:[16]

47.  The experts then had agreements/disagreements on the various adjustments below for the upper floor residential units in the Building[17]:

48.  The proposed adjustments by Mr Cheng are shown in the table below (whereas those by Mr Lai are shown in parenthesis if they are different, save for those figures of EUV which were assessments by Mr Lai):[18]

* An additional adjustment of -5% for top floor is applied.

Size Adjustments

49.  The two experts indeed agreed the size adjustments at 1% per 5 sq m difference. The differences in size adjustments for Flat A on 1/F, Flat A on 7/F and Flat D on 7/F come from their determination of the area of the flat roof or the roof areas as the case may be.

50.  For instance, Flat A on 1/F comprises also a L-shape flat roof which, according to the approved building plan, consists of some 42.24 sq m which was connected to that of Flat B. However, upon the joint site inspection on 24 August 2021, a portion of flat roof facing the adjoining building at 9-15 Po Tuck Street, Yan Oi Garden, has not been enclosed by parapet wall for reason unknown, being separated from the flat roof of Flat B. I agree with Mr Lai that as this portion of flat roof cannot be used at all, it should not be counted. Therefore, I agree with Mr Lai’s flat roof area of 34.26 sq m and his adjustment rate of -1.2%.

51.  For the roof, I am advised that there appears to have no clear boundaries among the various owners of the flats below. There is no assignment plan or DMC plan identifying the respective area on the roof to be exclusively occupied by the 7/F unit owners. Based on the floor plan of 7/F below, Mr Cheng considered the roof for Flat A has an area of 31.81 sq m. Mr Lai considered otherwise, allowing for an area of entrance and determining a roof area of 24.44 sq m. Once again, I agree with Mr Lai and his adjustment of -0.7%.

52.  The same applies to the roof for Flat D. I therefore adopt Mr Lai’s adjustment of 0.9% instead of Mr Cheng’s 0.8%. Of course, the difference is minimal and negligible.

View Adjustments

53.  In considering the view adjustments, the following physical features are relevant:

(a)     Flats C, D and E face Hill Road. Flat C is a corner flat facing Hill Road and Po Tuck Street whereas Flat E is also corner flat facing Hill Road and the rear lane of the Building;

(b)     Hill Road is on a slope, slanting downwards from the side of Flat E to the side of Flat C. As the Building itself does not slant, the result is that on any floor, Flat E is closer to Hill Road than Flat D, and Flat D is closer to Hill Road than Flat C. In particular, Flat E, 1/F is much closer to the pavement and road than Flat D, and Flat D on 1/F much closer than Flat C.

(c)     A flyover is built right next to the Building, leading vehicular traffic from Bonham Road at Mid-levels along Hill Road towards the seashore. It slants horizontally towards Flats E before it turns outwards over Hill Road. The vehicles passing along the flyover can be seen from the flats on 5/F to 7/F and those Flats C, D and E on 4/F are slightly below the concrete slab of the flyover; they have a view of the fencing wall and the underside of the flyover.

54.  The two experts agreed to have Flat B on 4/F as the Reference Domestic Unit which enjoyed a corner view towards the north over the podium of the opposite building, Po Ga Building at 6-20 Po Tuck Street.

55.  Mr Cheng commented in his Rebuttal Report dated 11 January 2021 that Mr Lai had applied -5% to Flat As from 1/F to 4/F and -3% from 5/F to 7/F which he considered “inconsistent as the views of these units are all facing towards the neighbouring buildings”[19]. Mr Cheng said that the -5% adjustments are excessive but agreed that -3% should be applied to all Flat As instead.

56.  Mr Lai explained that the difference in percentage is owing to the fact that Flat As from 1/F to 4/F face the retaining wall of the building at the rear, ie Cheong Wan Mansion at 55-59 Hill Road enjoying no view at all. Having conducted the joint inspection, I agree with Mr Lai.

57.  Mr Cheng also disagreed with Mr Lai’s -3% adjustment to Flat B on 1/F. However, I agree with Mr Lai that such adjustment is justified because Flat B on 1/F look towards the opposite building instead of the relatively open view on the upper floors.

58.  In regard of the view towards the flyover, Mr Cheng disagreed with Mr Lai’s “excessive downward adjustment ranging from -5% to -10% for each of Flats C, D and E from 1^st Floor to 4^th Floor because they are close to the flyover which is similar to building view.”[20] Indeed, it is more proper to describe the view as towards Hill Road and pavement. Again, having conducted the joint site inspection, I agree with Lai’s adjustments save that I am prepared to reduce those at -10% to -7%.

59.  Mr Cheng further commented that Mr Lai had particularly made a -15% adjustment to Flat E on 6^th Floor because of the flyover traffic. During the joint inspection, we had paid particular visit to this unit and found that the traffic from Bonham Road over the flyover cut as a sickle towards Flat E on 6^th Floor. However, I am prepared to reduce the -15% adjustment to -10%.

Noise

60.  Mr Cheng commented that Mr Lai had applied “excessive noise adjustment especially on 1/F and 7/F on noise factor”[21]. Having conducted the joint inspection, I agree with Mr Cheng that Hill Road, being a one-way traffic, has light traffic flow. The flyover is at a very high level and any noise emitted from the ground level can be diffused easily. As regards Mr Lai’s suggestion that taxis and vans/lorries often parked nearby the building for the purpose of waiting or changing shifts, I do not agree that the noise resulting therefrom would be more significant. I agree therefore the adjustments proposed by Mr Cheng are reasonable for the low floors. But for those on the high floors which are more affected by the traffic from the flyover, I agree with Mr Lai.

Orientation

61.  In his Rebuttal Report dated 11 January 2021, Mr Cheng commented that Mr Lai only applied +2% to units having south and southeast aspects[22]. Mr Cheng opined that -1% should also be applied to each of Flat C, Flat D and Flat E on each floor facing northwest because of superior orientation to the Reference Domestic Unit. I agree though the difference is minimal and negligible.

Internal Conditions

62.  As regards the internal conditions of the premises, I appreciate that the classifications by the two experts are only relative and sometimes it is difficult to be quantified. Mr Cheng had this comments in his Rebuttal Report dated 11 January 2021:[23]

“Mr Lai inspected the interior of 30 domestic units of the Property in September and October 2020. He gave 5 different grades from Very Good, Good, Fair, Poor and Very Poor to the inspected units. Mr Lai graded Very Good to 2 units, Fair to 14 units, Poor to 10 units, Very Poor to 4 units. No Good grade is given to the premises[24].

I have reviewed Mr Lai’s opinion on grades of internal conditions given to the Property and compared with those graded by me. Only Flat A on 5/F and Flat E on 6/F shared the same grade, ie Fair, between us.

Having considered the internal condition that I have inspected, I opine that most of the domestic units was in Good and Fair conditions. Given the above condition, I do not agree with the rate of 5% applied by Mr Lai for each grade of internal conditions. I consider his rate adopted is excessive.”

63.  More particularly, the two experts had agreed the grading of the Reference Domestic Unit as Good.

64.  However, I am much concerned that when Mr Cheng prepared his first Application Report dated 5 September 2019, he could only inspect 14 out of 35 domestic units when internal conditions of the units were a factor of adjustment[25]. On the other hand, when Mr Lai prepared his valuation report dated 10 December 2020, he could inspect 30 out of the 35 domestic units[26]. Notwithstanding this, Mr Lai was prepared to revise the grading of the following units in preparing the Joint Statement dated 9 February 2021:

Unit	Original Grading	Revised Grading
Flat D, 3/F	Poor	Good
Flat A, 4/F	Not inspected	Good
Flat B, 4/F	Not inspected	Good
Flat E, 5/F	Not inspected	Very Good
Flat A, 6/F	Very Poor	Poor

65.  It is however interesting to note that the three units which were graded by Mr Lai as Very Good, ie Flat E on 5/F, Flat D on 6/F and Flat C on 5/F happen to belong to R5, R6 and R7 respectively. These units were also not inspected by Mr Cheng earlier.

66.  In Oriental Generation Ltd & Others v Luk Yung & Others, LDCS 4000/2013 (unreported, 29 February 2016), when one of the respondents maintained that his unit was kept in a better internal condition, its market value should deserve to be adjusted upwards to reflect fairness[27]. However, for this kind of relatively old buildings like the subject, new purchasers are likely prepared to renovate the units. In that regard, firstly, Mr Lai’s range of demarcation of value appears to be excessive. As can be seen from the table at §48 above, 5% per one grading difference would mean some $250,000 and 10% per two grading difference would mean some $500,000.

67.  A fortiori, the perception of a particular grading can be easily changed by cosmetic works like painting, cleaning or even tidying up the chores. As pointed out by Mr Lai during the joint inspection, Flat B, 6/F appeared in a much better condition than what he inspected in September or October 2020[28]. This is particularly the case that although Mr Lai classified Flat A, 1/F as Fair, this unit was occupied by a crew filming a television series about a tight-knit group of wealthy expatriates living in Hong Kong a few days before our joint inspection. Both experts agreed that the internal conditions of this unit had been improved.

68.  Having said that, I am unable to agree with Mr Lai that Flat C and Flat E on 5/F should be graded as Very Good when compared with the Reference Domestic Unit.

69.  Save from the above, I agree with the other gradings by Mr Lai but at an adjustment rate of 3% per change of grading only.

Lighting and Ventilation

70.  As can be seen from the table at §48 above, Mr Lai applied downward adjustments ranging from -4% to -10%. Here, I agree with Mr Cheng that Mr Lai’s adjustments were excessive and to an extent double counted for those for view.

71.  Standing back, absent any peculiar feature, it is also unbelievable that units in the same building of similar size range could have difference in value up to 20% or even above 30% on the same floor or one floor up or down.

72.  In light of the above analysis, therefore, my assessments of the EUV of various domestic units of the Building is are follows:

* An additional adjustment of -5% for top floor is applied

Conclusion on EUV

73.  The total EUV of the Building is therefore

     $52,599,000 + $187,761,000 = $240,360,000

and the pro rata shares of R1’s to R7’s interests are as follows:

Respondent	Unit	EUV	Pro-rata Share
R1	Shop D ,G/F	$15,528,000	6.4603%
R2	Shop C, G/F	$12,237,000	5.0911%
R3	Shop B, G/F	$13,318,000	5.5409%
R4	Shop A, G/F	$11,516,000	4.7911%
R5	Flat E, 5/F	$7,189,000	2.9909%
R6	Flat D, 6/F	$5,376,000	2.2366%
R7	Flat C, 5/F	$6,397,000	2.6614%

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

74.  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 Lots due to the “age or state of repair” of the Building is justified.

Experts’ Evidence

75.  On this issue, the applicant adduced the Condition Survey Report dated 3 August 2020 by Mr Wong, the Building Surveyor and the Structural Assessment Report also dated 3 August 2020 by Mr So, the Structural Engineer.

76.  In the Structural Survey Report, Mr So concluded that the structural elements of the Buildings are currently in a poor state of repair; the Building will likely require extensive maintenance and repair works in the coming few years if they were not redeveloped:[29]

(1)      The Building was designed in accordance with the less stringent London County Council (LCC) By-Laws 1952. There are 8 structural design and construction aspects where the Building does not comply with the current structural engineering design requirements specified in the New Concrete Codes, especially the requirement on robustness. Also the concrete covers for the beams and slabs do not comply with the requirements specified in the Code of Practice for Fire Safety in Buildings 2011.

(2)     Cracks and spalling are found in some 58 structural elements throughout the Building.

(3)     The cover-meter survey results revealed that 2 out of 5 (or 40%) column samples, 3 out of 5 (or 60%) beam samples and 2 out of 5 (or 40%) slab samples do not have sufficient concrete covers to protect the embedded steel reinforcement bars against corrosion or fire.

(4)     The carbonation depth test results revealed that the alkaline environment which gives protection to the embedded steel reinforcement bars in the reinforced concrete structural elements in the columns, beams and slabs has been very extensively destroyed.

(5)     The cement content test results revealed that there is deficiency in cement content in 3 out of 5 (or 60%) test column samples demonstrating that the durability of the concrete might have been impaired.

(6)     All steel reinforcement bars exposed from corrosion survey locations exhibit rust of various magnitudes, showing that the high carbonation depths in the concrete have caused the corrosion of the embedded steel reinforcement bars.

77.  In the Condition Survey Report, Mr Wong concluded that[30]:

“6.1 The Age

6.1.1 The Building is 53 years old and with regard to its physical life, is one of the oldest buildings in its immediate neighbourhood.

6.1.2 The Building is aged structurally as in respect of durability provisions; its structural frames are considered to have passed the end of their design life.

6.1.3 The Building is aged physically as showed by 4 signs of obsolescence in appearance as compared with other modern buildings:

a. A plain looking block with monotonous elevations.

b. The external walls are simply rendered and painted. These low-cost external building finishes were only acceptable in the post war era but have been out-classed by building nowadays.

c. An overall untidy appearance from piecemeal replacements of the old windows with aluminum units of different types and colours.

6.1.4 The Building is aged functionally as it has been suffering from 11 obsolescence aspects which have safety and hygiene implications as compared with current standards for buildings nowadays:

a. The design and construction of the structural frames should be shorter than 50 years and the Building has passed the end of its design life …

b. The existing fire hydrant/hose reel system is sub-standard.

c. The fire escape arrangements are unsatisfactory with the following deficiencies:

i. The handrails provided to the staircases have gaps wider than the maximum width of 100mm.

ii. The two required staircases exits from the corridors are just 2.4 meter apart which is much closer than the minimum separation of 6 meters.

d. The fire resisting construction of the fire escape routes is outdated as follows:

i. The existing fire entrance doors are not fire resisting doors as currently required.

ii. The existing electrical installations and wirings installed in corridors are exposed and not enclosed with fire resisting enclosures.

…

h. The Building has no lightning protection system to protect occupants and building parts from lightning strikes.

…

It is my view that 6 of these 11 aspects of functional obsolescence … cannot be rectified unless the Building is demolished and redeveloped…

6.2 The State of Repair

6.2.1 Based on my condition survey finding and Mr K S So’s structural assessment results, I am of the view that the Building is in a poor state repair. The defective external rendering; the obsolete fire services installation; the unsatisfactory fire escape arrangement … have imposed threats to safety and made the Building liable to become dangerous.

6.2.2 According to the structural assessment of Mr K S So, the Building is suffering from structural defects requiring hammer tapping and repairs of concrete spalling/ cracking defects in the structural members. However, structural defects will continue to appear and proliferate, notwithstanding the proposed repairs. Furthermore, extensive carbonation of concrete and corrosion of the reinforcement bars with loss of sectional areas and the corrosion will continue to deteriorate but there is no practicable repair method.

…

6.2.4 The defects and deficiencies found in the Building are of the nature and magnitude that cannot be easily rectified by simple and piecemeal repairs. Substantial repairs at the cost of $8,986,659 are required to be carried out in order to restore the Building to a good state of repair.

6.2.5 The repair cost of $8,986,659 is about 40% of the construction of $22,630,000 for constructing a new similar superstructure. The repair cost is disproportionately high indicating that the deterioration of the Building’s superstructure is very serious and has reached a state which is beyond reasonable economic repair.

6.2.6 In addition to the “Repair Cost” and “Construction Cost” comparison, the conclusion on whether the existing state of repair of the Building is justified for redevelopment building owners should also take into account of the following:-.

a. The implementation of the repair works and discharge of other repair obligations will be disturbing and onerous for the existing occupiers and building owners.

b. The future mandatory and voluntary repairs concerning safety and hygiene improvements introduced after the Building was constructed will make the continued occupation of the Building uneconomical and even unsafe, to both occupants and third parties.

c. The Building will not be up to the standard of a new building due to its inherent limitations. Even if the Building is repaired, the quality of accommodation will still be below market expectation.

78.  In the end, Mr Wong recommended the owners to redevelop rather than repair the Building, particularly bearing in mind the Building does not possess any historical value or architectural merit, and is merely a building of the past that can be replaced.

79.  None of the respondents had adduced any evidence to rebut either the Condition Survey Report dated 3 August 2020 by Mr Wong or the Structural Assessment Report dated 3 August 2020 by Mr So. The parties agreed not to call Mr So and his report was admitted as evidence.

80.  Notwithstanding the above, Mr But, in his opening submission dated 17 August 2021, had reservation as follows:

“22. Here, the outlook of the Building does not appear to be dilapidated at all. Many of the facilities are maintained in reasonably good standard and repair. As gathered from the photographs, the internal conditions had always been ‘tenantable’. In relative terms, the state of repair is much better than many other older tenement buildings of the same age within a similar locality.

23. The ‘drainage order’ issued by the BD under s28(3) of BO on 10^th August 2016 (Order No DR/00284/HK/16) in respect of the common areas was fully complied with as evidenced by the letter of compliance (M/N18120701050132). After that, no further order(s) were issued by the BD (or other government departments) against the Building (or any of its individual units) save and except the order on 20.3.2019 registered against the owner of 7/F Flat B (and flat roof – as owned by App) for demolition of UBW. Evidently, the BD carried out inspections at the Building and found no non-compliance of the existing laws and regulations.

24. According to the findings of Mr Benson Wong and Mr K S So, while there is no imminent signs of danger or great safety concerns which warrant the demolition of the Building at this stage.

25. App needs to overcome the hurdle that the existing development underwent substantial repair and maintenance works over its common facilities and fire safety installations in 2013 and 2014. Such works involved a total amount of $3.94 M.

26. The said repair costs and effort spent will be put to complete waste if the Building is to be demolished by way of redevelopment. If this is going to happen, it would portray a wrong message to the society that owners of derelict buildings who deliberately left things in a state of disrepair stands a better chance in being redeveloped in a compulsory sale application and obtain a better return than those owners who opt to spend costs to preserve and prolong the lifespan of their properties out of good faith. In a way, owners of older buildings who genuinely complied with legal requirements under the MBIS[31]/MWIS[32] regime would become ‘penalized’ by the sunk costs spent in renovating the common parts. Such potential ruling would have the undesirable effect of discouraging owners from having any incentive to spend resources in properly maintaining common facilities in older buildings. This cannot be the underlying purpose of the scheme under Cap 545. The Tribunal should find a way to redress such unfairness under the statutory framework.”

81.  In Able Luck Development Limited & Others v Public Global Investments Limited & Others, LDCS 7000/2014 (unreported, dated 6 October 2017), the Tribunal had already ruled that similar reliance on the requirement for the MBIS projects to support the argument that patch repair is sufficient or certain repair works are not necessary in order to satisfy safety requirement of the Buildings Department is unjustified.  The repair standard of MBIS developed from the Buildings Ordinance and Regulations is only concerned with safety and hygienic aspects of buildings and its scope of work is rather limited and the owners are only required to repair to the standard applicable at the time when the building was built[33]. 

82.  The Tribunal agreed with the findings in Intelligent House Ltd v Chan Tung Shing & Others [2008] 4 HKC 421 that for redevelopment under the Ordinance, the Tribunal is entitled to “look at repairs which would render the building to a tenantable condition fit for the enjoyment of its tenants and visitors, which is reasonable in the present day circumstances for the type of building in question” (at §182).  Such a consideration is apparently not canvassed by MBIS which only aimed at restoring safety to the buildings. 

83.  In short, the standard under the Mandatory Inspection regimes concern the safety and health of the buildings.  No consideration is given to the question of redevelopment.  It is a lower standard when compare with the tenantable condition.

84.  More recently, in Success Active Limited v Harbourview international Holdings Limited & Others, LDCS 31000/2018 (unreported, 19 April 2021), the experts on behalf of the respondents in that case also claimed that the buildings at 472-478 Chatham Road North were not suffering from physical and functional obsolescence on the basis of the prevailing state of repair and building conditions. They also added that the buildings were not dilapidated as there was no outstanding MBIS order for both Nos 476-478 Chatham Road North although the building at 474 Chatham Road North was subject to both MBIS and Mandatory Window Inspection Scheme notices issued by the Buildings Department on 18 September 2019. To conclude, the experts emphasized that the buildings were safe, not dangerous or imminently dangerous by reference to the Operation Building Bright and MBIS.

85.  Then the Tribunal remarked[34] that if the intent of the Ordinance is to permit redevelopment only when the age or state of repair renders the building a serious threat to public and residents’ safety, there is no reason why the particular section(s) was not worded to reflect the same. The Tribunal did not agree that the buildings have to become dangerous before an order for sale can be made. Such is not consistent with the wording and intention of section 4(2)(a)(i) of the Ordinance where the statutory requirement is whether “redevelopment is justified owing to age or state of repair of the existing development”.

86.  The applicant called Mr Wong to give evidence but he was not cross-examined.

87.  In his closing submission, Mr But submitted that his purpose of referring to the MBIS/MWIS regime was in effect to point out the inherent unfairness of the compensation regime by offering nothing to compensate owners who genuinely spent resources to upgrade and maintain the common parts or facilities of the building out of good faith to prolong its lifespan. With respect, Mr But just fell into the same trap of the respondents in Success Active Limited.

88.  According to the preamble of the Ordinance, this is:

“An Ordinance to enable persons who own a specified majority of the undivided shares in a lot to make an application to the Tribunal for an order for the sale of all of the undivided shares in the lot for the purposes of the redevelopment of the lot; to enable the Tribunal to make such an order if specified criteria are met; and for matters incidental thereto or connected therewith.” (underline added)

89.  More particularly, as the then Chairman of the Land Development Corporation (“LDC”), the predecessor of the Urban Renewal Authority (“URA”) put it in the Bills Committee Meeting on the Bill (which later became the Ordinance) on 19 February 1998, the objective of the Bill was to expedite urban renewal. “He related to members the many obstacles experienced by LDC over the past ten years in undertaking redevelopment projects including title problems, resistance from individual owners, rehousing problem and costs of compensation. The difficulties in settling disputes over valuation which was subjective to a certain extent warranted particular attention. … LDC projects aimed at achieving comprehensive development, whereas the Bill was intended to facilitate ad hoc redevelopment of smaller lots…”[35]   This purpose of the Ordinance is recently echoed by the Court of Appeal in Pacific Base Holdings Limited & Others v Lee Hop Biu & Others, CACV 426/2020 (unreported, dated 31 May 2021) at §36:

“… and given the public interest in the facilitation of urban renewal and the interest of the majority owners in the realization of the redevelopment potential of their proprietary interests in the lot, it is plain to us that the scheme under the LCSRO serves legitimate aims.”

90.  Indeed, there has not been any evidence that the many properties identified by the URA for redevelopment had the age or state of repair rendering a serious threat to public and residents’ safety.

91.  In such regard, Mr But also referred to Wah Ha, supra where none of the respondents in that case adduced building expert evidence to rebut the reports complied by the same Mr Wong and So in the present case but the internal condition of all flats in the Development was described by the valuation experts as either good or very good. The Tribunal had reservation about Mr Wong’s conclusion that the Development was in a poor state of repair.  “The Development obviously is not of the type and condition that should be accorded with redevelopment priority.”[36]

92.  The Tribunal then observed further as follows at §§93-94 of the judgment and was not satisfied that redevelopment of the Development is justified on the ground of its age or state of repair.:

“93.     It is not in dispute that the Development, consists of low-rise buildings, was erected more than 72 years ago. As compared with modern buildings, its design may be to a certain degree dated in certain aspects.  That notwithstanding, we observe no major safety or any hygienic issue in the Development and there is no convincing evidence which may suggest that a reasonable living standard cannot be achieved without significant alteration or renovation work being undertaken thereto.  It is clear that the Development is not in a poor physical state nor is it so obsolete, physically or functionally, that justifies a complete pull-down and immediate redevelopment. As the Development was renovated some 30 years ago, we take the view that regardless the length of its design life, with adequate repair and maintenance it can likely stand well and continue to serve its function for some days in the years to come.  In fact, it is also not the conclusion of the building experts that there is any immediate danger or great safety concerns which warrants demolition of the Development at this stage. Realistically speaking, such reasonably-maintained apartments in low-density environment particularly in the luxury residential district, like the Peak, are still in demand irrespective of their age.

94. The enactment of the Ordinance in 1998 was one of the long term measures introduced by the government to increase the speed and scale of urban renewal. The major objectives of urban renewal are to improve the urban environment and urban layout by replacing old and run-down areas with new development to be served by adequate transport, infrastructure and community facilities and to achieve better utilisation of land in the urban area by thinning out population from over-crowded areas. The present scheme of enabling majority owners to compulsorily dispose of the whole lot(s) despite objections by the minority owners necessarily comes with the disadvantage of undermining private property right of individuals to a certain degree. Such undermining of right, in our view, is unwarranted unless the building or the development concerned is of such a condition or in such a circumstance that genuinely merits redevelopment, hence fulfilling the criteria laid down by the statute.”

93.  In contrast, the Building in the present case has no lift although it comprises 8 storeys. Despite it has two common staircases, the rear staircase leading to the scavenging lane at the back of the Building has become inaccessible as its exit has been obstructed by the stocks belonging to the occupier of R2. This demonstrates poor management of the Building.

94.  In addition, I agree with Mr Wong, for instance, that “(t)he two required staircases exits from the corridors are just 2.4 metres apart which is much closer than the minimum separation of 6 meters” and other deficiencies in the fire escape arrangements. In Success Active, supra, the Tribunal in particular raised its fire hazard concern by reference to a tragic fire accident which broke out on 15 November 2020[37]. I likewise have the same concern.

95.  Also unlike Wah Ha where the internal condition of all flats in the Development was described by the valuation experts as either good or very good, Mr Cheng had this comments in his Rebuttal Report dated 11 January 2021 before Mr Lai revised his grading of some of the units in the Joint Statement dated 9 February 2021:[38]

“Mr Lai inspected the interior of 30 domestic units of the Property in September and October 2020. He gave 5 different grades from Very Good, Good, Fair, Poor and Very Poor to the inspected units. Mr Lai graded Very Good to 2 units, Fair to 14 units, Poor to 10 units, Very Poor to 4 units. No Good grade is given to the premises.”

96.  By and large, I am of the view that the Building is suffering from physical and functional obsolescence. Further maintenance or repair is just a compromise of the prevailing standards. I agree with Mr Wong that demolition of the existing dilapidated buildings for redevelopment is not only economically more viable but will also improve both the safety and living standard of the new occupants. In contrast to Mr But’s suggestion, there cannot be any “inherent unfairness of the compensation” when the redevelopment potential of the Lots is realized: when compensation is determined on the basis of redevelopment of a lot to its highest and best use, the owner is not also entitled to compensation on its existing use and improvements, if any. This principle, known as the rule in Horn v Sunderland Corporation [1941] 2 KB 26, [1941] 1 All ER 480 (CA) was first enunciated and applied by the Court of the English Court of Appeal, which has been then followed by other common law jurisdictions.

97.  In City of Saskatoon v Smith-Roles Ltd (1978) 15 LCR 104, 86 DLR (3^rd) 321, [1978] 2 SCR 1121, 5 WWR 79, for instance, the expropriated property comprised a successful foundry business which had been located in the centre of the city for 50 years. The majority of the Supreme Court of Canada held that the owner was only entitled to compensation based on the market value for redevelopment; no additional compensation or regard was given to the value of the existing building or for relocation costs and any other items comprising special value to the owner.

98.  If Mr But’s submission be accepted otherwise, it would discourage owners of old buildings to spend anything to maintain and upkeep the existing buildings to their safety standard, threatening the lives of the occupants and the public. It is also absurd that once the owners of a building have spent money to comply with the MBIS/MWIS notices, no order for sale under the Ordinance should be granted.

99.  Having considered the evidence before the Tribunal, on the basis of a holistic approach, 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

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

101.  As mentioned in the witness statement of Mr Ng Norman Tang Fai, the applicant had, based on the assessments by Cushman, made the following offers, through its solicitors Messrs So, Lung and Associates to each of the respondents:

102.  Obviously, these offers were higher than the EUV as determined by me at §72 above. They also rebut Mr But’s assertion that there is any inherent unfairness of the compensation regime by offering nothing to compensate owners who genuinely spent resources to upgrade and maintain the common parts or facilities of the building out of good faith to prolong its lifespan.

103.  The Court of Final Appeal in Capital Well Ltd v Bond Star Development Ltd (2005) 8 HKCFAR 578, [2005] 4 HKLRD 363 (“Capital Well”) emphasized at §33 that:

“In making that assessment (whether an offer is reasonable) the Tribunal is not conducting a valuation exercise. It does not need to adjudicate upon any disputes about the correct valuation principles to be applied. It does not itself arrive at any conclusion as to what figure represents the correct valuation. It merely needs to be satisfied that, on the evidence available, the offer falls within the range of what may broadly be regarded as fair and reasonable compensation for the interest in question.”[39]

104.  On the other hand, in Intelligent House Ltd, supra,where the majority owner relied on its valuation expert to formulate some of the offers, the Tribunal ruled at §334(3) that:

“… it is not disputed that Savills is a reputable firm of valuers. In our view, it is also reasonable for Intelligent House to rely on Savills’ expert opinion to formulate the purchase prices offered to the minority owners. There is also no reason for us to believe, nor is there such evidence to suggest, that the advices from Savills were not properly made based on professional valuation of the EUV and RDV of the minority owners’ units.”

105.  I do consider Cushman a reputable firm of valuers. On the evidence available, I am satisfied that the applicant has taken reasonable steps to acquire all the undivided shares in the Lots including negotiating for the purchase of such of those shares as are owned by R1 to R7 on terms that are fair and reasonable.

Disputes on the estimation of the RDV of the Lot

Hypothetical Development Model

106.  Both Mr Cheng and Mr Lai agreed to resort to the residual valuation method in determining the RDV. This can be done by deducting 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.

107.  Based on an agreed developable site area of the Lots at 279.20 sq m (which is relatively small), both valuation experts agreed there could be built thereon a hypothetical 27-storey residential/commercial composite development with 3 retail shops on G/F, plant rooms on 1/F, club house or recreational facilities on 2/F and two domestic flats on each of the upper floors.[40]

108.  One major disagreement between the two experts is whether one or two lifts should be provided. As a result, this led to the differences in saleable areas to be accommodated, especially for the domestic floors which, because of the Building (Planning) Regulations, are restricted to a coverage of 37.5% (for a Class B site), ie 279.2 sq m x 37.5% = 104.7 sq m[41]:

109.  The disadvantage of 2 lifts is that it will take up more common area, causing in turn a reduction in saleable area. It is more expensive to construct 2 lifts than 1 lift. Management fees payable by the residents will also be higher.

110.  On the other hand, the advantage of 2 lifts is that the residents can access their flats more efficiently, and it will be easier to work around repair and maintenance issues, ie when one lift is under repair or out of service due to maintenance or refuse collection, there can still be another lift in use.

111.  In view of the above, I agree that it is reasonable to assume that the hypothetical development will have just 1 lift. That said, however, occupiers of a high-rise building just being served by 1 lift will suffer from inconvenience occasioned by the daily refuse disposal, removal of furniture, periodic maintenance of lift, not to mention accidental disorder of the one and single lift.

112.  In Gainfield Investment Limited & Others v Legend Time Limited, LDCS 16000/2014 (unreported, dated 17 October 2016), an expert had suggested there should be an adjustment of 2%. In that case, pre-sale transactions in two developments known as The Paseo and AVA 62 were adopted as comparables. While time passes, sales of units in these two development may not be subject to the marketing tactics, bargaining powers of the developers which are sometimes difficult to adjust. Mr Cheng and Mr Lai were therefore requested to check if such an allowance of 2% is justified. Unfortunately, only one recent transaction in The Paseo was located and three recent transactions in AVA 62 all of Flats C on much lower floors were found:

113.  Notwithstanding the above, the proposed analysis and adjustments by Mr Cheng are shown in the table below (whereas those by Mr Lai are shown in parenthesis if they are different):[42]

114.  The two experts agreed there should be no adjustment on location. However, I am surprised when Mr Cheng proposed an adjustment for environment. During cross-examination, Mr Cheng conceded that his adjustments for environment meant in effect adjustment for lighting & ventilation as the comparables in AVA 62 all lie on the low floors and facing one direction over Shanghai Street. I consider this acceptable when Flat A, 22/F, The Paseo, lying not only on high floors, enjoy distant views both over the buildings to the east and to the west[43]. I do not consider there being any double counting when the experts have a separate adjustment for view. Thus, based on the evidence available which is though not conclusive, I consider the adjustment for lift at 2% not unreasonable for buildings served by 1 lift only.

115.  That said, the 1 lift versus 2 lifts comparison will only be meaningful if it is made between the hypothetical development and a comparable development with similar population. I notice that Mr Cheng and Mr Lai relied on sales in 5 developments as comparables which comprise the following lift services on each floor:[44]

116.  In Gainfield Investment, supra, the Tribunal remarked at §200 that “… if the hypothetical development has only 2 lifts serving the upper floors each would have 10 units, that would be relatively less attractive.” Following the same, I consider there should be no adjustment for lift services for One Artlane and Two Artlane.

117.  Mr Cheng and Mr Lai relied on the following comparables:[45]

Two Artlane at No 1 Chung Ching Street (Date of Completion: 2021)

*  Unlike Mr Cheng, I find no compelling reason to exclude this comparable which was transacted only in April this year. That it is designed as a 2-bedroom unit instead of a 1-bedroom unit is not so important so long as its saleable area is within close range of the hypothetical reference unit of 34.05 sq m.

One Artlane at No 8 Chung Ching Street (Date of Completion: 2019)

No 63 Pokfulam Road (Date of Completion: 2020)

*  Unlike Mr Cheng, I find no compelling reason to exclude these two comparables which were transacted only in April this year. Their saleable areas are within close range of the hypothetical reference unit of 34.05 sq m.

No 15 Western Street (Date of Completion: 2021)

Novum West, 460 Queen’s Road West (Date of Completion: 2019)

118.  Having decided that Mr Lai’s one lift provision should be preferred, I adopt the reference domestic unit of the hypothetical development as 34.05 sq m (inclusive of balcony and utility platform) on 15/F (and size of the penthouse unit on 26/F at 63.17 sq m as well as the unit on 3/F at 42.57 sq m each) as proposed by Mr Lai. Then comes the disagreement between the two experts on the headroom for the domestic units: Mr Cheng proposed 3.2 metres while Mr Lai proposed 3.5 metre on the ground that higher headroom would be favoured by home buyers[46]. While the assertion of Mr Lai may be true, most of the comparables adopted by them have headrooms around 3.2 metres. More importantly, by looking at the comparables above, units in Two Artlane, which have higher headrooms of 3.5 metres, do not appear to enjoy a significant increase in unit price when compared with the other units, particularly those in One Artlane which are built by the same developer.

119.  It is also important to note that for Two Artlane, for instance, because of its higher headroom, more steps or staircase landing would be required, thereby increasing the common area on each floor. Bearing in mind the relatively small size of each floor, the strained design of 3.5-metre headroom is detrimental to the saleable area and does not yield the optimal design.

120.  Furthermore, to the extent that these comparables are mostly in the headroom range around 3.2 metres, I prefer to adopt such for the reference domestic unit.

121.  The further agreements/disagreements between the two experts on adjustments as set out in their Joint Statement dated 6 August 2021 are in the following:[47]

Time Adjustment

122.  While according to their Joint Statement dated 6 August 2021, the two experts seem to have agreed the time adjustments for their comparables. During trial, Mr Lai proposed an increase of 1.5% per month from May to July 2021. I regret that there is no evidence to justify such an increase.

Location Adjustment

123.  As can be seen from the table above, Mr Lai considered units of the hypothetical development would enjoy a better location in terms of living environment, accessibility and convenience to public transport facilities etc than No 15 Western Street or Novum West which may justify an adjustment of about +10% or +5% respectively.

124.  No 15 Western Street is located at a sloping terrain with busy vehicles climbing uphill (one-way traffic) towards Bonham Road in a bustling manner. As regards Novum West, though lying close to the Hong Kong University MTR exit, this development is situated next to a wet market where noise, smell and hygiene problems may be a concern. The bustling traffic along Queen’s Road West may render the living environment less pleasant.

125.  Having conducted the joint inspection on 24 August 2021, I agree with Mr Lai only to an extent of +5% for these two developments. The Lots enjoy a relatively secluded and peaceful environment save from the traffic on the flyover, within close proximity to Shek Tong Tsui Municipal Services Building where a wet market is located, through which access can be gained to Queen’s Road West where a variety of public transport is available. Of course, the Lots are also within close walking distance from the main campus of the University of Hong Kong which might attract purchasers from family of students and professors, both local and overseas.

View Adjustment

126.  As regards view adjustment which may be hard to quantify when the hypothetical development is not even developed, I am prepared to adopt an adjustment for building view of +4%.

Size Adjustments

127.  Mr Cheng stated that the consideration of a larger premises is generally larger than that of a relatively smaller premise so that the unit rate for a smaller unit is higher. While this is usually the case, I agree with Mr Lai that there is increasing demand for more spacious small units when compared with those nano units.  Conversely, there appears to be an oversupply of those nano units. This is consistent with the experts agreeing to have 2 domestic units (instead of 3 domestic units) per floor in the hypothetical development. I prefer therefore Mr Lai’s adjustment at 1% per 10 sq m difference in the present case.

Age Adjustment

128.  While both Mr Cheng and Mr Lai were content to adopt an age adjustment at 1.5% per year difference, Mr Lai intended to add an extra 5% to reflect the prospective improvement in building technology. Indeed, similar addition was proposed by Mr Lai in Kinstar Development Limited v Tse Yiu Kuen & Others, LDCS 10000/2019 (unreported, 26 July 2021) where I commented at §104 of the judgment as follows:

“At trial, Mr Lai tried to defend that by the completion of the hypothetical development on the Lots, there must be improved facilities. With respect, this is his speculation without any support of any defined plans and specifications. Indeed, when I questioned him whether such improved facilities had been factored in his calculation of the construction costs, Mr Lai replied that he had not. I deplore such inconsistent treatment.”

129.  In the present case, even if one follows the other adjustments (ie except this addition of 5%), the resultant adjusted unit prices for One Artlane are generally higher than Two Artlane which is built by the same developer but completed 2 years later.[48]

130.  I consider the above comment in Kinstar Development still applicable and Mr Lai’s proposed addition of 5% is rejected.

Facilities Adjustments

131.  Mr Lai considered his adjustment of -2% more appropriate than Mr Cheng’s -3% for the provision of facilities in 63 Pofulam Road or Novum West. In view of the limited facilities and carparking spaces that are to be provided within these two developments, I agree with Mr Lai.

Orientation Adjustments

132.  I consider the adjustments proposed by Mr Cheng for the adjustments for orientation not unreasonable.

133.  Having resolved the differences in opinion on the various adjustments above, I set out hereunder the analysis of the various comparables:

Two Artlane at No 1 Chung Ching Street (Date of Completion: 2021)

One Artlane at No 8 Chung Ching Street (Date of Completion: 2019)

No 63 Pokfulam Road (Date of Completion: 2020)

*inclusive of adjustment for lift services -2%

No 15 Western Street (Date of Completion: 2021)

Novum West, 460 Queen’s Road West (Date of Completion: 2019)

*inclusive of adjustment for lift services -2%

134.  Based on the above analysis, the adjusted unit rate ranges from $310,704 per sq m to $350,884 per sq m or an average of $329,597 per sq m. Mr Lai intimated that a tragic accident happened on 10 July 2020 when a lady fell from a high floor of Novum West onto the podium beside the communal swimming pool[49]. Mr Lai opined that would affect the marketability of the flats in the development for a period of time.

135.  Should the transactions from Novum West be disregarded, the average becomes $337,693 per sq m. I determine the unit rate for the reference domestic unit at $335,000 per sq m. As a result, with the various adjustments mostly agreed by Mr Cheng and Mr Lai, the assessment of the GDV for the domestic portion of the hypothetical development is as follows:[50]

Flat A

Flat B

GDV for G/F

136.  Mr Cheng and Mr Lai also agreed a reference new retail unit on G/F of the hypothetical development having a saleable area of 67.23 sq m with a frontage of 6.33 metres abutting Po Tuck Street, a depth of 10.62 metres and a headroom of 5 metres.

137.  Save for the first comparable below, they could not agree on the comparables to be adopted: Mr Cheng proposed the following four while Mr Lai proposed the last three:

138.  Again, Mr Cheng and Mr Lai have the following agreements/disagreements on the adjustments to the comparables they adopted:[51]

Choice of G/F Comparables and Location Adjustment

139.  Comparables V1 is the only common comparable between the two experts. The only criticism raised by Mr Lai was that this comparable is setback from the pavement. I agree with Mr Cheng that there are chairs outside the café being operated at this comparable which can offset this disadvantage.

140.  As said in §125 above, the Lots are situated at a relatively secluded and peaceful area. With the redevelopment of the Lots which lie at the forefront of Po Tuck Street at its corner with Hill Road, I agree with Mr Lai that the general environment will be improved. Upon cross-examination, Mr Cheng conceded that purchasers of the new units worth more than $10 million each would generally be the higher income group (otherwise they could not have afforded the purchase upfront or the mortgage). This too would improve the retail potential of the shops. I accept Mr Lai’s proposed adjustment of +15%.

141.  Comparable V2 concerns the same unit as comparable E4 which was then resold in early 2021 at a lesser amount of $9,800,000 instead of the consideration of $11,720,000. In the assessment of the EUV, I have made a location adjustment of +25%. Now, because of the prospective improvement in retail potential as stated in the paragraph above, I make an adjustment of +35%.

142.  Comparable V3 is the same as comparable E1 in the assessment of the EUV for shops. While the transaction is dated, limited adjustment would be required for the location which I consider +10% being appropriate.

143.  Comparable V4 is the same as comparable E2 in the assessment of the EUV for shops. Because of its location being at the end of Po Tuck Street, I consider +30% being appropriate.

144.  On the other hand, Mr Lai’s three comparables are all situated far away and at locations which are substantially different from the subject (which, as said, is a relatively secluded and peaceful area). I consider the modest adjustments proposed by Mr Lai of mere -10% grossly inadequate to reflect the location and character difference. The tramway is immediately in front of Comparable V5; Comparable V6, for instance, is occupied by a popular wholesaler of Japanese food products and lies in close proximity to Sai Ying Pun market and obliquely opposite a supermarket.

145.  All Mr Lai’s comparables are traversed by a variety of public transport. Comparable V7 is even situated opposite a bus stop.

Layout

146.  I agree with Mr Lai that the layout of the comparables are somewhat less than regular. Comparable V1, though rectangular in shape, comprises two floors ie inclusive of cockloft; it also has a low frontage to depth ratio of 3.6: 13.8. Comparable V2 becomes narrower some 5.5 metres from the shop front.

147.  But I do not agree that any adjustment for the return area at the rear of comparable V3 would be required. This is consistent with the nil adjustment for layout in their EUV assessment.

Time Adjustment

148.  Again, Mr Lai proposed an increase of 1.5% per month from May to July 2021. The RVD Retail Index updated to August 2021 is also available by the time of trial[52]. Bearing in mind the improved retail market environment since the Government announced details of the consumption voucher scheme on 18 June 2021, I agree with Mr Lai’s proposal.

149.  Hence, my assessment of the GDV of the reference new retail unit is as follows:[53]

150.  Although the average of the adjusted unit rate is $270,273 per sq m, I would place more emphasis on comparables V1 and V3 because these comparabes lie on the same street and require minimum adjustments. I determine the GDV at a unit rate of $300,000 per sq m.

151.  Thus, the total GDV for the three retail shops for the hypothetical development is as follows:[54]

152.  The two valuation experts have the following agreements or disagreements on other development parameters in the residual valuation: [55]

Marketing Cost

153.  Mr Cheng considered for such a small project, the amount of marketing costs including agency fees, legal costs, advertising and promotional outlays etc would constitute a higher percentage of the GDV. On the other hand, Mr Lai regarded such a small development of only 47 domestic units not requiring as much marketing costs for a large development project such as establishment of a sales office, show flats or advertising campaign across Hong Kong.

154.  In view of the relative good location of the Lots and the recent sales boom, I accept Mr Lai’s 3% marketing costs.

Construction Cost

155.  Both Mr Cheng and Mr Lai adopted an average cost of $30,300 per sq m based on the Building Cost Data provided by Rider Levett Bucknall Limited (which is also acronymed RLB), a popular construction cost consultancy company. However, they differed on the development scale adjustment under the Development Cost Pro-forma recently promulgated by the Hong Kong Institute of Surveyors which specifies that if the total GFA˂5,000 sq m, add 20%-30%: Mr Cheng suggested 25% while Mr Lai suggested 20% in respect of small size of the Lots in the region of 279.20 sq m. 

156.  With respect, the RLB classification of development scale is based on the total area of GFA rather than the site area. In the present case, the Lots together constitute a Class B site which would be entitled to a higher plot ratio under the Building (Planning) Regulation.

157.  I agree with Mr Cheng that it appears more appropriate to adopt 25% in light of the proposed GFA of 2,593.50 sq m.

Interest Rate

158.  Mr Cheng and Mr Lai also differed on the interest rate applicable to discount the development value. Mr Cheng adopted 4% but Mr Lai adopted 3.5% having regard to the prevailing low-interest rates environment and also to Kinstar Development Limited v Tse Yiu Kuen & Others, LDCS 8000/2019 (unreported, dated 26 July 2021) in which the interest rate of 3.5% was agreed by the valuation experts (which included Mr Lai himself).

159.  Mr Cheng explained that according to HSBC’s current Hong Kong Dollar Best Lending Rate in the past few years, ie from 10 November 2008 onwards, the rates fluctuated between 5.0% to 5.125%. Taking into account the total development period in the present case of about 2.625 years, Mr Cheng considered 4% appropriate to reflect the borrowing cost that can be realized in the financial market.

160.  With respect, Mr Cheng’s referral to the best lending rates since 2008 may be misleading because borrowers nowadays pay more attention to the Hong Kong Interbank Offered Rate (HIBOR) as at any date say for the interest period of 1 month for Hong Kong Dollars quoted by The Hongkong and Shanghai Banking Corporation Limited.  Mr Li’s referral to Cheer Capital Limited v Unibase Investment Limited & Others, LDCS 5000 & 6000/2013 (unreported, dated 12 June 2015) is of no assistance because in that case, both valuation experts agreed an interest rate of 5% per annum on the basis of the best lending rate being offered by, for instance, HSBC. Mr Li’s further referral to On Grand Investment Limited v Sparkway Limited & Others, LDCS 19000/2018 (unreported, dated 11 September 2020) is also of little assistance as the Tribunal pointed out at §56 of the judgment that the interest rates in general had been dropping.

161.  On the other hand, since January 2021, the HIBOR has fluctuated between 0.16% at the highest to 0.04% or 0.06% prevailing. In the most recent compulsory sale case, Kinstar Development Limited, supra, both valuation experts agreed to adopt 3.5% as the interest rate or financing costs. It also concerned a small Class B site of 297.86 m².  I agree with Mr Lai to adopt 3.5% as the interest or financing costs.

162.  Mr Li referred to Mr Lai’s admission that finance cost is to a large extent determined by the relationship between the developer and the financial institute. Mr Li postulated that in view of the small size of the site and relatively small scale hypothetical development, established real estate developers who are able to obtain favourable rates from financial institutes may not be interested in the redevelopment of the Lots. Mr Li also submitted that in most compulsory sale cases, the applicants have always been the successful bidders and in the present case, there is no evidence that the applicant is a big or established developer.

163.  With respect, the latter assertion must be wrong. For a sale in public auction, there is no guarantee that who will be the successful bidder. Whether the applicant itself is a big or established developer is neither here or there.

Developer’s Profit

164.  Mr Cheng considered developer’s profit of 15% reasonable to reflect the return and risk for this small scale of development while Mr Lai referred to Joint Hope Limited v Vecent Hong Kong Trading Limited & others, LDCS 21000/2019 (unreported, dated 9 July 2021) where the Tribunal adopted a developer’s profit of 12% on the ground of improved domestic property market condition. The developable site area in that case was 894.65 sq m (which is over 3 times as large as the Lots at 279.20 sq m) while the proposed gross floor area (“GFA”) was about 7,548.61 sq m (which is some 5 times that of the hypothetical development of about 2,593.5 sq m).

165.  There was another case, Kinstar Development Limited, supra, where the Tribunal determined the land value by way of the residual method of valuation based on a developer’s profit of 15% which was in fact agreed by the both valuation experts in that case. The developable site area in that case was 297.86 sq m (ie similar in size to the Lots) while the proposed gross floor area (“GFA”) was about 2,701.2 sq m (which is also similar in size to the hypothetical development in the present case).

166.  As stated in the Modern Methods of Valuation by Eric Shapiro, David Mackmin and Gary Sams, 12^th edition, 2019 at p222:

“Target levels of profit will depend on the nature of the development and allied risks, the competition for development schemes in the market, the period of the development and the general optimism in relation to that form of development and so it is not possible to lay down firm limits of required profit levels. The profit is usually related to the costs involved, but sometimes to the development value….”

167.  In general, residential units on the Hong Kong side are more popular particularly when compared with those in Tai Kok Tsui where the site in Kinstar Development Limited was situated. More particularly, the Lots enjoy a relatively secluded and peaceful environment. They lie also within close walking distance from the main campus of the University of Hong Kong which might attract purchasers from family of students and professors, both local and overseas.

168.  It was also pointed out during the trial that the Lots fall within the MTR protected zone and consent to commence works has to be sought from MTR. However, no evidence has been adduced to support any difficulty in obtaining consent from MTR.

169.  Having reviewed the above, I am prepared to adopt 12.5% as the developer’s profit.

Finding on RDV

170.  Subject to what I have said above, I shall follow Mr Lai’s residual valuation model as contained in his revision which is reproduced at Appendix IV to this judgment. I arrive at a land value of the Lots at $373,820,000 (ie an accommodation value of $144,137/m²).

Cross-check by Site Transactions

171.  It is trite that in the valuation of land or other properties, where reliable comparables are available, a valuation based thereon is the best way of arriving at the correct value of the land or other properties.

172.  Mr Cheng relied on a single site transaction for cross-checking purpose:[56]

173.  Mr Cheng stated that the Lots and this comparable enjoy similar distance to an MTR station and therefore there should be no adjustment for location. However, as said before, the Lots enjoy a relatively secluded environment and are also within close walking distance from the main campus of the University of Hong Kong which might attract purchasers from family of students and professors, both local and overseas. This advantage is not enjoyed by this comparable and in this regard, I agree there should be an upwards adjustment as suggested by Mr Lai.

174.  I also agree with Mr Lai on the adjustment for other factors like retail potential and time. But I do not agree with Mr Lai’s adjustment for layout. Although the Lots occupy a corner location, this comparable abuts two streets, one on Davies Street in the front and the other on Kwan Yick Street in the rear. More importantly, this comparable has a site area some 9 times as that of the Lots at 279.20 sq m which allows much flexibility in design.

175.  In such event, the accommodation value adjusted would have become $145,500 per sq m.

176.  In light of the above, I am prepared to increase the reserve price of the Lots to $377,000,000 (which is equivalent to $145,363/m²).

Other Incidental Matters

177.  The applicant proposed to appoint Mr Norman Chui and Mr Stephen Lau, both being partners of Messrs Chui & Lau, Solicitors & Notaries and Agents for Trade Marks & Patents, as the sale trustees.  Based on the information on their background and experience as set out in their letter dated 17 August 2021[57], I am satisfied that they are proper persons to be appointed as trustees to discharge the duties imposed on trustees under the Ordinance.  The remuneration package proposed in the said letter appears reasonable.

178.  The applicant has prepared a set of draft Particulars and Conditions of Sale of the Lots[58].  Subject to any amendment that may become necessary as a result of our ruling on the arrangement of auction above, the particulars and conditions of sale of the Lots by public auction submitted by the applicant are also reasonable.

Order

179.  This Tribunal make the following orders:

(1)     This Tribunal is satisfied that the redevelopment of the Lots 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 Lots including those of the 1^st, 2^nd, 3^rd, 4^th, 5^th, 6^th & 7^th respondents;

(2)     All the undivided shares in the Lots, the subject of the Application herein, be sold by way of a public auction 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)     Mr Norman Chui and Mr Stephen Lau of Messrs Chui & Lau, Solicitors & Notaries and Agents for Trade Marks & Patents, nominated by the applicant, be appointed trustees (“the Trustees”) to discharge the duties imposed on trustees under the Ordinance in relation to sale of the Lots and the Trustees be authorized to charge such remuneration for their services in accordance with the terms set out in the letter of Messrs Chui & Lau, Solicitors & Notaries and Agents for Trade Marks & Patents, dated 17 August 2021.

(4)     For the purpose of the sale of the Lots by public auction under section 5(1)(a) of the Ordinance:

(i)     The sale of the Lots 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 $377,000,000.

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

(iv)     Liberty to the applicant, the 1^st, 2^nd,3^rd, 4^th, 5^th, 6^th & 7^th respondents and the Trustees to apply to the Tribunal for further direction(s) under the Ordinance.

Costs

180.  In accordance with the compensation approach as determined by the Court of Appeal in Good Faith Properties Ltd and Others v Cibean Development Co Ltd [2014] 5 HKLRD 534, the respondents are entitled to costs notwithstanding the outcome of the Application. The principles that evince from this case can broadly be summed up as follows:

(a)     A successful claimant, i.e. a claimant who is awarded more than the amount of an unconditional offer by the acquiring parties, should be entitled to his costs incurred in the proceedings in the absence of “special reason” to the contrary;

(b)     Whether there is any “special reason” is a judgment of the tribunal;

(c)     Wasted, or unnecessary costs incurred because of conduct of the claimant such as abandoned issues, unnecessary adjournments, failure to comply with directions, etc may qualify as “special reasons”;

(d)     “Special reasons” should only be regarded as established where the item of costs or issue raised was such that it could not on any sensible basis be regarded as part of the reasonable and necessary expenses of determining the amount of disputed compensation;

(e)     Exaggeration alone is not enough in the event of a large disparity between the sum claimed and the sum awarded. The matters to which the tribunal should have regard are:

(i)      The reasons for that disparity;

(ii)     Their effect on the conduct of the claim.

(f)      For (i), if the reasons are defensible, in the sense that there was a legitimate, albeit unsuccessful, argument put forward in support of a figure, that does not justify a sanction in costs;

(g)     For (ii), if, in any event, the effect on the proceedings in terms of time spent and costs incurred in disposing of the issue or argument concerned is relatively insignificant, adverse order is unlikely;

(h)     If exaggerated claim is based on valuation opinion, it will rarely be appropriate to make an adverse order against the successful claimant because valuation is an inexact science;

(i)      If the exaggeration is due to choice of comparables because there is no close or obvious comparables available, there is bound to be legitimate room for argument and difference of opinion. That should not ordinarily invite a penalty in costs on grounds that its assertion or resultant discussion has taken up the time of the tribunal unnecessarily;

(j)      That, however, does not lead to the conclusion that the claimant’s conduct in exaggerating his claim can be of no relevance;

(k)     Disallowance of a proportion of the claimant’s costs will usually only be justified where the tribunal is satisfied that:

(i)      No competent valuer could reasonably have regarded the comparable as of real relevance or assistance in the valuation exercise;

(ii)     As a result of its introduction and discussion, a significant amount of the tribunal’s time has been wasted and the proceedings unduly prolonged;

(iii)    No equivalent or near equivalent proportion of proceedings has been spent dealing with issues unreasonably and unsuccessfully raised by the acquiring party;

(iv)    The amount or proportion of the costs disallowed is proportionate to the time wasted.

(l)      Costs sanction can be imposed in plain cases where the rejection of an offer or pursuit of a line of opposition is obviously unreasonable, e.g. the exaggeration was the product of the claimant’s reliance on expert evidence which should have been recognized as unreliable; and that the decision to rely on that evidence had led to the waste of substantial time and expense. The sanction can range from depriving the claimant of costs and even asking it to bear the applicant’s costs in a serious case for those hopeless challenges;

(m)    If experts engaged by both sides have adopted polarized positions and there have been lack of realistic offer and/or counter-offer, it may be appropriate to order each party to bear his own costs.

181.  In the present case, Mr Li however proposed that R1 and R2-4 should only be entitled to 50% of their costs while R5-7 should be entitled to 30% of their costs.

182.  Mr Li submitted that there is no justification for the respondents to be represented by five solicitor firms and 4 separate counsel (with R2-4 being represented by 2 counsel) when the major dispute in the present case was on valuation on which the respondents rely on one single joint expert. Although there might not be serious duplication of questions being asked at trial, the position remains that there are 3 sets of opening submission and 3 sets of closing submissions by the respondents which run highly similar arguments. Mr Li submitted there cannot be any valid reason why the respondents cannot engage one single firm of solicitors or indeed one set of counsel.

183.  Mr Li referred to Oriental Generation Limited & Others v Ngo Kui Sing & Others, LDCS 4000/2013 (unreported, dated 31 October 2016) where the 5 respondents in question engaged multiple legal teams and made orchestrated moves and relied on the valuation evidence adduced by one of them. The Tribunal found that they were related parties or were fully involved in each and every step taken in the proceedings. The Tribunal ruled that the respondents are not entitled to each engage a firm of solicitors as of right, and adopted a discount on costs awarded to the respondents to reflect the Tribunal’s dissatisfaction of escalation of costs by multiple representation and conduct of the respondents.

184.  Mr Li further submitted that in the present case, further costs should be knocked off from those of the R5-7 as they had in disregard of all the procedure of litigation just raised new points on the applicant’s entitlement to commence the Application, bad points about the age and state of repair and purportedly adducing new materials in the closing submission, like PNAP APP-89[59] as regards exemption for improvement in lift provisions and making reference to alleged new developments which the experts did not mention at all.

185.  Firstly, on the basis of the reserve price of the Lots set at $377,000,000, there are no “unsuccessful claimants” as in the Oriental Generation Limited case:

Respondent	Units	Latest Offer by Applicant	Pro-rata Share of RDV[60]
R1	Shop D ,G/F	$20,200,000	$24,355,331
R2	Shop C, G/F	$15,500,000	$19,193,447
R3	Shop B, G/F	$18,300,000	$20,889,193
R4	Shop A, G/F	$16,000,000	$18,062,447
R5	Flat E, 5/F	$8,500,000	$11,275,693
R6	Flat D, 6/F	$6,350,000	$8,431,982
R7	Flat C, 5/F	$7,750,000	$10,033,478

186.  Secondly, each of the respondents in the present case is entitled to be represented by one team of lawyers because for instance, R1 to R4 are owners of the ground floor shops whereas R5-7 are owners of the residential flats above. As can be seen from their pro-rata share of RDV above, these two groups of respondents have interest in their share of compensation in conflict with the other; if one group gets substantially more, the other group would get substantially less. Also, R1’s pro-rata share of RDV is significantly different from those of R2’s, R3’s or R4’s because R1 owns the corner shop, Shop D. Their own team of lawyers is entitled to challenge all aspects of the applicant’s case without any illegitimate constraint. There cannot be any “orchestrated moves” as suggested by Mr Li and I do not see the respondents in the present case as “related parties” in the sense in Oriental Generation Limited, supra.

187.  Regarding the “new issues” raised by Mr But during the opening, I sympathize with his argument that this was mainly due to the recent judgment handed down by the Tribunal in Wah Ha, supra, on 30 April 2021, which was much after the respondents filed their Notice of Opposition in late 2019.

188.  Insofar as Mr Li is content to refer to Wing Ming Garment Factory Limited v The Incorporated Owners of Wing Ming Industrial Centre, LDBM 89/2018 (unreported, dated 17 August 2018), Deputy District Judge W Y Ho (as she then was) stated at §§36-37 of the judgment as follows:

“36.  I disagree with the submission (that there should be formal pleadings in that case) on two levels. First, I disagree the proceedings are complicated. As I have stated previously, this Tribunal is only required to consider whether the complaints have been made out, and if so, whether the situation justifies a dissolution of the management committee. The Lands Tribunal frequently deals with similar allegations between owners, management committee members and incorporated owners over the non-compliance on the duties set out in the BMO and/or DMC. I fail to see any complicated issues of fact or law involved in this case which renders the Lands Tribunal an inappropriate or a “less than ideal” forum for the adjudication of such matters.

37.  Secondly, I fail to see how the Notice of Application and the Notice of Opposition as compared to formal pleadings are inadequate to set out the issues between the parties. The Notice of Application requires the Applicant to set out the facts relied on, the issues and/or questions of law to be determined, and the relief sought. The matters covered are similar to that of a statement of claim, albeit in a different format. The Applicant’s Notice of Application has been drafted with sufficient particulars so as to adequately inform the Respondent of case that is to be met. If in due course, any party is unclear about the issues involved, necessary applications could be made to the Tribunal. Alternatively, the Tribunal may give appropriate directions at the call-over hearing to clarify any ambiguity in the issues to be litigated. I do not accept the case cannot be litigated efficiently or properly in absence of “formal pleadings”.” (underline added)

189.  It was also a few days before the Pre-trial Review on 9 July 2021 that Mr But was appointed as counsel for R5-7.  If he applied for the appropriate direction or leave to deal with the issues raised in Wah Ha, such leave would likely be granted. In any event, Mr But raised his concern in his opening submission dated 17 August 2021 and Mr Li was capable of filing his Note of Reply on 20 August 2021. There was no disturbance to the trial dates which were scheduled to take place on 23 August 2021.

190.  Neither have I considered the so-called new materials in Mr But’s closing submission relevant in making my determination.

191.  In the present case, the applicant itself saw fit to appoint two counsel including one senior and one junior counsel. In contrast, R2, R3 and R4 are three independent respondents, who are represented by three separate firms of solicitor. R2, R3 and R4 were each entitled to instruct separate counsel, but ultimately chose to be represented by one counsel team including one senior junior and one junior counsel.

192.  Accordingly, I order that the applicant do pay the respondents’ costs in these proceedings on the High Court scale with certificate for one counsel for R1, two counsel for R2, R3 and R4, and one counsel for R5, R6 and R7, including any costs reserved, to be taxed if not agreed.

193.  Last but not least, the Tribunal thanks Counsel for their assistance.

Appendix I

Appendix II

Appendix III

[1] One at No 81 Peak Road comprising Flat 1 and Flat 20 and the other at No 95 Peak Road comprising Flat 17, Flat 18 and Flat 19. See Appendix I.

[2] Rural Building Lot No 299 and Rural Building Lot No 306.

[3] See §35 of the judgment.

[4] See §40 of the judgment.

[5] See the G/F plan and the Deed Poll plan which are reproduced as Appendices II and III herein at the end of the judgment.

[6] See Bundle A/56

[7] See Inspection Bundle p8.

[8] Again, this assertion by Mr But is flawed as the Flats C, D and E straddle Lot 4912RP and Lot 4913RP.

[9] See the floor plan for upper floors which is reproduced as Appendix II herein at the end of the judgment.

[10] See Bundle C2/390-391.

[11] See Bundle C2/397.

[12] See Bundle C2/398.

[13] See Bundle C2/400.

[14] See Bundle C2/401.

[15] Mr But submitted that, as we shall see in the later part of the judgment, a site comparable at a similarly faraway location at Nos 24-26A Davis Street was adopted by Mr Cheng for cross-checking the redevelopment value of the Lots and therefore, this comparable at 101 Belcher’s Street should be similarly adopted. However, as stated by the Court of Appeal in Pacific Base Holdings Limited & Others v Lee Hop Biu & Others, CACV 426/2020 (unreported, dated 31 May 2021) at §43: “… since there is no requirement on the majority owners to submit a detailed redevelopment plan at this stage, the proposed redevelopment could only be presented to the Tribunal on a conceptual level with a high degree of generality.” In contrast, in the determining the EUV of an existing unit, more attention has to be paid to the prevailing characteristics of the unit itself. In this particular case, there has been 4 other comparables in the close vicinity; there is no need to have another one which lies far away.

[16] See also C2/561 and C2/574.

[17] See Bundle C2/402-403.

[18] C2/563 & 576.

[19] See Bundle C2/369.

[20] See Bundle C2/370.

[21] See Bundle C2/370.

[22] See Bundle C2/369.

[23] See Bundle C2/370.

[24] Mr Lai has revised his grading of the units in the Joint Statement dated 9 February 2021.

[25] See Bundle C1/22.

[26] See Bundle C1/129.

[27] See §47 of the judgment.

[28] See Bundle C1/222.

[29] Bundle D4/1078-1080.

[30] See Bundle D1/76-80.

[31] Under the Mandatory Building Inspection Scheme (MBIS), the Buildings Department (BD) may serve MBIS notices to owners of buildings aged 30 years or above (except domestic buildings not exceeding 3 storeys) so that the owners or OC should appoint a Registered Inspector (RI) to carry out the prescribed inspection and supervise the prescribed repair works found necessary of the common parts, external walls and projections or signboards of the buildings.

[32] Under the Mandatory Window Inspection Scheme (MWIS), BD may serve MWIS notices to owners of buildings aged 10 years or above (except domestic buildings not exceeding 3 storeys) so that the owners should appoint a Qualified Person (QP) to carry out the prescribed inspection and supervise the prescribed repair works found necessary of all windows of the building.

[33] See §189 of the judgment.

[34] See §122 of the Judgment.

[35] See §23 of the minutes of the meeting:
https://www.legco.gov.hk/yr97-98/english/bc/bc06/minutes/bc061902.htm

[36] See §90 of the Judgment.

[37] See §130 of the judgment.

[38] See §65 above.

[39] The Court of Final Appeal stated further at §36 of the judgment that: “What the Tribunal must do is to consider whether, in the circumstances of each case, the offer falls within a band of what represents a fair and reasonable assessment of the value of the minority owner’s interest reflecting a proportionate share of the redevelopment value of the whole site.”

[40] See Bundle C2/535.

[41] Mr Cheng’s hypothetical development in fact adopted an even smaller site coverage of 34.5%.

[42] See Exhibits A3 and R1.

[43] See the floor plan of The Paseo at Exhibit R1.

[44] See Bundle C2/554.

[45] See Bundle C2/547-548

[46] See Bundle C2/545.

[47] See Bundle C2/546.

[48] See Bundle C2/581 and the analysis at §120 below.

[49] See Bundle C2/558.

[50] See Bundle C2/553.

[51] See Bundle C2/538.

[52] See Bundle C2/600.

[53] See Bundle C2/566.

[54] See Bundle C2/567 & 580.

[55] See Bundle C2/535-536.

[56] See Bundle C2/551-552.

[57] See Bundle B2/606-613.

[58] See Bundle B2/578-605.

[59] PNAP APP-89 is a public document available for download on the Buildings Department’s website.

[60] The actual amount receivable will be subject to the deduction of the expenses required to be borne by the majority owner or any minority owner of the lot pursuant to sections 10 and 11 of the Ordinance.