WINLAND PROPERTY LTD AND OTHERS v. CHANG SAI HO formerly known as LAW WAI KUN AND OTHERS

LDCS 7000/2022

[2024]HKLdT 27

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LAND COMPULSORY SALE MAIN APPLICATION NO 7000 OF 2022

_________________

_________________

_________________

J U D G M E N T

_________________

BACKGROUND

1.  This is the applicants’ application for a compulsory sale order (“the Application”) issued on 10 May 2022 under section 3 of the Land (Compulsory Sale for Redevelopment) Ordinance, Cap 545 (“the Ordinance”). The applicants seek to sell all the undivided shares of the Remaining Portion of Section C of Inland Lot No 2821 (“the Lot”) on which a 18-storey commercial building known as Kam Chung Building (“the Building”) is erected. This is a corner location so that the Building abuts two streets whose address is Nos 52-58 Jaffe Road and Nos 17-21 Fenwick Street, Hong Kong.

2.  Pursuant to an occupation permit, No H57/67 of BOO Ref: 2/3261/63, issued on 6 March 1967, occupation of the Building was permitted for the following purposes:

Ground Floor:	5 shops & 1 transformer room for non-domestic use
1st Floor:	Light Refreshment restaurant for non-domestic use
2nd to 16th Floors (inclusive):	1 office per floor for non-domestic use
Roof:	1  office for non-domestic use

3.  According to a set of building plans approved by the Building Authority on 21 September 1963, 28 December 1964, 6 July & 7 December 1966, 6 March 1967 and 7 December 1968, the 1/F, which is supposed to be occupied together with the entrance hall on G/F, is served by an exclusive staircase exiting to Fenwick Street and two common staircases. Whereas the remaining floors are served by two common staircases, the 3/F, 5/F and 7/F are served by one lift, the 2/F, 4/F, 6/F, 8/F to 16/F are served by two lifts, and the 17/F, being the roof, has no lift access.

4.  Pursuant to a Deed of Mutual Covenant vide memorial UB597969 dated 28 August 1967, various units of the Building have been assigned to the following equal and undivided shares of the Lot:

Floor	A	B	C	D	E	Entrance Hall
G/F	6/135	7/135	3/135	2/135	4/135	2/135
1/F	8/135
2/F	8/135
3/F	8/135
4/F*	Office 1: 17748/33751 of 8/135			Office 2: 16003/33751 of 8/135
5/F	8/135
6/F	8/135
7/F	8/135
8/F & Flat Roof	7/135
9/F	7/135
10/F	7/135
11/F & Flat Roof	6/135
12/F	6/135
13/F	6/135
14/F & Flat Roof	5/135
15/F & Flat Roof	4/135
16/F	4/135
17/F	1/135
Flat Roof on Portion of 17/F & Upper Flat Roof above 17/F & Western Exterior Wall	2/135

* By a memorandum of Sub-Division or Sub-Allocation of Undivided Parts vide memorial UB713753 dated 7 June 2002, the 4/F had been subdivided into Office 1 and Office 2.

5.  At the time of commencing the Application on 10 May 2022, the applicants (hereinafter collectively referred to as “the Majority Owners”), owned 117/135^th, ie 86.67% equal and undivided shares of the Lot. Whereas the remaining 18/135^th equal and undivided shares were owned by the 1^st to 3^rd respondents (hereinafter collectively referred to as “the Minority Owners” or individually referred to as “R1”, “R2” and “R3”) as follows:

Respondent	Equal and undivided shares	Unit Allotted
R1	6/135th	Shop A[1] on G/F
R2	2/135th	Shop D on G/F
R3	2/135th	Entrance Hall on G/F
	8/135th	1/F

6.  In addition, there is a claim by a Mr Chan Wing Tong (“Mr W T Chan”) against the Incorporated Owners of the Building for possessory title to a strip of land within the Lot, which is a portion of scavenging lane by the side of the Building abutting Fenwick Street, in the proceeding  HCA 1581/2017. However, the parties in the present proceedings agree that, in deciding whether an order for sale of the Lot should be made, the Tribunal is not required to take into consideration this claim by Mr W T Chan.

7.  In the present proceedings, Mr Edward Chan, SC (“Mr Edward Chan SC”) leading Ms Nancy Ngai and Verna Lui, instructed by Messrs Lo & Lo, acted on behalf of the Majority Owners while the Minority Owners were represented as follows:

Respondent	Instructing Solicitors	Counsel
R1	Messrs So, Lung and Associates	Mr Adrian But (“Mr But”)
R2	Messrs Sidney Lee & Co	Ms Julia Au (“Ms Au”)
R3	Messrs HY Leung & Co, LLP	Mr Wilfred Tsui (“Mr Tsui”)

HCA 1581/2017

8.  As stated above, HCA 1581/2017 (“the High Court Action”) is a claim by Mr W T Chan commenced against the Incorporated Owners of the Building for possessory title to a strip of land within the Lot, a portion of scavenging lane by the side of the Building. This strip of land was referred to as “the Relevant Part” in paragraph 7 of Mr W T Chan’s Re-Amended Statement of Claim filed in the High Court Action.

9.  Mr W T Chan alleged that the Relevant Part had been occupied by him and his family for use as a stall known as “Choi Kee (財記商店)” (hereinafter referred to as “the Stall”).

10.  Mr W T Chan applied to join the Majority Owners as co-defendants to the High Court Action. Pursuant to the Order made by Madam Justice B Chu dated 29 May 2023, the Majority Owners were joined as the 2^nd, 3^rd and 4^th defendants respectively in the High Court Action. The Incorporated Owners of the Building remained as the 1^st Defendant therein.

11.  Nonetheless, Mr W T Chan did not seek to join the Minority Owners herein to the High Court Action. Thus, the Minority Owners who are also co-owners of the Relevant Part were not parties to the afore-said proceedings and technically are not bound by the decision in that High Court Action.

12.  In Capital Well Ltd v Bond Star Development Ltd (2005) 8 HKCFAR 578, Ribeiro PJ on behalf of the Court of Final Appeal identified at §10 that there are four different phases in an application under the Ordinance: (i) the application for an order for compulsory sale; (ii) the determination by the Tribunal; (iii) the sale; and (iv) apportionment and application of proceeds of sale. Then in Group Leader Limited & Others v The Personal Representative of the Estate of Leung Yin Mei, Deceased [2016] 2 HKLRD 625, the Court of Appeal determined that persons who are not majority owners nor minority owners do not have any locus standi in the first two phases of an application.

13.  Under section 2 of the Ordinance, while the majority owners refer to the person or persons who has or have made an application under section 3(1) in respect of the lot, minority owners only include the person or persons who owns or own undivided shares in the lot otherwise than as a mortgagee, but is or are not the person or persons who has or have made the application. Thus when the subject matter of High Court Action has no undivided share of the Lot, Mr W T Chan is not a “minority owner” in terms of the Ordinance and has no locus in the present proceedings.

14.  At the hearing on 29 March 2023, the Majority Owners submitted that no matter whether Mr W T Chan shall win or lose in the case in the High Court, the possessory title would not affect the present proceeding one way or the other. The Tribunal then proceeded on the basis that as between the present parties in this phase of the Application the potential adjudication and outcome of the High Court Action

(a)  would and should not have any impact on the assessment of the EUV and the redevelopment value (“RDV”), and

(b)  would and should not require the joinder of Mr W T Chan as a respondent or otherwise as an interested party

The High Action Court Judgment

15.  After the hearing and closing submissions herein but before this judgment was handed down, Hon B Chu J on 15 February 2024 handed down judgment in the High Court Action (“the High Court Judgment”). Mr W T Chan succeeded in his claim for possessory title of the Relevant Part. We gave the parties notice that we had the High Court Judgment and would be handing down this judgment subject to any application by any party. The Majority Owners and R1 replied to our letter but no applications have been made by any party hereto. In the High Court Judgment Mr W T Chan, the Plaintiff is referred to as “P” and the 2^nd to 4^th Defendants, being the Majority Owners, are referred to as “MO”. The High Court Judgment includes the following:

“C.3 As between P and MOs

24. There are two agreed disputed issues namely:

(1) if P succeeds in establishing a possessory title over the Relevant Part, whether the same is only an incumbrance for the purpose of Cap 545 (Issue 11)

(2) whether an order for sale under Cap 545 has any effect on P’s possessory title (if established) (Issue 12). …

50. … MOs’ submission in those proceedings was that even if P were to succeed with his claim in this action, it would be at most an incumbrance. This was the Legal Issue to be determined and it was for determination of the Legal Issue that MOs have been joined. …

F. FACTUAL POSSESSION - ISSUES 1, 2

51. Issues 1 and 2 are as follows:

(1) Issue 1 – Is/was P and his predecessors in exclusive factual possession of the Relevant Part?

(2) Issue 2 – Whether P and his predecessors had had continuous and uninterrupted factual possession and occupation of the Relevant Part for a period of not less than 12 or 20 years before commencement of the proceedings here …

F.5 Conclusion to Issues 1 and 2

102. Having considered all the evidence, I am satisfied that P and his predecessors had been in continuous and uninterrupted exclusive factual possession of the Relevant Part from at least about early 1974, which had continued to the issue of the writ herein ie for some 43 years and thereafter had continued up and thereafter up to the time of the trial. In other words, by early 1994, P and his predecessors had had continuous and uninterrupted exclusive factual possession and occupation of the Relevant Part for 20 years.

103. I therefore find the answers to Issue 1 and Issue 2 are both “yes”. …

G.1.3. Issue 4 - animus possidendi

126. Issue 4 was whether P and his predecessors had the requisite intention to possess at the relevant period of possession. …

133. Having considered all the evidence, I am satisfied that, for Issue 4, P and his predecessors had the requisite intention to possess (animus possidendi) at the relevant period of possession, namely from early 1974 onwards to early 1994 which had continued to date.

G.1.4. Issue 5 – Possessory title

134. In light of all above said, I find P has successfully extinguished the right of the IO to the Relevant Part by this action and P has established a possessory title to the Relevant Part latest by early 1994. …

J. ISSUES 7 AND 9 - RELIEFS

218. In light of P having succeeded in his claim of possessory title over the Relevant Part, P is entitled to judgment for possessory title as against all the owners as represented by the IO, and a declaration that all the owners’ titles were extinguished upon expiration of 20 years from about early 1974, namely by about early 1994.

219. As for the non-agreed issue in relation to dimensions of the Relevant Part, … Having considered all the evidence I accept the area to be about 8.26 sq m.

220. As for IO’s counterclaim, in light of what has been said, such will be dismissed.

K. ISSUES BETWEEN P AND MOs

K.1 The disputed issues

221. The issues as between P and the MOs set out in the MOs’ Opening Submissions are: …

(3) …

(i) then if P succeeds in establishing a possessory title over the Relevant Part, whether the same is only an incumbrance for the purpose of Cap 545.

(ii) whether an order for sale under Cap 545 has any effect on P’s possessory title, if established;

(4) whether P has successfully extinguished the right of the IO to the Relevant Party by this action, and …

K.1.1. Issues (1) and (2)

222. As seen in the Joinder Decision, the Legal Issue (as defined) is whether P’s claim in this action, even if successful, is at most only an incumbrance. This is a distinct legal issue. …

224. In short, it has been argued on behalf of the MOs at the Joinder Application that it is premature to consider the Legal Issue at the trial in this action. I have said in the Joinder Decision that to avoid multiple applications, and to secure the just resolution of all the disputes in accordance with the substantive rights of the parties, the Legal Issue should be canvassed at the trial in the event of P’s claim for possessory title is to succeed. …

K.1.2. The Legal Issue

230. It is submitted on behalf of the MOs that a possessory title is, or is treated as an incumbrance under Cap 545

231. Section 11 of Cap 545 provides for application of proceeds of sale for the lot the subject of an order for sale, and it is set out in section 11 (3) that without prejudice to the operation of subsection 11(3), an “incumbrance” in relation to a lot does not include, unless otherwise specified in directions, (a) any Chinese custom or customary right affecting the Land if Part II of the New Territories Ordinance, Cap 97, applies to the lot; (b) any easements, rights of way or rights of water; or (c) any covenants which run with the lot. …

237. There are in fact no provisions in Cap 545 as to how to treat a case where possessory title has been proved.

238. It was submitted by Mr Chain that under English common law, in Hong Kong, a possessory title even though not a statutory assignment is in practical terms, subject to the government’s freehold title, the best title. The previous owner’s title being extinguished, the squatter’s title is “better” title than the whole world. There is no dispute to this. …

241. As said earlier and set out in paragraph 5 of MOs’ Closing Submissions, it is not disputed by the IO and the MOs that the Relevant Part is a common part of Kam Chung Building and the Lot and that none of the common parts of and in the Lot are allocated any undivided share. The question is then how the Lands Tribunal is to deal with a part of a lot, not within the building, where no undivided shares have been allocated thereto. Although it is not really disputed that the Lands Tribunal has exclusive jurisdiction under Cap 545, there are no provisions in Cap 545, insofar as this Court can see or which have been referred to this Court, which concern the sale of a part of lot outside a building to which no undivided shares have been allotted.

242. Having considered Cap 545, in my view, the Lands Tribunal has no power under Cap 545 to make an order for sale for a part of the lot outside a building which has not been allocated with any undivided shares. The answer to Issue (3) is thus, P’s possessory title over the Relevant Part is not only an incumbrance for the purpose of Cap 545, and in any event, any order for sale under Cap 545 has no effect on P’s possessory title over the Relevant Part. …

L. CONCLUSION

247. In light of all said above, I make the following declarations/orders:

As against the IO:

(1) A declaration that the registered owners of Kam Chung Building and the IO ceased to have any right of action to recover the Relevant Part since early 1994;

(2) A declaration that the title of the registered owners of Kam Chung Building to the Relevant Part has been extinguished since early 1994.

(3) A declaration that P has obtained a good possessory title to the Relevant Part since early 1994.

As against the MOs

(1) A declaration that in the event an order for sale is made in the LT Proceedings, such order has no effect on P’s possessory title.

248. IO’s counterclaim against P is hereby dismissed. MOs’ counterclaim against P is also dismissed.”

(bold emphasis added)

ISSUES

16.  By reference to an Agreed List of Issues, the Majority Owners and the Minority Owners agreed that, in deciding whether an Order for Sale of the Lot should be made, the Tribunal is not required to take into consideration the High Court Action. In the present proceedings, the Tribunal is required to determine the following issues (“Issues (1)-(7)"):

(1)  Whether the Majority Owners collectively owned not less than 80% of the undivided shares in the Lot on the date of Application, 10 May 2022, thereby entitling them to make the Application under section 3 of the Ordinance?

(2)  Whether redevelopment of the Lot is justified due to the age and/ or state of repair of the Building pursuant to section 4(2)(a) of the Ordinance?

(3)  What were the respective market values of the properties on the Lot as at 31 March 2022 in accordance with section 3(1)(a) of the Ordinance and Part 1 of Schedule 1 thereto (ie the “Existing Use Value” or simply “EUV” commonly referred to by the valuation profession in similar compulsory sale applications)?

(4)  Whether the Majority Owners have taken reasonable steps to acquire all the undivided shares of and in the Lot in compliance with section 4(2)(b) of the Ordinance?

(5)  What should be the reserve price for the sale of the Lot by public auction in the event that an Order for Sale of the Lot is granted?

(6)  If an Order for Sale of the Lot is made, whether it is necessary for the Tribunal to make any consequential direction(s), including but not limited to consequential direction(s) in light of the existence of the High Court Action? If the Tribunal finds it necessary to make consequential direction(s), what is/are the consequential direction(s) to be made?

(7)  Whether the Relevant Part can be (and should be) excluded from an Order for Sale to be made by the Tribunal?

17.  As confirmed by the Minority Owners in the Pre-Trial Review on 1 November 2023, they do not take issue with Issue (1). As for Issue (2), the Minority Owners were simply putting the Majority Owners to proof to the satisfaction of the Tribunal. They had not even filed any expert evidence on Issue (2). However, R1 raised an issue if the assessed RDV is lower than the EUV, whether that suggests that the building has not yet reached the end of its economic lifespan so redevelopment is still “justified” and an order for sale shall be refused under the s.4(2) discretion, and even if not, whether the test for ‘age and state of repair’ could take into account the reduced value of the land under the RDV? In closing submissions, R2 confirmed that it did not seek to throw doubt on whether redevelopment is justified. R3 also confirmed it took no issue on whether redevelopment of the Lot is justified in respect of the age and condition of the building.

18.  Nevertheless, the Majority Owners and the Minority Owners are in dispute about the EUV and the reserve price for selling the Lot (ie Issues (3) and (5)) if an Order for Sale shall be granted.

19.  The Minority Owners, R1 and R3 also take issue as to whether the Majority Owners have taken reasonable steps to acquire their respective undivided shares of the Lot (ie Issue (4)). R2 confirmed it did not seek to challenge the fairness and reasonableness of the offers previously made to the Minority Owners based on Mr Charles Chan’s assessments then made.

20.  On the other hand, the Majority Owners, R2 and R3 considered it relevant for the Tribunal to decide Issue (6). Only R1 found the issue inapplicable. However, by closing submissions, R1 also sought consequential directions from the Tribunal.

21.  By the time of trial, all parties agreed that the Relevant Part should not be excluded from an Order for Sale to be made by the Tribunal. In the High Court Action, Mr W T Chan claims that the Relevant Part should be excluded from the Order for sale of the Lot to be made. Messrs Kitty So & Tong, solicitors for Mr W T Chan in the High Court Action by letter to Messrs Lo & Lo, the Majority Owners’ solicitors in both that and the present proceedings, required his position be brought to the attention of the Tribunal in the present Application.[2]  The High Court Judgment has held that the Lands Tribunal has no power to make an order for sale for part of the lot outside a building which has not been allocated with any undivided shares and that any order for sale has no effect on Mr WT Chan’s possessory title over the relevant part.  

THE EVIDENCE

22.  The Majority Owners have filed the following documents and evidence in support of the Application:

(a)  a witness statement and supplemental witness statement dated 31 October 2022 and 24 November 2023 respectively from Ms Fok Fung Yin (“Ms Fok”), the General Manager of the Majority Owners;

(b)  a Building Condition Survey Report by Mr Wong Wing Cheung Dennis (“Mr Dennis Wong”) dated 18 November 2022;

(c)  a Structural Assessment Report by Mr Wong Chi Ming (“Mr C M Wong”) dated 31 October 2022;

(d)  the following reports by Mr Charles C K Chan (“Mr Charles Chan”) of Savills Valuation and Professional Services Limited (“Savills”):

(i)  the Application Report dated 5 May 2022 assessing the EUV as at 31 March 2022 pursuant to Part 1 of Schedule 1 to the Ordinance;

(ii)  a Supplemental Report dated 18 November 2022 on the revised EUV as at 31 March 2022 and on the redevelopment value (“RDV”) of the Lot;

(iii)  a Rebuttal Report dated 3 March 2023 on the Valuation and Rebuttal report prepared by Mr Wong Chi Wai (“Mr C W Wong”) dated 9 February 2023 on behalf of the Minority Owners;

(iv)  Valuation Report dated 6 November 2023 on the updated assessment on the RDV of the Lot

23.  The Minority Owners had also filed the following evidence;

(a)  Witness Statement of R1 dated 7 February 2023;

(b)  Witness Statement of Mr Lau Kai Ip Peter dated 16 January 2023 on behalf of R2;

(c)  Witness Statement of Mr Cheng Leung Ming dated 6 February 2023 on behalf of R3;

(d)  As said, the Valuation and Rebuttal Report dated 9 February 2023 prepared by Mr C W Wong, the joint valuation expert appointed by the Minority Owners;

(e)  A Supplemental Report by Mr C W Wong dated 3 November 2023

24.  Mr Charles Chan and Mr C W Wong prepared three joint statements, one dated 3 April 2023 setting out their agreements and disagreements on EUV, followed by two others dated 21 November 2023 and 1 December 2023 on RDV. Consequentially, the two valuation experts have updated their valuations in light of the agreements reached and recorded in the joint statements which had been summarized in Exhibit A1 and Exhibit A2. In addition, various exhibits were produced during the trial. All of the above evidence was admitted by agreement of all parties. The only witness of fact called at the trial was Ms Fok, the General Manager of the Majority Owners. The expert witnesses called were the valuation experts, Mr Charles Chan and Mr CM Wong. The evidence also included a site visit to the Building, comparables and surrounding area on 5 December 2023.

WHETHER THE APPLICANTS ARE ENTITLED TO MAKE THE APPLICATION

25.  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.

26.  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.

27.  The Land (Compulsory Sale for Redevelopment (Specification of Lower Percentage) Notice (“the Notice”). was gazetted on 22 January 2010 and came into operation on 1 April 2010. 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)”.

28.  As the occupation permit for the Building was issued on 6 March 1967 that is, not less than 50 years before the date of the Application, the Notice is applicable and the threshold percentage should be 80%.

29.  At the time of commencing the Application on 10 May 2022, the Majority Owners collectively owned 117/135^th, ie 86.67% equal and undivided share of the Lot. We are satisfied therefore that the Majority Owners are entitled to make the application. Issue (1) must be answered in the affirmative.

EUV OF ALL UNITS IN THE BUILDING AS AT 31 MARCH 2022

30.  By their joint statement dated 3 April 2023, Mr Charles Chan and Mr C W Wong had agreed on the particulars of the units of the Building as follows:

Floor	Unit	Saleable Area (m2)	Effective Area (m2)	Frontage (m)	Depth (m)	Headroom (m)
G/F	A	66.8		5.2	10.4	3.7
	B	61.4		6.3 + Return Frontage: 9.8	9.8	3.7
	C	36.5		3.5	10.3	3.7
	D	27.8		3.5	8.4	3.7
	E	78.6		7.8	12.4	3.7
G/F & 1/F	Entrance Hall	G/F: 23.4 1/F: 349.5	429.1			3.0
2/F		331.9	334.3
3/F		331.9	334.3
4/F	Office 1	172.6	175.0
	Office 2	159.3
5/F		331.9	334.3
6/F		331.9	334.3
7/F		331.9	334.3
8/F		304.4	310.3
9/F		304.4	306.8
10/F		304.4	306.8
11/F		277.0	282.9
12/F		277.0	279.4
13/F		277.0	279.4
14/F		226.6	235.9
15/F		194.1	200.8
16/F		194.1	196.5
17/F		57.1	59.5
	Flat Roof & Upper Flat Roof & Western Exterior Wall		25.7

* The determination of the effective area is to account for the remote storeroom/ lavatory on each floor as well as water tank room or appurtenant flat roof (if any) as the case may be.

EUV of G/F Shops of the Building

31.  In assessing the EUV of the Ground Floor units of the Building, Mr Charles Chan and Mr C W Wong agreed to take Shop A which fronts onto Fenwick Street as the reference unit (“the Reference Shop Unit”). They took into account comparable transactions nearby and then made necessary adjustments (for time, location, quantum, frontage/depth and headroom) so as to arrive at the unit price of the Reference Shop Unit.

32.  In proceeding with the above process, Mr Charles Chan and Mr C W Wong relied on the following comparables, arriving at $493,000 per sq m and $560,000 per sq m respectively:[3]

Comp	Address	Building Age	Transaction Date	Consideration	Saleable Area (m2)	Effective Area (m2)	Front-age (m)	Depth (m)	Head-room (m)	Unit Rate (/m2)
A1	Shop A, G/F, Sun Hey Mansion, 68-76 Hennessy Road	1965	13 Oct 22	$43,880,000	84.8 + Yard: 13.3	87.0	6.6	15.9	4.0	$504,368
A2	Shop 2, G/F, Kin Lee Building, 130-146 Jaffe Road	1979	19 Aug 22	$26,500,000	49.9	49.9	4.0	14.5	3.9	$531,062
A3	Shop 3, G/F, Shu Tak Building, 22-30 Tai Wong Street East	1978	8 Aug 22	$32,500,000	63.2	63.2	5.0	13.2	4.2	$514,241
A4	Shop 2, G/F, Capital Building, 175-191 Lockhart Road	1977	12 Jun 22	$49,180,000	82.6 + Yard: 3.7	83.2	4.9	16.8	5.5	$591,106
A5	Shop D1, G/F, Kam Sing Mansion, 151-161 Jaffe Road	1977	28 May 22	$20,210,000	48.3	48.3	3.2	14.5	3.7	$418,427
A6	G/F, Yue Hing Building, 103 Hennessy Road	1995	19 May 22	$106,000,000	137.2	137.2	11.1	19.2	5.0	$772,595
A7	Shop 1, G/F, Fortis Bank Tower, 77-79 Gloucester Road	1982	28 Jan 22	$50,000,000	101.6	101.6	7.6	14.3	3.0	$492,126
A8	Shop A, G/F, 209-211 Hennessy Road	1975	20 Sep 21	$45,000,000	60.3 + Yard: 6.1	61.3	3.8	15.5	5.0	$734,095
A9	Shop 3, G/F, Rialto Building, 2 Landale Street	1979	22 Jul 21	$47,800,000	62.3	62.3	3.6	17.5	3.9	$767,255

33.  Valuation usually proceeds by way of comparison where the valuer looks for a market transaction that is as close as possible to that which he has to value. He then works on the premise that if the subject matter of his valuation were to be the subject of a similar transaction, it would command the same value as the comparable. Since the comparable will never be identical to the subject matter of the valuation, the valuer will have to make adjustments to the value revealed by the comparable in order to reflect the differences between the comparable and the subject matter of his own valuation.

Choice of Comparables and Location Adjustment

34.  Once famed for international audiences as the world of Suzie Wong, these surroundings in Fenwick Street, Lockhart Road and Jaffe Road in the Wan Chai district are no more a red light district but a major commercial area.[4] They are now also popular destinations for pubs, sports bars and live music clubs and restaurants serving locals as well as expatriates and tourists due to the presence of hotels nearby. For instance, Shop A of the Building is occupied by a Filipino gastropub, Shops B & C were once occupied by a sports bar and Shop E is occupied by a live music club. The 1/F is occupied by an international restaurant with dart-throwing, billiards and beer pong.

35.  On the other hand, Comparable A1 is situated on Hennessy Road, a major distributor in the district traversed by a wide range of traffic which include many routes of public buses. This comparable is occupied by a Korean restaurant and to its right is a convenience store in front of which is a bus stop. There is another restaurant to its left. Whereas Fenwick   Street is at most a local distributor, leading traffic from Gloucester Road, another major distributor in the district, into the Fenwick Street, Lockhart Road and Jaffe Road locality or to Hennessy Road which runs in parallel to Gloucester Road, we consider this comparable on Hennessy Road enjoys high visibility with busy traffic which can cater for a variety of trades and footfalls. The proximity to a bus stop is certainly an advantage when it can attract  attention of passengers alighting or disembarking from those buses. We agree to adopt Mr Charles Chan’s proposed location adjustment of -10% in preference to Mr C W Wong’s -5%.

36.  Comparable A2 is situated on Jaffe Road, a relatively narrow local street the ground floor of which is predominated by a variety of eateries and other secondary trades. For instance, this comparable is currently vacant and to its right is a shop that sells car batteries and tyres. The shop to its left is also vacant. More particularly, this parade of shops face the rear façade of a commercial building that abuts Gloucester Road. Mr Charles Chan and Mr C W Wong agreed there should be no adjustment for location.

37.  Comparable A3 is situated far away from the cluster of the Fenwick Street, Lockhart Road and Jaffe Road locality, but in an area with mixed residential and commercial character. This street is lined with a variety of restaurants on both sides that serve the commuting office workers and the residential neighbourhood. Both Mr Charles Chan and Mr C W Wong agreed a location adjustment of -5%.

38.  Comparable A4 reverts to Lockhart Road again, lying in fact one block behind Comparable A2. However, Lockhart Road is a busier street with Grade B commercial buildings on both sides intermingled with some commercial/residential composite buildings. Though a variety of restaurants are found on this section of Lockhart Road, here starts the conglomeration of home furnishings and décor stores that makes this region popular. Mr Charles Chan applied a location adjustment of -15% while Mr C W Wong adopted -5%. This location is certainly much superior to Comparable A2 and Comparable A3 as well. In such regard, we prefer a location adjustment of -10%.

39.  Comparable A5 lies in the same section of Jaffe Road as Comparable A2 and is occupied by a Vietnamese restaurant. Maybe for this reason, Mr Charles Chan and Mr C W Wong agreed again there should be no adjustment for location.

40.  When compared with Comparable A1, Comparable A6 lies on a busier section of Hennessy Road and is in fact occupied by a retail branch of Citibank. This is a much superior location and therefore we agree with Mr Charles Chan’s location adjustment of -20% instead of Mr C W Wong’s -10%.

41.  Comparable A7 lies on Gloucester Road which is lined with a range of high-end commercial buildings. This portion of Gloucester Road is in particular in close proximity to an exit from an elevated walkway that links the neigbourhood to Wan Chai North where Grade A office buildings, the Hong Kong Convention and Exhibition Centre, the District Court, the Grand Hyatt Hotel and St Regis Hotel are located. For instance, this comparable is currently occupied by Starbucks Coffee, next to it is Pacific Coffee, then Pret A Manger, and Marks & Spencer Food. The latter is situated at the junction of Gloucester Road and O’Brien Road running over which is the elevated walkway. We are not persuaded that such trades would find favour with the location at which the Building is situated. The fronting onto Gloucester Road where a wide variety of traffic pass would also enjoy significant advertising value. We prefer therefore Mr Charles Chan’s location adjustment of -5% to Mr C W Wong’s +10%.

42.  Comparable A8 is also situated on Hennessy Road but just off the busiest section in Wan Chai, being separated by Fleming Road. Notwithstanding that, this comparable is located close to the junction of Fleming Road and Hennessy Road and opposite the pedestrian crossing across the street. It is occupied by a shop that sells precious metal and commemorative gold coins and next to it at the street junction is Watsons, a popular pharmacy that sells an extensive range of beauty and wellness products in Hong Kong. While Mr Charles Chan did not adopt this comparable, suggesting that the locality was very different in nature and retail potential when compared with the subject, Mr C W Wong proposed a location adjustment of -10%. We consider an adjustment of -15% more appropriate.

43.  Comparable A9 is situated near the middle of Landale Street, which is a relatively short, narrow street that connects Johnston Road near its junction with Hennessy Road to Queen’s Road East, another major distributor in the district. More particularly, this local street is in proximity to the Pacific Place which is a commercial complex comprising a regional shopping centre, five Grade-A office towers, 268 serviced apartments, and four five-star hotels: The Conrad, Island Shangri-La, JW Marriott and The Upper House. Currently, the developer of Pacific Place is extending its empire to the sites opposite this comparable, one being Five Pacific Place around the corner at the junction of Johnston Road and Landale Street; and on the day of joint inspection on 5 December 2023, Six Pacific Place, a brand new 24-storey Grade-A office building next to Five Pacific Place was due to complete very soon. While we appreciate that as at 31 March 2022, it was still a construction site, we agree with Mr Charles Chan that the business and retail potential along Landale Street will be further enhanced. As we explained at trial, market value is the present value of future cash flow and benefits which in the present case, should have been taken into account by the willing vendor and willing buyer of this comparable. We agree with Mr Charles Chan’s proposed location adjustment of -20% in preference to Mr C W Wong’s nil adjustment.

Other Adjustment Factors

44.  As regards other adjustment factors, Mr Charles Chan and Mr C W Wong had the following agreements:

Adjustment	Agreement
Time	Private Retail Price Index published by the Rating and Valuation Department (“RVD”)
Size	1% per 10 sq m
Building Age	0.2% per year (ie 1% per 5 years)
Frontage	1% per 0.5 m
Headroom	2% per 0.5m (ie 4% per 1m)
Totaling	By Multiplication

45.  They however disagreed on the adjustments on layout, if any.

46.  On the other hand, as shown in the table below, the differences between Mr Charles Chan and Mr C W Wong are not significant:

Comparable	Adjustments on Layout
	Mr Charles Chan	Mr C W Wong
A1	2%	5%
A2	0%	5%
A3	0%	5%
A4	1%	5%
A5	0%	5%
A6	4%	10%
A7	0%	3%
A9	2%	5%

47.  As stated in §31 above, Mr Charles Chan and Mr C W Wong agreed to take Shop A on G/F of the Building as the Reference Shop Unit. This Shop A has an inverted “L” shape with a larger rear portion and a smaller front portion. That is, a portion of the rear part cannot be seen at the entrance of the shop which, by reference to the Approved Building Plan for the G/F, is 6.5 metres away.

48.  There are also two columns inside the shop. While Mr Charles Chan stated in para 4.2.10 of his Rebuttal Report dated 3 March 2023 that they would have adverse impact on the utility of the shop area [5], we consider the impact, if any, minimal.

49.  Mr C W Wong seemed to have applied, in general, +3% to +5% layout adjustments to the comparables. As he explained in para 7.1.18 of his Valuation and Rebuttal Report dated 9 February 2023: “Shops with deeper depth, irregular shape or presence of more columns will be considered inferior and corresponding adjustments will be made.”[6]

50.  As can be seen from the table at §32 above, the depths of the comparables are significant when compared with that of Reference Shop Unit at 10.4 m only. We agree therefore with the adjustments proposed by Mr C W Wong.

51.  As regards Comparable A6 where Mr C W Wong proposed a layout adjustment as much as +10%, it also appears to be a “L” shape with jagged edges but with a longer frontage. On the other hand, it has also more and bigger columns lining up close to its partition wall, rendering the space in between more difficult to be used. We prefer a layout adjustment of +8% instead.

EUV Unit Rate Analysis

52.  Bearing in mind the above, we set out our assessment of the EUV below:

Comp	Unit Rate (m2)	Adjustments								Adjusted Unit Rate (m2)
		Time	Location	Size	Building Age	Frontage	Layout	Headroom	Total
A1	$504,368	3.2%	-10.0%	2.0%	0.4%	-2.8%	5.0%	-1.2%	-4.1%	$483,689
A2	$531,062	2.4%	0.0%	-1.7%	-2.4%	2.4%	5.0%	-0.8%	4.8%	$556,553
A3	$514,241	2.4%	-5.0%	-0.4%	-2.2%	0.4%	5.0%	-2.0%	-2.1%	$503,442
A4	$591,106	-0.4%	-10.0%	1.6%	-2.0%	0.6%	5.0%	-7.2%	-12.5%	$517,218
A5	$418,427	0.7%	0.0%	-1.9%	-2.0%	4.0%	5.0%	0.0%	5.7%	$442,277
A6	$772,595	0.7%	-20.0%	7.0%	-5.6%	-11.8%	8.0%	-5.2%	-26.5%	$567,857
A7	$492,126	-4.5%	-5.0%	3.5%	-3.0%	-4.8%	3.0%	2.8%	-8.2%	$451,772
A8	$734,095	-4.4%	-15.0%	-0.6%	-1.6%	2.8%	5.0%	-5.2%	-18.7%	$596,819
A9	$767,255	-5.5%	-20.0%	-0.5%	-2.4%	3.2%	5.0%	-0.8%	-21.1%	$605,364
								Average:		$524,999
								Median:		$517,218

53.  We therefore determine the EUV for the Reference Shop Unit at $520,000 per sq m and are going to apply it for the determination of the EUV of the other G/F shop units of the Building. However, as the other shops front on different streets, ie Fenwick Street and Jaffe Road around the corner, Mr Charles Chan and Mr C W Wong had a dispute on the location adjustment: Mr Charles Chan applied -10% for shops that front onto Jaffe Road whereas Mr C W Wong applied -5%. Having regard to the character of the surroundings where the exact location of such shops or restaurants  is not of paramount importance, we prefer to adopt -5%.

54.  And for the same reason, we prefer the adjustment for return frontage for Shop B as proposed by Mr C W Wong at +10% in preference to Mr Charles Chan’s +15%.

55.  As regards the adjustments for layout of the various shops, we also prefer those that were proposed by Mr C W Wong. For instance, we cannot agree with Mr Charles Chan that Shop C, being of longitudinal “L” shape, has a better layout than Shop A.

56.  Thus, our determination of the EUV of the shops on G/F of the Building is shown in the following table:

Shop	Saleable Area (m2)	Adjustments						Adjusted Unit Rate (m2)	EUV
		Location	Size	Frontage	Return Frontage	Layout	Total
A	66.8	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	$520,000	$34,736,000
B	61.4	0.0%	0.5%	2.2%	10.0%	2.0%	15.2%	$599,040	$36,781,000
C	36.5	-5.0%	3.0%	-3.4%	0.0%	0.0%	-5.5%	$491,400	$17,936,000
D	27.6	-5.0%	3.9%	-3.4%	0.0%	3.0%	-1.8%	$510,640	$14,094,000
E	78.6	-5.0%	-1.2%	5.2%	0.0%	-2.0%	-3.2%	$503,360	$39,564,000
								Total:	$143,111,000

EUV of 1/F Retail Unit of the Building

57.  In their EUV assessment of the 1/F retail unit of the Building, Mr Charels Chan and Mr C W Wong both relied on the following two comparables:

Comp	Address	Building Age	Transaction Date	Consideration	Saleable Area (m2)	Effective Area (m2)	Headroom (m)	Unit Rate (/m2)
B1	Shop 8, G/F & M/F & Shop A on 1/F, Yan Wo Yuet Building, 432-436 Hennessy Road	1966	25 Jan 21	$59,800,000	G/F: 18.1 M/F: 140.4 1/F: 57.8	243.5	3.4	$245,585
B2	Shop 15, G/F & Whole of 1/F, Pao Woo Mansion, 177-179 Wan Chai Road	1972	7 Jan 21	$115,000,000	G/F: 43.0 1/F: 639.4	781.3	3.4	$147,191

58.  This time, Mr Charles Chan and Mr C W Wong also had the following agreements on the adjustment factors:

Adjustment	Agreement
Time	Private Retail Price Index published by RVD
Size	1% per 20 sq m
Building Age	0.2% per year (ie, 1% per 5 years)
Totaling	By Multiplication

59.  They however disagreed on the adjustments for location, exposure, accessibility, headroom and layout.

60.  As regards location, both comparables adopted by the valuation experts are situated far away from the cluster of the Fenwick Street, Lockhart Road and Jaffe Road locality. Having conducted our joint inspection on 5 December 2023, we prefer Mr C W Wong’s proposed adjustment for location at -10% and +20% respectively to Mr Charles Chan’s -20% and +15% for the two comparables. We cannot however agree with Mr C W Wong’s proposed adjustment for exposure of +5% for Comparable B1. Although the exposure or visibility of this comparables from Canal Road East or beyond is partially blocked by a flyover that runs above it, this comparable is highly visible from the south-bound traffic along the flyover.[7] Certainly, this comparable can be readily seen across Hennessy Road [8]. Notwithstanding this, we agree with Mr C W Wong that there should be no adjustment for exposure for Comparable B2.

61.  Both Mr Charles Chan and Mr C W Wong agreed that there should be adjustment for accessibility for Comparable B2 whose entrance is located at the rear, on a narrow inner street instead of on the main street. Mr Charles Chan adopted -15% while Mr C W Wong adopted -10% to reflect the presence of lift service to the 1/F. We prefer -10%. On the other hand, they both agreed an adjustment for accessibility at -10% for Comparable B1.

62.  In respect of layout, Mr C W Wong suggested that there should be an adjustment of +10% for Comparable B1 when the premises spread over different floor levels. For instance, the effective area of this comparable includes a portion of floor area situated on Level 2 of the building which is only accessible via common lift and staircase. However, we consider the conversion of the corresponding floor areas into effective floor area should have already taken into account the non-continuity of the floor area. Another adjustment at 10% would have double-counted the inferiority.

63.  Thus, our determination of the EUV of the shops on 1/F of the Building is shown in the following table:

Comp	Unit Rate (/m2)	Adjustments							Adjusted Unit Rate (/m2)
		Time	Location	Size	Building Age	Accessibility	Headroom	Total
B1	$245,585	2.7%	-10.0%	-9.3%	0.2%	-10%	-0.8%	-25.0%	$184,189
B2	$147,191	2.7%	20.0%	17.6%	-1.0%	-10%	-0.8%	28.1%	$188,552
							Average:		$186,370
								Say:	$186,000

64.  That is, the EUV for 1/F of the Building is

Effective Area 429.1 sq m x $186,000 per m² = $79,812,600

Say $79,813,000                                    

EUV of Office Units of the Building

65.  In assessing the EUV of the office units on the upper floors of the Building, Mr Charles Chan and Mr C W Wong agreed to take 9/F as the reference units (“the Reference Office Unit”). They took into account comparable transactions nearby and then made necessary adjustments (for time, location, quantum, and headroom) so as to arrive at the unit price of the Reference Office Unit.

66.  In proceeding with the above process, Mr Charles Chan and Mr C W Wong relied on the following comparables:

Comp	Address	Building Age	Transaction Date	Consideration	Saleable Area (m2)	Effective Area (m2)	Headroom (m)	Unit Rate (/m2)
C1	20/F, Pico Tower, 66 Gloucester Road	1977	7 Jan 22	$38,800,000	164.3	168.8*	3.2	$229,858
C2	11F, 88 Lockhart Road	1990	12 Aug 21	$25,000,000	114.9	123.1	3.1	$203,087
C3	23/F, Henan Building, 90-92 Jaffe Road/ 15-19 Luard  Road	1985	12 Jul 21	$33,000,000	161.8	161.8	2.9	$203,956
C4	21/F, Henan Building, 90-92 Jaffe Road/ 15-19 Luard  Road	1985	5 Jul 21	$38,000,000	220.8	220.8	2.9	$172,101
C5	22/F, Henan Building, 90-92 Jaffe Road/ 15-19 Luard  Road	1985	18 Feb 21	$30,000,000	161.8 + Flat Roof: 42.3	168.9	2.9	$177,620
C6	9/F, Golden Star Building, 20-24 Lockhart Road	1978	3 Dec 20	$26,800,000	149.4	151.1*	2.9	$177,366

* There are minor differences between Mr Charles Chan and Mr C W Wong, which involve a few steps, ie level difference that lead to a storeroom or lavatory that was considered by Mr Charles Chan not part of the saleable area. However, such differences are less than 2%. We simply adopt Mr Charles Chan’s figures.

67.  Again, Mr Charles Chan and Mr C W Wong also had the following agreements on the adjustment factors:

Adjustment	Agreement
Time	Private Retail Price Index published by RVD
Size	1% per 20 sq m
Building Age	0.5% per year
Floor Level	0.5% per floor
Top Floor	+5% for top floor unit
Totaling	By Multiplication

They however disagreed on the adjustments on location, building quality and internal condition of the comparables.

68.  In terms of location, Mr Charles Chan and Mr C W Wong happened to agree on the adjustments at -3% for the comparables which are, save for Comparable C6, situated at a corner location. Save for Comparable C1 which is also situated at the corner of Gloucester Road and Luard Road, we agree with Mr Charles Chan that -5% is adequate to reflect the location difference instead of -10% as proposed by Mr C W Wong. We also agree with Mr Charles Chan that there should not be any location adjustment for Comparable C6 in view of its proximity to the Building.

69.  Mr C W Wong has allowed a significant adjustment of -15% for Comparable C1 on the ground that the whole building was renovated with curtain wall glass in about 1995, ie almost 30 years ago. Mr C W Wong referred to the Agreement for Sale and Purchase of this comparable which showed the building was undergoing another repair and maintenance works. As at the day of joint inspection on 5 December 2023, we found that the entrance lobby has been upgraded. Certainly such enhancement in “building quality” might not be reflected in the usual building age adjustment but we opine that -15% is excessive; we consider -5% more reasonable.

70.  In addition, Mr C W Wong has allowed an adjustment of -3% for internal conditions for all the office comparables on the ground that the Reference Office Unit had been agreed at “poor condition” as at 31 March 2022. In Mr C W Wong’s opinion, those comparables would unlikely be in similar “poor condition” when they were being occupied by reference to the corresponding agreements for sale and purchase, though he could not carry out any verification. Mr Charles Chan however rebutted that, with the exception of Comparables C1 and C6, the comparables were sold with vacant possession instead. He happened also to find some photos of an office for sale in Henan Building which was in a poor internal condition. He also commented that buyers of office units would mostly renovate the units to suit their own purposes and therefore he did not agree to any adjustment for internal condition.

71.  Having reviewed the above, we agree with Mr Charles Chan that there should be no adjustment for internal condition when all the comparables are not in Grade A buildings.

72.  Thus, our determination of the EUV of the Reference Office Unit of the Building is shown in the following table:

Comp	Unit Rate (/m2)	Adjustments											Adjusted Unit Rate (/m2)
		Time	Location	Size	Building Age	Floor Level	Top Floor	View	Layout	Head room	Building Quality	Total
C1	$229,858	-0.4%	-5.0%	-6.9%	-5.0%	-5.0%	0.0%	-5.0%	-2.0%	-0.6%	-5.0%	-30.1%	$160,671
C2	$203,087	-9.8%	-3.0%	-9.2%	-11.5%	-1.0%	0.0%	0.0%	-2.0%	-0.4%	0.0%	-32.1%	$137,896
C3	$203,956	-11.6%	-3.0%	-7.3%	-9.0%	-7.0%	5.0%	-5.0%	0.0%	0.0%	0.0%	-32.9%	$136,854
C4	$172,101	-11.6%	-3.0%	-4.3%	-9.0%	-6.0%	0.0%	-5.0%	0.0%	0.0%	0.0%	-33.3%	$114,791
C5	$177,620	-2.4%	-3.0%	-6.9%	-9.0%	-6.5%	0.0%	-5.0%	0.0%	0.0%	0.0%	-28.8%	$126,465
C6	$177,366	-5.4%	0.0%	-7.8%	-5.5%	0.0%	0.0%	0.0%	-2.0%	0.0%	0.0%	-19.2%	$143,312
											Average:		$136,665
											Median:		$137,375

73.  In view of the above, we are prepared to adopt $137,000 per sq m as the unit rate for the Reference Office Unit and are going to apply it to the other office units in the Building.

74.  At this juncture, there was a further dispute between Mr Charles Chan and Mr C W Wong on whether the sub-divided units on 4/F not enjoying the exclusive privacy of that whole floor deserves an adjustment of -5%. In the present case, even with the sub-division, the total saleable area of the two sub-divided units still add up to 331.9 sq m, ie the saleable area of the whole floor. By allowing for the size adjustment, there will be substantial increase in the unit rate if this adjustment for exclusiveness is not applied. This appears not to be correct; otherwise, every floor rather than 4/F should have been sub-divided. Thus, we accept that the -5% adjustment for exclusiveness is applicable in the present case.

75.  Mr Charles Chan and Mr C W Wong could not agree also on the adjustment for view enjoyable on 16/F and 17/F. Having conducted our joint inspection on 5 December 2023, we agree to Mr C W Wong’s +3% instead of Mr Charles Chan’s +6%, which appears to be excessive.

76.  The top floor, ie 17/F is not accessible by lift service. For this reason, Mr Charles Chan allowed -10% but Mr C W Wong allowed -20%. We consider Mr Charles Chan’s allowance more reasonable.

77.  Subject to the above and on the basis of other agreements by the two valuation experts, our determination of the EUV for the respective office units is set out in the following table:

Floor/ Unit	Effective Area (m2)	Adjustments										Adjusted Unit Rate (/m2)	EUV
		Floor	Top Floor	Size	View	Access-ibility	Head-room	Layout	Internal Condition	Exclus-iveness	Total
2/F	334.3	-3.5%	0.0%	-1.4%	0.0%	0.0%	0.2%	-2.0%	3.0%	0.0%	-3.8%	$131,794	$44,059,000
3/F	334.3	-3.0%	0.0%	-1.4%	0.0%	-5.0%	0.0%	-2.0%	6.0%	0.0%	-5.6%	$129,328	$43,234,000
4/F (Off 1)	175.0	-2.5%	0.0%	6.6%	0.0%	0.0%	0.0%	-2.0%	0.0%	-5.0%	-3.2%	$132,616	$23,208,000
4/F (Off 2)	159.3	-2.5%	0.0%	7.4%	0.0%	0.0%	0.0%	0.0%	0.0%	-5.0%	-0.5%	$136,315	$21,715,000
5/F	334.3	-2.0%	0.0%	-1.4%	0.0%	-5.0%	0.0%	-2.0%	0.0%	0.0%	-10.0%	$123,300	$41,219,000
6/F	334.3	-1.5%	0.0%	-1.4%	0.0%	0.0%	0.0%	-2.0%	0.0%	0.0%	-4.8%	$130,424	$43,601,000
7/F	334.3	-1.0%	0.0%	-1.4%	0.0%	-5.0%	0.0%	-2.0%	0.0%	0.0%	-9.1%	$124,533	$41,631,000
8/F	310.3	-0.5%	0.0%	-0.2%	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	-0.7%	$136,041	$42,214,000
9/F	306.8	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	$137,000	$42,032,000
10/F	306.8	0.5%	0.0%	0.0%	1.0%	0.0%	0.0%	0.0%	0.0%	0.0%	1.5%	$139,055	$42,662,000
11/F	282.9	1.0%	0.0%	1.2%	1.0%	0.0%	0.0%	0.0%	0.0%	0.0%	3.2%	$141,384	$39,998,000
12/F	279.4	1.5%	0.0%	1.4%	1.0%	0.0%	0.0%	0.0%	0.0%	0.0%	4.0%	$142,480	$39,809,000
13/F	279.4	2.0%	0.0%	1.4%	1.0%	0.0%	0.0%	0.0%	0.0%	0.0%	4.5%	$143,165	$40,000,000
14/F	235.9	2.5%	0.0%	3.5%	1.0%	0.0%	0.0%	0.0%	0.0%	0.0%	7.1%	$146,727	$34,613,000
15/F	200.8	3.0%	0.0%	5.3%	1.0%	0.0%	0.0%	0.0%	0.0%	0.0%	9.5%	$150,015	$30,123,000
16/F	196.5	3.5%	0.0%	5.5%	3.0%	0.0%	0.0%	0.0%	0.0%	0.0%	12.5%	$154,125	$30,286,000
17/F	59.5	4.0%	-5.0%	12.4%	3.0%	-10.0%	0.0%	2.0%	-6.0%	0.0%	-1.3%	$135,219	$8,046,000
Flat Roof & Upper Flat Roof	25.7											$135,219	$3,475,000
												Total:	$611,925,000

Total EUV of the Building as at 31 March 2022

78.  Therefore, the total EUV of the Building is

$143,111,000 + $79,813,000 + $611,925,000 = $834,849,000

and the corresponding pro rata share of the Minority Owners is shown below:

Respondent	Unit Concerned	EUV	Pro Rata Share
R1	Shop A on G/F	$34,736,000	4.1608%
R2	Shop D on G/F	$14,094,000	1.6882%
R3	Entrance Hall on G/F and 1/F	$79,813,000	9.5602%

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

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

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

(b)  the applicants have taken reasonable steps to acquire all the undivided shares in the Lot (including negotiating for the purchase of the undivided shares owned by the respondent on terms that are fair and reasonable).

Section 4(2)(a) - Age and State of Repair

80.  This Tribunal has taken into consideration the expert evidence of Mr Dennis Wong, a Chartered Structural Engineer as well as a Chartered Building Surveyor and of Mr C M Wong, also a Registered Structural Engineer adduced by the Majority Owners.

81.  Mr C M Wong had conducted a structural assessment of the Building and prepared a report dated 31 October 2022. He found the following defects in the Building:

(a)  Cracks and spalling at 112 locations were observed. In addition, 3 more cracks supposedly suffering from overstress were found at certain beams on 16/F. The number of defects observed may be lower than the actual number as some of the units had been re-plastered or had false ceilings installed which may have concealed other defects.

(b)  All the 192 reinforcement bars tested were found to be corroded, with 62.5% and 37.5% of the reinforcement bars sampled suffering from partly corrosion and mild corrosion.

(c)  28% of the slabs tested, 39% of the beams tested and 29% of the columns tested did not meet the original design for concrete cover requirements.

(d)  Carbonation has reached the concrete surrounding the steel reinforcement in 100% of the test samples of slabs and beams, rendering the steel reinforcement susceptible to corrosion as it has destroyed the passive alkaline layer of protection provided by the concrete cover. 25% of the tested columns also showed carbonation.

(e)  For the core compression test, 12.5% of the tested beams and columns did not meet the designed strength.

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

83.  Mr CM Wong estimated the cost of repair to the Building in its current state is $514,000. However, such repair work only tackles locally the areas where patch repair has been carried but cannot tackle the problem of rebar entering the propagation phase. Even after patch repair, further defects such as cracking and spalling will still gradually surface because the problem of carbonation, high chloride content and underlying corroded rebars cannot be remedied by the patch repair.

84.  Mr Dennis Wong, in his Condition Survey Report dated 18 November 2022, stated that:

(a)  The Building is more than 55 years old, has many problems as a result of its age which impair its appearance and function.

(b)  Physical and functional shortcomings have resulted from deficiencies in the planning, design, use of material, facilities and specifications of the Building when it was first constructed. These are further aggravated due to the large amount of unauthorized building works in the Building.

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

(d)  In terms of safety, health and hygiene, comfort and convenience, current expectation and enjoyment, environmental, building management and maintenance issues, the Building is aged and obsolete.

85.  He assessed the total cost of essential repairs at $36,280,468 which is about 23.75% of the cost of constructing a new building similar to the Building. He came to the conclusion that the high cost of immediate repairs indicates that the Building is in a poor condition. Also, the carrying out of the essential repairs will cause considerable disturbance and will require a very long implementation period. It is inevitable that the occupation and enjoyment of the office units will be adversely affected during the course of the repair. Even after the essential repair works have been implemented, the Building will remain as an old commercial building with its design and construction outdated/obsolete and below current standards and market/public expectations.

86.  None of the Minority Owners filed any expert evidence on the condition of the structural and non-structural parts of the Building. We accept the Majority Owners’ evidence in whole. In particular, we are satisfied that based on the evidence of Mr C M Wong and Mr Dennis Wong, redevelopment of the Lot is justified due to the state of repair of the Building which is in a very poor state of repair and condition.

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

“we should not restrict our consideration to just the physical age of the Buildings… we are of the view that the absence of a specific physical age in the Ordinance indicates that the Tribunal has discretion to determine at what stage a building should be redeveloped after considering all the relevant factors concerning the age of the building in question.

The physical age of a building is clearly one of the considerations, but it would not be the only consideration. The physical conditions of a building and the amount that would be required to maintain the building are other factors that the Tribunal should consider, as they would affect the decision on whether the life of the building should be ended or prolonged. The obsolete design of a building should also be considered as it has an important impact on whether it is too old to serve a modern society”.

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

(a)  The Building is more than 55 years old and in a very poor condition.

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

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

89.    We have also considered R1’s argument in respect of the EUV and RDV impact on section 4(a). In our view the statutory criteria has been satisfied and the argument does not assist R1.

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

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

91.  It is undisputed that the Majority Owners had made the following 4 offers to the corresponding Minority Owners:

Respondent	11 Feb 2022	19 Apr 2022	7 Nov 2023	23 Nov 2023
R1	$42,100,000	$41,380,000	$32,000,000	$32,000,000
R2	$16,300,000	$16,020,000	$12,400,000	$12,400,000
R3	$84,000,000	$83,960,000	$68,750,000	$68,750,000

92.  The Majority Owners submitted and confirmed that the above offers were formulated on the basis of the independent and professional opinion of Mr Charles Chan whose views were set out in the corresponding offer letters.

93.  Apart from the one and only letter in reply by R3 on 22 February 2022, claiming that the value of its property was the figure of $180 million, none of the Minority Owners saw fit to make any counter-offers and/or proffer any suggestion as to what price would, in their view, be reasonable. All 4 offers were not accepted by the Minority Owners.

94.  As demonstrated from the table at §91 above, the prices offered by the Majority Owners in 2022 were higher than the EUVs of the units as at 31 March 2022 assessed by Mr Charles Chan of Savills and particularly expressly included the respective proportionate shares in the RDV of the Lot.

95.  More particularly, the Majority Owners adopted the RDV of the Lot assessed by Mr Charles Chan disregarding Mr W T Chan’s claim for possessory title to the Relevant Part.

96.  In his cross-examination of Ms Fok, Mr But for R1 appeared to suggest that the time given to the Minority Owners for considering and accepting the offers was not long enough. But as Mr Edward Chan SC submitted, none of the Minority Owners had ever requested more time to consider the offers. The only evidence that the time given to consider offers was too short came from Lau Kai Ip Peter, director of R2[9] but R2 confirmed in opening that R2 did not challenge the offers. R1 and R3 did not give any evidence to suggest that the time given to them was too short.

97.  Mr But also, in his opening submission, suggested that owing to the encumbering effect of the litigation, the Minority Owners were precluded from selling their interest in the open market when most potential purchasers would be put off. Their interests became forced to be “locked in” until the final adjudication at trial.

98.  We do not accept that submission. Firstly, Mr But’s argument depends on if the Majority Owners have taken reasonable steps to negotiate on terms that are fair and reasonable for the purchase of Minority Owners’ interest. However, as afore-stated, the Majority Owners had made two offers which appeared to be reasonable.

99.  The Court of Final Appeal in Capital Well Ltd, supra, has 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.”

100.  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.”

101.  And secondly, the application for compulsory purchase by itself does not preclude the Minority Owners from selling their interest in the open market. In Oriental Generation Limited & Others v Luk Yung & Others, LDCS 4000/2013 (unreported, dated 29 February 2016), there were speculative sales and purchases of interests in a lot well after the applicants took out the application for compulsory purchase which had been registered in the Land Registry. See §113 of the judgment. And in Fortress Jet Limited & Others v Tang Hoi Yip and Cheung Sau Chan Property Limited & Others, LDCS 3000/2015 (unreported, 11 August 2017), a minority owner assigned her interest in the lot under compulsory sale application to another party. See §4 of the judgment.

102.  It might be the case that the Minority Owners regret or consider they missed the opportunity to accept the Majority Owners’ offer in 2022 before the market dropped. There is no evidence adduced by the Minority Owners of attempts to sell. In our opinion, if they had, it could have been the falling market that precluded the Minority Owners from selling their interests at a higher or what they considered a “more reasonable” price.[10]

103.  In another respect, Mr But suggested that the pre-action offers could not have been accepted by R1 due to the presence of an extant tenancy agreement of his unit dated 19 August 2021 for a term of 3 year until 14 August 2024. If this were the case, whether the offers were pre-action offers and sometime after the Application is neither here nor there. The Ordinance has express provisions when it comes to the early termination of tenancies, most notably section 8(3), which requires a particular owner to compensate his own tenant.

104.  In First Kind Ltd v Liu Keng Chor [2016] 3 HKLRD 39, there was an argument that a minority owner is entitled to receive “fair and reasonable compensation” for the deprivation of his property right which is protected under arts 6 and 105 of the Basic Law. In reply at §55, the Tribunal stated as follows:

“…, we are here to deal with the setting of a reserve price according to a statutory formula fixed by the legislation. The Tribunal has no power to re-write the legislation for the benefit of the minority or according to what he consider to be morally correct or fair.”

105.  The same principle is applicable in the present case when considering the offers made by the Majority Owners by reference to the EUV and RDV assessed by their valuation experts. The potential loss by R1 for compensating his tenant is not a relevant consideration in determining whether the Majority Owners have taken reasonable steps to negotiate on terms that are fair and reasonable for the purchase the Minority Owners’ interest in the Lot.

106.  In a similar vein, Mr Tsui for R3 also complained that the Majority Owners made no offer to buy the Minority Owners’ shares of the Lot since the commencement of the Application in May 2022, not until 7 November 2023. Mr Tsui asserted that it should be the case that seeing a downward trend in the property market, the Majority Owners made use of the legal proceedings and forced the Minority Owners to sell their shares at the very last moment when the market was at the lowest. Mr Tsui submitted the Tribunal should also assess the conduct of the Majority Owners in making the offers, which conduct cannot be regarded as having taken reasonable steps. With regards conduct, the Majority Owners did not simply wait for the trial. They took steps to engage with the Minority Owners. Ms Fok gave evidence that they invited the Minority Owners to attend mediation. The Mediation Reports are in the bundles.[11] They attended mediation with R1 on 4 August 2022, R2 on 20 October 2022 and R3 on 8 June 2023, but clearly no settlements were reached.

107.  Indeed, Mr But for a respondent in an earlier case, Allied Future Limited v Lee Yuk Sim, LDCS 23000/2020 (unreported, 8 May 2023), made a similar complaint against the then applicant. At §§85-87, the Tribunal ruled, on timing of offers, as follows:

“85. …, Mr But on behalf of R3 submitted that the applicant had not made a post-application offer in time after the Application commenced on 4 September 2020. With respect, I find no such requirement as stipulated under the Ordinance. While the Tribunal in Good Faith Properties Limited & Others v Cibean Development Company Limited, LDCS 42000/2011 (unreported, dated 31 May 2013), as referred to by Mr But, had at §40 commented that “(t)he time for the Tribunal to be satisfied is at trial and not before”, this did not mean that a post-application offer had to be made. “There can be offers made to acquire the minority interest even after the filing of the Application” but it did not say post-application offers were a must. It only addressed the question of whether post-application offers could be taken into account in considering the question of reasonable steps that had been taken by the applicant to satisfy the Tribunal:

“To confine the reasonable steps to pre-application is apparently inconsistent with the intention of the legislation and deprived the minority owners the protection they are entitled under the Ordinance.”

86. For instance, when a pre-application offer has been very high, with the benefit of hindsight for instance, it does not mean that a post-application has to be made; a post-application offer which is substantially lower than the pre-application offer in the amount may not serve good purposes. Recently, §31 of Starex Development Limited v Yau So Ching & Others, DCCJ 2372 & 2374/2021 (unreported, dated 13 February 2023) had affirmed that the offers in the acquisition scheme are matters of commercial decisions. I agree with the judgment in that same paragraph that “the peculiar factual matrix” had to be viewed as a whole. An offer that had given a minority a better or higher offer does not mean that the same or even a much better offer had to be followed. Of course, if a post-application offer has been made, the pre-application offer(s) may not be so relevant as stated in Top Harmony Limited v Cheung Yuet Sheung & Others, LDCS 39000/2018 (unreported, dated 15 October 2020) at §94 but the Tribunal did not lay down any proposition that a post-application offer must be made.

87. Whenever an offer is made by the applicant, whether pre- or post-application, the decision of the minority owner as an offeree is just a give and take exercise.”

108.  We are prepared to adopt the same answer in reply to Mr Tsui’s assertions.

109.  Mr Tsui’s further argued that before the Application, the Minority Owners’ could not have accepted the offers in 2022 when they did not have the benefit of an expert. There is no evidence that the Minority Owners ever requested time to obtain expert advice, nor did they make any counter-offer once expert evidence was obtained. In any event, with respect, this cannot advance his case further as many sales and purchases in the open market do not necessarily have the benefit of expert advice. To repeat the holding of the Court of Final Appeal in Capital Well, supra, the Tribunal only “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.” Indeed, in the preceding paragraph of the judgment, the Court of Final Appeal remarked as follows:

“32.  … The Ordinance therefore recognizes that the minority is perfectly entitled to take its own view and to refuse to sell at the price offered even though the Tribunal may regard that price as fair and reasonable.”

110.  As regards Mr Tsui’s further complaint that the Majority Owners’ only lately made the recent offers in November 2023 when the market was said to be at the lowest, the Tribunal had provided its answer in China Orchid International Limited & Others v Fujitec (HK) Company Limited & Others, (unreported, dated 5 May 2023) at §199:

“With respect, there is no crystal ball to predict market fluctuation. How could one determine which is the right moment to make a compulsory sale application or which is the appropriate time for the Tribunal to grant a sale order. Everybody has to take the market condition as it is to make the decision. This is manifested by reference to Tse Kwong Lam v Wong Chit Sen [1983] 1 WLR 1349 where the Privy Council remarked that:

“… The mortgagee and the company seeking to uphold the transaction must show that the sale was in good faith and that the mortgagee took reasonable precautions to obtain the best price reasonably obtainable at the time. The mortgagee is not bound to postpone the sale in the hope of obtaining a better price ...”

111.  In view of the above circumstances we are satisfied that the offers made by the Majority Owners fell within the range of what may broadly be regarded as fair and reasonable and the Majority Owners have taken reasonable steps to acquire all the undivided shares of the Lot including R1’s, R2’s and R3’s units. Issue (4) is answered in the affirmative.

Order for Sale

112.  We are satisfied that redevelopment of the Lot is justified both in terms of age and state of repair of the Building and the applicants had taken reasonable steps to acquire all the undivided shares of the Lot and had negotiated for the purchase of those shares as are owned by that minority owner on terms that are fair and reasonable. The Majority Owners have satisfied the only statutory criteria under the Ordinance. Under such circumstances, we find an order for sale should be granted in favour of the Majority Owners.

Disputes on the estimation of the RDV of the Lots

Direct Comparison Approach

113.  The Lot comprises a rectangular site of some 26.34 metres abutting Jaffe Road and some 15.90 metres abutting Fenwick Street in the Wan Chai district of Hong Kong. The two valuation experts, Mr Charles Chan and Mr C W Wong, agreed that the site area is 418.88 sq m.

114.  Whilst the Government lease governing use and development of the Lot is virtually unrestricted save for the usual offensive trade clause, the Lot falls within an area zoned “Commercial” on the Wan Chai Outline Zoning Plan No S/H5/31 gazetted on 2 May 2023. This zone is intended primarily for commercial developments, which may include uses such as office, shop, services, place of entertainment, eating place and hotel. Functioning as territorial business/financial centre(s), these areas are usually major employment nodes.

115.  The main dispute in these proceedings is on the estimation of the RDV of the Lot, which shall be taken into account as the reserve price for the public auction when the order for sale is granted.

116.  Mr Charles Chan, particularly, relied on the direct comparison method of valuation by reference to a recent sale of a site at 8-12 Fenwick Street and 42-50 Lockhart Road, a corner site situated within stone throwing distance from the Lot. On this site is erected a 15-storey serviced apartments building known as De Fenwick with shops on the ground floor. It is very similar to the Lot in terms of site area (446.05 sq m), town planning zoning, Government lease restrictions, site classification under the Building (Planning) Regulations and maximum plot ratio etc. Whereas the sale took place on 25 September 2023 for a consideration of $898,000,000, this is equivalent to an accommodation value (“AV”) of $134,215 per sq m on the basis of a 15 plot ratio.

117.  Mr Charles Chan was of the view that this junction of Fenwick Street and Lockhart Road enjoys slightly higher pedestrian and traffic flows and proceeded to carry out his comparable analysis as follows:

Comparable AV (/m2)	Adjustment for Location & Environment	Adjusted AV (/m2)
$134,215	-5%	$127,504

118.  Mr C W Wong did not agree to adopt this as a comparable on the ground that one single transaction cannot provide a reliable assessment result. The adjustment for location and environment was not challenged. In cross-examination Mr CW Wong did not take issue with the comparable itself. We find that the -5% adjustment assessed by Mr Charles Chan is appropriate.

119.  While the direct comparison method of valuation is universally regarded as the best method of valuation, it has been seldom that only one comparable is relied upon. For instance, in The Appraisal of Real Estate (Fourth Canadian Edition) published by the Appraisal Institute of Canada, 2023 in Chapter 20 on Direct Comparison Approach, it is emphasized that:

“The direct comparison approach is applicable when sufficient data on recent market transactions is available.”[12]

120.  Notwithstanding the above, the Tribunal may accept a single transaction for direct comparison purpose. For example, in Mobil Oil Hong Kong Limited v Commissioner of Rating and Valuation [1993] HKDLR 77, in the determination of the rateable value as at 1 July 1990, the Tribunal could not find any useful comparable evidence save an earlier agreement (“the BP Agreement”) in respect of 36.7% of the subject tenement some 3 years earlier. While the Tribunal recorded the danger of relying on only one comparable, it held that it was desirable, at least as a check.

121.  In Forsyth v Banbury Investments Ltd [2000] 3 HKLRD 834 where the Tribunal was tasked to determine the prevailing market rent under Part IV of the Landlord and Tenant (Consolidation) Ordinance, it decided at 838 as follows:

“In the present application, although the parties had before them only one actual rental transaction, it nevertheless should be analysed and relied upon in the assessment of the prevailing market rent for the Premises. I accept that for valuation by direct comparison method, this is not the ideal situation.”

122.  In Able Luck Development Limited & Others v Public Global Investments Limited & Others, LDCS 7000/2014 (unreported, dated 6 October 2017), the Tribunal accepted the only comparable transaction at Fun Tower which was “built to the current day standard of finishes which duly reflects the marketable quality industrial building in the current market” rather than transactions in industrial buildings all built more than 20 years ago.[13]

123.  And at the beginning of the trial, we also referred  the parties to Kerzner International Mauritius Holdings Ltd v Assessment Review Committee & Another (Mauritius) [2021] UKPC 18, [2023] RVR 79 where the Assessment Review Committee of Mauritius (“ARC”), in reviewing the assessment of open market value of a property by Registrar General of Mauritius, adopted only one comparable. The appellant appealed, inter alia, on the ground that the ARC was wrong to treat the only comparable as a starting-point for its valuation. For instance, the appellant submitted that the fact that the valuation of the comparable ended up being discounted by around 65% showed that it was not a proper comparable. The appeal was dismissed by the Board whose last remark was that: “Which comparable to use and what adjustments should be made were matters for the ARC to determine. It has not been shown that their decision on these matters was perverse, irrational or “erroneous in law”.”

124.  Indeed, in Tai Ping Restaurant Limited v Director of Lands, LDLR 1/2013 (unreported, dated 8 December 2014), the Tribunal had made the following remark at §22:

“… I agree it is generally not a good approach to carry out any valuation by direct comparison method using a single comparable. I also agree quality of the comparables is more important than quantity of the comparables. It is a matter of valuation that the backgrounds and availability of objective evidence would determine the number of comparables to be adopted in a particular valuation. Different cases would have different backgrounds and evidence, and therefore may have different number of comparables in the respective assessments. There is no fixed valuation rule in this regard.”

125.  And in the decision on review in Supreme Honour Development Limited v Director of Lands, LDMT 1/2001 (unreported, 19 December 2008), the Tribunal had the following remark at §17:

“… I agree with this submission particularly when the valuation was also carried out using the Comparison Method in the first instant, albeit using only one comparable but that was due to the shortage of market evidence of good comparables, nothing this Tribunal or any other Court could overcome.”

126.  We find that the quality of the site comparable is unimpeachable. Mr CW Wong in cross-examination confirmed that he was not saying he would not use this comparable, if there were other site comparables. This being the case, the counsel on behalf of the Minority Owners took issue with the fact that this only comparable involved the transfer of shares of the holding companies of the comparable instead of a straight forward sale of the property. By reference to a public announcement by the listed company, China Travel International Investment Hong Kong Limited (“China Travel”) dated 25 September 2023 (“the Announcement”)[14], its wholly-owned subsidiary agreed to acquire 100% equity interest of the holding company of the comparable, Silver Time (HK) Limited (“Silver Time”), on 16 October 2023 (“Share Transfer Agreement”). The consideration agreed was $898,000,000, subject to an upward adjustment by an amount equivalent to the Estimated Net Cash Balance (in the case of a positive figure) or a downward adjustment by an amount equivalent to the Estimated Net Cash Balance (in the case of a negative figure). Set out below is the financial information of Silver Time for the financial years ended 31 March 2022 and 2023:

	For the years ended 31 March
	2022	2023
	(HK$’000)	(HK$’000)
	(Audited)	(Audited)
Loss before taxation	135,579	118,874
Loss for the year	135,723	118,618

The audited net asset of Silver Time as at 31 March 2023 and the unaudited net asset of Silver Time as at 31 May 2023 was approximately HK$697,105,000 and HK$679,891,000 respectively.

127.  The Announcement also explained that the consideration of $898,000,000 was determined with reference to, among others, (i) the appraised value of the holding company as at 31 May 2023 of approximately $1,040,000,000 after taking into account the Excluded Assets and Liabilities, as assessed by an independent professional valuer using asset-based approach, (ii) the current market price of comparable properties in the vicinity of the comparable, and (iii) the benefits of the acquisition to the listed company.[15] The sellers should have also repaid all unsettled loan amounts under the existing loan agreement with Bank of China (Hong Kong) Limited in the amount of HK$573,647,000 as at the date of Share Transfer Agreement. This latter appears to us to be no different from the usual property sale when mortgages/legal charges, if any, would be discharged by the seller before completion. That is, the payment of the outstanding loan owed by a vendor to the mortgagee bank would be settled by split cheques from the buyer.

128.  Counsel for the Minority Owners submitted that there are significant risks for the buyer in share transfer of a property holding company instead of a straight forward acquisition by purchasing the property itself. They submitted there could be, for instance, hidden liability or contingency so that the consideration paid could be something below market value.

129.  In this Tribunal’s experience and as confirmed by the evidence, the method of purchasing the shares of a property holding company is very common in the market particularly for properties of significant value when there will be a huge saving in stamp duty[16]. Mr C W Wong acknowledged during cross-examination that the saving would be around 4%. For instance, for the captioned comparable which might be worth as much as $900,000,000, the amount saved would be about $36,000,000[17]. This amount could cover more than the costs of due diligence that may be required. There may still be residual risk for the buyer as suggested by the counsel for the Minority Owners but a buyer of such property holding company would likely be a sophisticated one. On the other hand, if the buyer tries to negotiate an amount below the market value of the property involved owing to the reason of share transfer, the seller always has the choice of reverting to the sale of the property itself. Indeed, the Announcement made reference to an earlier announcement made by China Travel dated 28 July 2023 which stated that China Travel was in negotiation for the acquisition of the comparable at a consideration of HK$900 million which was labelled as Potential Acquisition.[18] Thus, there was a lapse of time as long as two months since 28 July 2023, ie the date of the first announcement. Rule 14.34 of the Listing Rules expressly requires the listed issuer to publish an announcement as soon as possible after the terms of a disclosable transaction has been finalized. A period of negotiation and/or due diligence may have been carried out beforehand. Bearing in mind the total lapse of time in the dealing, we are not convinced that there might be an element of forced sale as suggested by the counsel for the Minority Owners[19]. The reported losses of the holding company for the financial years ended 31 March 2022 and 2023 was neither here or there as they were mere accounting losses and may attract tax savings as well if the buyer continues to run the business for a while before redevelopment.

130.  As explained by the Announcement, this comparable is located in close proximity to Kew Green Hotel Wan Chai Hong Kong which is also owned by China Travel. “Upon Completion, the (comparable) can be considered to be operated as one with Kew Green Hotel Wan Chai Hong Kong to achieve synergy in management services (integrated management of room services, laundry, merchandising, etc) and sharing of resources and facilities (restaurants, gym room, etc) to enhance the overall operational efficiency. It can also be considered to simply merge and redevelop the two buildings into one quality commercial property in a core location to further enhance the Group’s reputation in Hong Kong as well as expand and strengthen its business in Hong Kong.”[20]

131.  During cross-examination, Mr Charles Chan also explained that if the consideration of $898,000,000 reflected only the existing use value of the comparable instead of its RDV, ie its RDV value was lower, applying this share transfer sale as comparable would only overstate the RDV of the Lot instead of vice versa. We agree.

132.  As regards the appraised value of the holding company as at 31 May 2023 of approximately $1,040,000,000 after taking into account the Excluded Assets and Liabilities, the latter as explained in the Announcement referred to “financial assets, the amounts due from related companies and amounts due to related companies”[21]. While a financial asset is a non-physical asset whose value is derived from a contractual claim, such as bank deposits, bonds, and participations in companies' share capital, it would not include goodwill and intangible assets such as intellectual property, including copyrights, patents, trademarks and data. Of course, we are unable to verify what had been included. We can infer that the $1,040,000,000 would have include something more than the market value of the comparable. In any event, this $1,040,000,000 might only be true as at 31 May 2023 but in a falling market, as we shall note from the indices published by the Rating and Valuation Department (“RVD”), the consideration of $898,000,000 as at 25 September 2023 appears to be reasonable. Having considered all of the circumstances, including the risks inherent in a share transfer transaction, we are satisfied that the site comparable may safely be relied upon and is of high quality.

Residual Valuation

133.  Notwithstanding the above, we agree with Mr Charles Chan that it was prudent for him to carry out a residual valuation as a check. Indeed, Mr Charles Chan had carried out a residual valuation before he became aware of the site comparable and his assessment resulted in a lower RDV. On the other hand, Mr C W Wong resorted only to the residual valuation method in determining the RDV. A residual valuation 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.

134.  At trial, Mr Charles Chan agreed to Mr C W Wong’s proposal of a hypothetical commercial development of 25 storeys, the particulars of which are as follows:

Floor	Form of Development	Accountable GFA (m2)		Non-Accountable GFA (m2)
		Saleable Area (m2)	Common Area (m2)
G/F	3 Shops	204.80
	Entrance Lobby, Lifts & Staircases		150.00
	Plant Room / Pipe Duct			40.00
1/F-2/F	Commercial	629.60	160.00
3/F	Commercial	176.94	80.00
4/F	E & M			394.80
5/F	Sky Garden			65.00
6/F-15/F	Commercial (6 units per floor)	1,919.40	650.00
16/F-24/F	Commercial (1 unit per floor)	1,772.46	540.00
	Total:	4,703.20	1,580.00
		6,283.20

Assessment of the Value for the hypothetical shop units on G/F

135.  Mr Charles Chan and Mr C W Wong agreed the following particulars for the ground floor shops of the hypothetical development as follows:

Shop	Fronting on	Saleable Area (m2)	Frontage (m)	Return Frontage (m)	Depth (m)	Headroom (m)
A	Jaffe Rd	69.8	10.3		6.8	5.0
B	Fenwick St & Jaffe Rd	67.5	7.5	9.0	9.0	5.0
C	Fenwick St	67.5	7.5		9.0	5.0

136.  Then Mr Charles Chan and Mr C W Wong proceeded to adopt a hypothetical corner shop, Shop B on G/F, as reference for the sake of making direct comparison with comparable transactions:

Comp Ref:	Address	Building Age	Date of Agreement for Sale	Consideration	Salable Area (m2)	Effective Area (m2)	Frontage (m)	Depth (m)	Headroom (m)	Unit Price (/m2)
D1	G/F, 4 Fenwick Street	1971	20 Jun 23	$28,000,000	38.3	38.3	3.4	10.6	3.5	$731,070
D2	Shop E, G/F, Thomson Commercial Building, 8 Thomson Road	1961	14 Jun 23	$16,380,000	29.3	29.3	4.0	8.5	2.9	$559,044
D3	Shop D, G/F & M/F, Cheong Hong Mansion, 25-33 Johnston Road	1965	10 May 23	$54,000,000	96.4 + Yard: 13.7 + M/F: 70.1	116.6	5.7	21.1	5.3	$463,122
D4	G/F & Cockloft, Siu On Mansion, 185 Hennessy Road	1967	11 Apr 23	$32,000,000	66.8 + Yard: 8.7 + c/L: 32.1	76.3	4.3		5.6	$419,397
D5	Shop A2, G/F, Hay Wah Building, 72-86 Lockhart Road	1979	4 Mar 23	$91,000,000	118.2	118.2	10.2 + Return Frontage: 7.1	15.9	5.3	$769,882
D6	Shop A, G/F, Sun Hey Mansion, 68-76  Hennessy Road	1965	13 Oct 22	$43,880,000	84.8 + Yard: 13.3	87.0	6.6	15.9	4.0	$504,368
D7	Shop 2, G/F, Kin Lee Building, 130-146 Jaffe Road	1979	19 Aug 22	$26,500,000	49.9	49.9	4.0	14.5	3.9	$531,062
D8	Shop 3, G/F, Shu Tak Building, 22-30 Tai Wong Street East	1978	8 Aug 22	$32,500,000	63.2	63.2	5.0	13.2	4.2	$514,241
D9	Shop 2, G/F, Capital Building, 175-191 Lockhart Road	1977	12 Jun 22	$49,180,000	82.6 + Yard: 3.7	83.2	4.9	16.8	5.5	$591,106
D10	Shop D, G/F incl open yard at rear & on the right side, Kam Fook Mansion, 148, 150, 154 & 156 Jaffe Road	1974	2 Nov 23	$28,000,000	88.4 + Yard: 59.5	98.3*	7.3	12.2	3.1	$284,842

* We prefer to adopt Mr Charles Chan’s conversion factor of 1/6 instead of Mr C W Wong’s ¼ for the side yard. In any event, the resultant difference is not significant.

Selection of Comparables

137.  Mr Charles Chan initially only adopted Comparables D1 to D3 & D5 to D6 but refused to adopt Comparables D7 to D9 on the ground that they were dated more than 1 year ago. Mr Charles Chan also refused to adopt Comparable D4 as, in his opinion, it is situated at a much better location.[22]

138.  Mr C W Wong, on the other hand, adopted all Comparable D1 to D9.

139.  In light of observations from the bench, Comparable D10 was added.

Location Adjustment

140.  Comparable D1 is situated on Fenwick Street, so the same street as the Building but at a position closer to Hennessy Road. It is in fact located on the ground floor of De Fenwick, the sale of the site of which is adopted for direct comparison by Mr Charles Chan for the assessment of the RDV of the Lot. Mr Charles adopted a location adjustment of -25% while Mr C W Wong proposed nil. It is currently occupied by a pharmacy. In view of its proximity to Hennessy Road, we consider -10% more appropriate.[23]

141.  Comparable D2 is situated on a side street predominated on both sides by eateries. Both Mr Charles Chan and Mr C W Wong agreed that it is located at a better location. We prefer the latter’s -5% to the -10% proposed by Mr Charles Chan.

142.  Comparable D3 is situated in close proximity to Comparable D2 but on a main artery in the district. Mr Charles Chan and Mr C W Wong agreed that it is located at a better location: Mr Charles Chan proposed a location adjustment of -15% while Mr C W Wong proposed the same -5%. As said, this comparable lies on the main artery, readily visible by the busy traversing traffic. For instance, next to it to the right is a real estate agency and to the left is a pet shop, with a convenience store to the further left. Mr C W Wong appears to be inconsistent with his proposed location adjustment for Comparable D2. We prefer a location adjustment of -10%.

143.  Comparable D4 is situated somewhere between Comparable A6 and Comparable A9 on the western side of Fleming Road. Again, we prefer a location adjustment of -15% to Mr C W Wong’s -10%.

144.  Comparable D5 is a corner shop situated at the junction of Lockhart Road and Luard Road, two blocks to the east of the Building. It is occupied by a restaurant, Hay Hay Kitchen, which has another branch at 191 -193 Hennessy Road lying very close to Comparable D4. Mr Charles Chan proposed a location adjustment of -20% while Mr C W Wong proposed -5%. We prefer an adjustment of -10% instead.

145.  Comparable D6 is in fact Comparable A1. We are prepared to adopt the same location adjustment of -10%.

146.  Comparable D7 is in fact Comparable A2 where Mr Charles Chan and Mr C W Wong agreed there should be no adjustment for location.

147.  Comparable D8 is in fact Comparable A3 where both Mr Charles Chan and Mr C W Wong agreed a location adjustment of -5%.

148.  Comparable D9 is in fact Comparable A4. We are prepared to adopt the same location adjustment of -10%.

149.  As Comparable D6 to Comparable D9 all occurred more than 1 year ago, we suggested a latest transaction for the valuation experts’ consideration. This has become Comparable D10 which lies very close to Comparable A2. Both Mr Charles Chan and Mr C W Wong agreed there should be no adjustment for location.

Other Adjustment Factors

150.  Then as in the assessment of the EUV, Mr Charles Chan and Mr C W Wong agreed on the other adjustment factors save for the return frontage and layout.

151.  And for the same reason explained in §§53-54 above, we are going to adopt Mr C W Wong’s proposed adjustments for return frontage on these comparables.

152.  Similarly, we are going to adopt Mr C W Wong’s proposed adjustments for layout on these comparables.

GDV for G/F

153.  Thus, we set out our analysis of the GDV for the hypothetical reference shop unit below:

Comp	Unit Rate (m2)	Adjustments									Adjusted Unit Rate (m2)
		Time	Location	Size	Building Age	Frontage	Return Frontage	Layout	Headroom	Total
D1	$731,070	0.1%	-10.0%	-2.9%	10.4%	8.2%	10.0%	5.0%	6.0%	27.9%	$935,039
D2	$559,044	0.1%	-5.0%	-3.8%	8.4%	7.0%	10.0%	0.0%	8.4%	26.5%	$707,191
D3	$463,122	0.2%	-10.0%	4.9%	11.6%	3.6%	10.0%	12.0%	-1.2%	33.1%	$616,415
D4	$419,397	0.8%	-15.0%	0.9%	11.2%	6.4%	10.0%	8.0%	-2.4%	18.6%	$497,405
D5	$769,882	1.8%	-10.0%	5.1%	8.8%	-5.4%	-5.0%	5.0%	-1.2%	-2.3%	$752,175
D6	$504,368	-2.5%	-10.0%	2.0%	11.6%	1.8%	10.0%	8.0%	4.0%	25.6%	$633,486
D7	$531,062	-3.4%	0.0%	-1.8%	8.8%	7.0%	10.0%	7.0%	4.4%	35.7%	$720,651
D8	$514,241	-3.4%	-5.0%	-0.4%	-9.0%	5.0%	10.0%	5.0%	3.2%	4.1%	$535,325
D9	$591,106	-6.0%	-10.0%	1.6%	9.2%	5.2%	10.0%	8.0%	-2.0%	15.0%	$679,772
D10	$284,842	0.0%	0.0%	3.1%	9.8%	0.4%	5.0%	3.0%	7.6%	32.3%	$376,846
									Average:		$645,431
									Median:		$656,629

154.  We are concerned that the two latest comparables turn out to have the highest and the lowest adjusted unit rates and out of the tone of the others. Neither of the two can be considered good comparables when the total adjustment required is up to 30% or thereabouts.

155.  In view of this resultant discrepancy, we agree that Comparable 6 to Comparable 9 were dated. Although Mr Charles Chan and Mr C W Wong have agreed to adopt Private Retail Price index published by RVD for time adjustment, it is trite that the use of indices is only acceptable when there is little evidence to go on, but their effectiveness is more diluted the longer the period over which they are used. Therefore, if these Comparable 6 to Comparable 9 are excluded, the average and the median of the analysis would become $647,512 per sq m and $661,803 respectively.

156.  The basic feature of the median in describing data compared to the average is that it is not skewed by a small proportion of extremely large or small values (outlier), and therefore provides a better representation of the center. Having reviewed the above, we are prepared to adopt an assessment of $660,000 per sq m. Incidentally, this stands some midway between Mr Charles Chan’s assessment of $625,000 per sq m and Mr C W Wong’s $700,000 per sq m.

157.  Our assessment of the GDV for shops of the hypothetical development is as follows:

Shop	Saleable Area (m2)	Adjustments						Adjusted Unit Rate (/m2)	GDV
		Frontage	Return Frontage	Location	Size	Layout	Total
A	69.8	5.6%	-10.0%	-5.0%	-0.2%	2.0%	-8.1%	$606,540	$42,336,000
B	67.5	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	$660,000	$44,550,000
C	67.5	0.0%	-10.0%	0.0%	0.0%	0.0%	-10.0%	$594,000	$40,095,000
								Total:	$126,981,000

Assessment of the Value for the hypothetical commercial units on U/F

158.  In respect of the assessment of the GDV for the hypothetical commercial units on the upper floors, Mr Charles Chan and Mr C W Wong agreed to adopt a hypothetical unit on 14/F as the reference unit for the purpose of applying the direct comparison method on the basis of comparable transactions. This unit, which is supposed to be served by 3 lifts and 2 common staircases, is assumed to have a saleable area of 32 sq m and a full headroom of 5 metres. It is also assumed to have an open building and limited seaview.

159.  Mr Charles Chan and Mr C W Wong relied on the following comparables, which were transactions of units of two buildings: 333 Hennessy at 333 Hennessy Road and Golden Resources Tower at 218 Jaffe Road:[24]

Ref	Address	Age of Building	Date of Sale	Consideration	Saleable Area (m2)	Effective Area (m2)	Headroom (m)	Unit Price (/m2)
E1	Unit 1, 20/F, 333 Hennessy	2021	30 Sep 23	$7,170,000	26.6 + Terrace: 6.2	27.6	3.5	$259,783
E2	Unit 1, 21/F, 333 Hennessy	2021	22 Sep 23	$7,170,000	26.6	26.6	3.5	$269,549
E3	Unit 2, 20/F, 333 Hennessy	2021	12 Aug 23	$7,170,000	26.6 + Terrace: 6.2	27.6	3.5	$259,783
E4	Unit 2, 6/F, 333 Hennessy	2021	8 Aug 23	$15,280,000	48.7	48.7	3.5	$313,758
E5	Unit 1, 9/F, 333 Hennessy	2021	25 Apr 23	$15,280,000	48.6	48.6	3.5	$314,403
E6	Unit 2, 9/F, 333 Hennessy	2021	25 Apr 23	$15,280,000	48.7	48.7	3.5	$313,758
E7	Unit 1, 6/F, 333 Hennessy	2021	6 May 23	$14,516,000	48.6	48.6	3.5	$298,683
E8	Office-1 (with terrace) (including lavatories on the same floor), 21/F, Golden Resources Tower	2022	20 Mar 23	$49,800,000	125.0 + Terrace: 4.6	125.8	4.6	$395,866
E9	Office-4 (including lavatories on the same floor), 8/F, Golden Resources Tower	2022	7 Feb 23	$10,350,000	29.3	29.3	4.6	$353,242
E10	Office-4 (including lavatories on the same floor), 11/F, Golden Resources Tower	2022	9 Jan 23	$10,500,000	29.3	29.3	4.6	$358,362
E11	Unit 1, 5/F, 333 Hennessy	2021	14 Oct 22	$14,824,000	48.6	48.6	3.5	$305,021
E12	Office-1 (including lavatories on the same floor), 25/F, Golden Resources Tower	2022	14 Oct 22	$50,470,000	125.0 + Terrace: 4.6	125.8	4.6	$401,192

160.  And again, save for the adjustment for location, Mr Charles Chan and Mr C W Wong had the following agreements (or disagreement) on the other adjustment factors:[25]

Adjustment Factors	Mr Charles Chan	Mr C W Wong
Time	Private Office Price Index (Class B) published by RVD
Size/Quantum	1% per 20 sq m
Age	0.5% per 1year difference
Floor Level	0.5% per 1 floor difference
Headroom	1% per 0.5 m	4% per 1 m
Exclusive Use of Whole Floor	Not Adopted	+5%

Location Adjustment

161.  Mr Charles Chan proposed no adjustment for location in respect of sales in 333 Hennessy and +5% in respect of sales in Golden Resources Tower. On the other hand, Mr C W Wong applied +10% for all comparables.

162.  In terms of office accommodations which are less sensitive to location, these two comparables are situated in the same locality as the Building. 333 Hennessy, which is situated on Hennessy Road, is in fact situated in a more bustling environment. We agree with Mr Charles Chan that there should be no adjustment for location.

163.  On the other hand, Golden Resources Tower is situated on Jaffe Road which is a relatively narrow street. Opposite its ground floor entrance across the street are mainly hardware stores and a motor insurance company.[26] But as explained by Mr Charles Chan in the Joint Statement dated 21 November 2023, its position is close to Hong Kong Convention and Exhibition Centre and just one street back from the cluster of commercial buildings along Gloucester Road.[27] We also agree with Mr Charles Chan’s location adjustment of +5%.

164.  We are also surprised that when assessing the value of ground floor shops, Mr C W Wong was content to apply nil adjustment for location for Comparables A2 or A5 but as much as +10% for Golden Resources Tower which is only located on the other side of Fleming Road.

Headroom Adjustment

165.  In view of the vast headroom differences between the comparables, there must be significant difference in value for the developer to spend a higher construction cost to create high headroom. In such regard, we prefer Mr C W Wong’s adjustment of 4% per 1 metre.

Exclusiveness

166.  Mr C W Wong allowed -5% adjustments to Comparables E8 & E12 (whole floor premises) and +5% adjustment to 16/F-24.F of the hypothetical development, alleging inferior privacy and use of space in sub-divided units when compared with whole floor premises. Mr Charles Chan suggested in the Joint Statement dated 21 November 2023 that, if Mr C W Wong is right, the two comparable buildings and his hypothetical development should be designed to be sold on floor by floor basis to achieve the highest and best use and thus maximum total selling price.

167.  Indeed, in the first Joint Statement dated 3 April 2023, Mr Charles Chan tried to conduct the following paired analysis and found that sub-divided units do not necessarily sell at lower price than whole floor premises:[28]

Ref:	Age	Unit	Date of Sale	Consideration	Effective Area (m2)	Adjustment					Adjusted Unit Rate (/m2)	Difference
						Time	Size	Floor Level	Head-room	Total
Times Media Centre, 133 Wan Chai Road	1998	Flat A, 10/F	3 Feb 23	$13,680,000	81.3	0.0%	0.0%	0.0%	0.0%	0.0%	$168,266	115%
		16/F	18 Jan 23	$30,680,000	216.9	0.0%	6.8%	-3.5%	0.0%	3.1%	$145,833
Hart House, 12-14 Hart Avenue	1977	Flat 1A, 16/F	11 Jan 22	$4,800,000	37.0	0.0%	0.0%	0.0%	0.0%	0.0%	$129,730	103%
		1/F	22 Dec 21	$26,413,200	244.0	-2.6%	10.4%	7.5%	0.4%	16.1%	$125,679

168.  However, as can be seen from the above, the analysis was carried out after adjustment for size. But as Mr Charles Chan himself observed, about half of Golden Resources Tower were sold on whole floor basis while the remaining portion was sold with sub-divided units; the entire block of 333 Hennessy is sub-divided into 2 units per upper commercial floors.[29] There appears to be not much difference if the whole floor is sub-divided or otherwise. This was also Mr Charles Chan’s own comment when he was assessing the EUV of the 4/F units of the Building.

169.  Incidentally, in Crown Centre Development Limited & Another v Wong Wai Ping & Others, LDCS 12000/2021 (unreported, dated 8 December 2023), the Tribunal found at §147 that the unit rate of sub-divided offices in Wan Chai was not significantly different when compared with the unit rate on the basis of the whole floor unit.

170.  Thus, we consider the adjustment for exclusiveness assessed by Mr C W Wong should be applied so as to compensate for the adjustment for size.

171.  We set out our analysis of the GDV for the hypothetical office unit below:

Ref	Unit Price (/m2)	Adjustment										Adjusted Unit Price (/m2)
		Time	Location	Size	Building Age	Floor Level	View	Headroom	Accessibility	Exclusive-ness	Total
E1	$259,783	0.0%	0.0%	-0.2%	1.0%	-1.5%	5.0%	6.0%	3.0%	0.0%	13.8%	$295,633
E2	$269,549	0.0%	0.0%	-0.3%	1.0%	-2.0%	5.0%	6.0%	3.0%	0.0%	13.1%	$304,860
E3	$259,783	-2.6%	0.0%	-0.2%	1.0%	-1.5%	5.0%	6.0%	3.0%	0.0%	10.9%	$288,099
E4	$313,758	-9.4%	0.0%	0.8%	1.0%	4.5%	5.0%	6.0%	3.0%	0.0%	10.5%	$346,703
E5	$314,403	-8.8%	0.0%	0.8%	1.0%	3.0%	5.0%	6.0%	3.0%	0.0%	9.6%	$344,586
E6	$313,758	-8.8%	0.0%	0.8%	1.0%	3.0%	5.0%	6.0%	3.0%	0.0%	9.6%	$343,879
E7	$298,683	-10.9%	0.0%	0.8%	1.0%	4.5%	5.0%	6.0%	3.0%	0.0%	8.7%	$324,668
E8	$395,866	-7.2%	5.0%	4.7%	0.5%	-2.0%	4.0%	1.6%	3.0%	-5.0%	3.9%	$411,305
E9	$353,242	-5.4%	5.0%	-0.1%	0.5%	3.5%	5.0%	1.6%	3.0%	0.0%	13.4%	$400,576
E10	$358,362	-7.2%	5.0%	-0.1%	0.5%	2.0%	5.0%	1.6%	3.0%	0.0%	9.6%	$392,765
E11	$305,021	-11.3%	0.0%	0.8%	1.0%	5.0%	5.0%	6.0%	3.0%	0.0%	8.7%	$331,558
E12	$401,192	-11.3%	5.0%	4.7%	0.5%	-3.5%	4.0%	1.6%	3.0%	-5.0%	-2.2%	$392,366
										Average:		$357,651
										Median:		$346,703

172.  Notwithstanding the above, we note that most of the higher adjusted unit rates are derived from transactions taking place in the earlier dates:

Ref	Address	Date of Sale	Adjusted Unit Price (/m2)	Corresponding Index by RVD
E1	Unit 1, 20/F, 333 Hennessy	30 Sep 23	$295,633	463.8
E2	Unit 1, 21/F, 333 Hennessy	22 Sep 23	$304,860	463.8
E3	Unit 2, 20/F, 333 Hennessy	12 Aug 23	$288,099	476.3
E4	Unit 2, 6/F, 333 Hennessy	8 Aug 23	$346,703	476.3
E7	Unit 1, 6/F, 333 Hennessy	6 May 23	$324,668	520.4
E5	Unit 1, 9/F, 333 Hennessy	25 Apr 23	$344,586	508.7
E6	Unit 2, 9/F, 333 Hennessy	25 Apr 23	$343,879	508.7
E8	Office-1 (with terrace) (including lavatories on the same floor), 21/F, Golden Resources Tower	20 Mar 23	$411,305	499.8
E9	Office-4 (including lavatories on the same floor), 8/F, Golden Resources Tower	7 Feb 23	$400,576	490.3
E10	Office-4 (including lavatories on the same floor), 11/F, Golden Resources Tower	9 Jan 23	$392,765	500.0
E11	Unit 1, 5/F, 333 Hennessy	14 Oct 22	$331,558	522.8
E12	Office-1 (including lavatories on the same floor), 25/F, Golden Resources Tower	14 Oct 22	$392,366	522.8

173.  In such regard, we prefer to rely on the latest transactions and determine the unit rate for the hypothetical unit on 14/F at $300,000 per sq m.

174.  Having said that, we note there are certain disputes between Mr Charles Chan and Mr C Wong on the adjustments for exposure and accessibility for the lower floors (1/F to 3/F) and the view for the higher floors (21/F and above) of the hypothetical development.

175.  The adjustments for exposure between the two valuation experts are set out below:

Floor	Mr Charles Chan	Mr C W Wong
1/F	20%	30%
2/F	15%	20%
3/F	0%	10%

176.  Generally, we agree with Mr Charles Chan. Particularly for the 3/F, we agree with his comment at para 5.8.5 of his Rebuttal Report dated 3 March 2023 as follows:[30]

“As the proposed 3/F is at a level of higher than 15m above street, I disagree with Mr Wong that it is particularly visible to pedestrians. Besides, according to the residual valuation of Mr Wong, the proposed 3/F would be set back for compliance of with site coverage restriction above 15m. This makes the floor less visible, and I disagree with Mr Wong’s +10% exposure adjustment made to 3^rd Floor.”

177.  We understand from the valuation experts that adjustment for accessibility would be allowed to reflect the difference in the number of lifts and staircases serving the different floors. Here, Mr Charles Chan allowed 3% while Mr C W Wong allowed 5%. The difference is not significant. We prefer to adopt 5%.

178.  Again, we set out below the difference of opinion on the view that may be enjoyed by the top 4 floors of the hypothetical development:

Floor	Mr Charles Chan	Mr C W Wong
21/F	7%	10%
22/F	7%	10%
23/F	15%	20%
24/F	15%	20%

179.  In some respect, the hypothetical development will be surrounded by high-rise office buildings, particularly to the north: Jubilee Centre at 18 Fenwick Street has 26 storeys and Harcourt House at 39 Gloucester Road has 27 storeys. In such regard, we agree to the adjustments proposed by Mr Charles Chan.

180.  As a result, the GDV for the upper floor of the hypothetical development is determined as follows:

Floor	Average Unit Size (m2)	Saleable Area (m2)	Adjustment						Adjusted Unit Rate (/m2)	GDV
			Floor	View	Size	Exposure	Accessibility	Total
1/F	314.80	314.80	-6.5%	-5.0%	-14.1%	20%	5.0%	-3.9%	$288,300	$90,757,000
2/F	314.80	314.80	-6.0%	-5.0%	-14.1%	15%	5.0%	-7.4%	$277,800	$87,451,000
3/F	176.94	176.94	-5.5%	-5.0%	-7.2%	0%	5.0%	-12.5%	$262,500	$46,447,000
6/F	32.0	191.94	-4.0%	-4.0%	0.0%	0.0%	0.0%	-7.8%	$276,600	$53,091,000
7/F	32.0	191.94	-3.5%	-4.0%	0.0%	0.0%	0.0%	-7.4%	$277,800	$53,321,000
8/F	32.0	191.94	-3.0%	-4.0%	0.0%	0.0%	0.0%	-6.9%	$279,300	$53,609,000
9/F	32.0	191.94	-2.5%	-4.0%	0.0%	0.0%	0.0%	-6.4%	$280,800	$53,897,000
10/F	32.0	191.94	-2.0%	0.0%	0.0%	0.0%	0.0%	-2.0%	$294,000	$56,430,000
11/F	32.0	191.94	-1.5%	0.0%	0.0%	0.0%	0.0%	-1.5%	$295,500	$56,718,000
12/F	32.0	191.94	-1.0%	0.0%	0.0%	0.0%	0.0%	-1.0%	$297,000	$57,006,000
13/F	32.0	191.94	-0.5%	0.0%	0.0%	0.0%	0.0%	-0.5%	$298,500	$57,294,000
14/F	32.0	191.94	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	$300,000	$57,582,000
15/F	32.0	191.94	0.5%	0.0%	0.0%	0.0%	0.0%	0.5%	$301,500	$57,870,000
16/F	196.94	196.94	1.0%	0.0%	-8.2%	0.0%	0.0%	-7.3%	$278,100	$54,769,000
17/F	196.94	196.94	1.5%	0.0%	-8.2%	0.0%	0.0%	-6.8%	$279,600	$55,064,000
18/F	196.94	196.94	2.0%	0.0%	-8.2%	0.0%	0.0%	-6.4%	$280,800	$55,301,000
19/F	196.94	196.94	2.5%	0.0%	-8.2%	0.0%	0.0%	-5.9%	$282,300	$55,596,000
20/F	196.94	196.94	3.0%	0.0%	-8.2%	0.0%	0.0%	-5.4%	$283,800	$55,892,000
21/F	196.94	196.94	3.5%	7.0%	-8.2%	0.0%	0.0%	1.7%	$305,100	$60,086,000
22/F	196.94	196.94	4.0%	7.0%	-8.2%	0.0%	0.0%	2.2%	$306,600	$60,382,000
23/F	196.94	196.94	4.5%	15.0%	-8.2%	0.0%	0.0%	10.3%	$330,900	$65,167,000
24/F	196.94	219.92*	5.0%	15.0%	-8.2%	0.0%	0.0%	10.8%	$332,400	$73,101,000
									Total:	$1,316,831,000

* Effective Area after taking into account the roof thereof.

Other Development Parameters

181.  Save for the issue on developer’s profit, Mr Charles Chan and Mr C W Wong had agreed on the following development parameters:[31]

Marketing Cost	3%
Interest Rate	5.25%
Professional Fee	6%
Demolition Cost	$13,349,600
Construction Cost	$242,212,818
Demolition Period	0.5 year
Construction Period	2.5 years
Stamp Duty	4.25%
Legal Cost	0.1%

Development Profit

182.  As in many compulsory sale proceedings, the determination of developer’s profit to be adopted in a residual valuation is subject to dispute or disagreement by experts.

183.  By reference to the Modern Methods of Valuation by Eric Shapiro, David Mackmin and Gary Sams, 12^th Ed, 2019, Routledge at p222, the development profit as required in a residual valuation is described as follows:

“As for any risky enterprise a profit is required to compensate for risk. Target levels of profit will depend on the nature of development and allied risk, the competition for development schemes in the market, the period of the development and the general optimism in relation to that form of development …”

184.  Developer’s profit is normally included as a percentage of the costs involved, or sometimes as a percentage of the GDV. The level of profit should represent the return that a hypothetical developer will require for undertaking the project and should be commensurate with the risk involved. By para 3.6.4 of the HKIS Guidance Notes on Valuation of Development Land published in 2016, the related risks include marketing risks for sales and lettings, risks of construction difficulties and cost overruns, and delays in obtaining relevant development approvals.

185.  In a residual valuation, developer’s profit is included in a broad brush manner in the absence of a fully researched risk analysis. Thus, the level of return is only meaningful as a comparative figure but must be related to the risky nature of the hypothetical development and to the length of the project. Without a reasonable profit to be factored in, it would mean that the developer would be purchasing a piece of land for redevelopment expecting no return. This should not occur in reality because there are always alternative investments available in the market with fixed or guaranteed return over a period of time, e.g. Government or corporate bonds which are supposed to have no risk.

186.  As said, there are always risks associated with any investment particularly when the capital to be incurred is rather substantial, as with a real estate development. A developer undertaking such development will seek to make a reasonable profit out of his investment. The profit is the gross profit to the developer before meeting the developer’s general overheads and tax. While this profit is sometimes related to the value of the project, it is more appropriate to relate the same to the costs to be injected in the project and is equivalent to profit margin.

187.  Reverting to the present case, Mr C W Wong had adopted a profit margin of 22.5% (which happens to be the same as that adopted by the Tribunal in Crown Centre Development Limited, supra). Mr Charles Chan disagreed stating that in a sluggish or depressed market, developers would expect stagnant or even decline in property price upon completion of the hypothetical development. He proposed a profit margin of 25%.

188.  While Mr Charles Chan opined that the property market has entered a period submerged in a pervasive atmosphere of gloom and doom, there is always a limit to the range of risk premium within which that can vary. As stated by the Tribunal in Billion Glory Properties Limited & Others v Li Baozhu & Others, LDCS 23000/2019 (unreported, 22 February 2024), the equity risk premium tends to have mean reversion over time similar to business cycles. Therefore, developers placing a risk premium too high would likely be outbid by their competitors if the project is not specialized or unique. That explains why the level of return is only meaningful as a comparative figure. Bearing this in mind, we are prepared to adopt a developer’s profit of 22.5%.

Finding on RDV and the Reserve Price

189.  Thus, subject to what we have stated above, we have carried out the residual valuation and arrive at $707,000,000 (ie accommodation value of $112,522/m²) as shown in the Appendix of this judgment.

190.  While the residual method is a useful tool to assess the viability of a hypothetical development, it is inherently very sensitive to even small changes in the input variables. Thus, if market evidence exists, it is always encouraged to compare it with the result of a residual valuation.

191.  In the present case, Mr Charles Chan had determined the RDV of the Lot by direct comparison at $801,000,000.

192.  In his updated RDV Valuation Report dated 6 November 2023, Mr Charles Chan had quoted para 2.1 of “HKIS Guidance Notes on Valuation of Development Land” published by Hong Kong Institute of Surveyors in 2016 as follows:[32]

“2.1.1   Making reference to land sales and hence adopting the Market Comparison Method is considered the best method of valuation by development land, …”

193.  Having considered all of the evidence and carried out a residual valuation, we are satisfied that the best method to adopt in this case is the direct market comparison method. The site comparable is so closely comparable when only one adjustment was required.

194.  The Majority Owners submitted that the RDV of the Lot as at 3 November 2022 assessed by Mr Charles Chan in the sum of $801,000,000 (AV = $127,483/m2) should be adopted as the reserve price for the sale of the Lot by auction. Since the subject matter to be sold will be “the Lot in its entirety”, and the purpose of the sale is for redevelopment of the Lot according to paragraph 2 of Schedule 2 of the Ordinance, the RDV of the Lot in its entirety should be adopted as the reserve price. Further, notwithstanding Mr W T Chan’s claim for possessory title to the Relevant Part, there is no difference in the redevelopment potential of the Lot in terms of plot ratio, site coverage and design of the new building to the development thereon. To set the reserve price at $801,000,000 instead of $707,000,000 is to the advantage of the Minority Owners.

195.   R1 was adamant that the RDV must be assessed in full as if the High Court Action had not been in existence and that the Majority Owners have already committed to the position that the RDV should not and would not be affected by the High Court Action. They do not seek to change their position or suggest the RDV and reserve price should be reduced due to the High Court Action.

196.  R2 maintained that the Tribunal need not value Mr W T Chan’s right or possessory title in determining the reserve price of the Lot.

197.  R3 also agreed that the reserve price for the auction should be the RDV in its entirety with no adjustment to cater for the claim. R3 objected to setting a lower reserved price say at $800,000,000 as it pre-supposed Mr W T Chan would win his case, and the R3 would be adversely affected if ultimately his claim is defeated. Since that submission Mr W T Chan has succeeded in the High Court Action.

198.  In view of the above, we adopt the estimated RDV of $801,000,000 (ie an accommodation value of 127,483 per sq m) as the Reserve Price for the auction of the Lot.

199.  We do note the RDV of $801,000,000 is lower than the total EUV of the Building of $834,849,000 as at 31 March 2022. However, it is neither here nor there to compare the two values which are nearly 2 years apart. There is no evidence before us as to the EUV as at the present day but on the basis the Private Offices Price Index published by RVD, the value of Grade B offices might have dropped from an index of 516.2 to 458.0 recently, ie a drop of more than 11%. If such a percentage is applied to the total EUV of the Building at $834,849,000 as at 31 March 2022, the prevailing total EUV of the Building might be around $740,722,282, which is lower than $801,000,000.

200.  In any event, in Able Luck Development Limited & Others v Pawling Limited, LDCS 11000/2018 (unreported, dated 22 April 2022), the Tribunal had remarked at §49 as follows:

“… there is no rule to say that if it is economically not viable, such as in cases where the EUV is higher than the RDV, the tribunal may not make the order if it is satisfied that due to the age or state of repairs of the existing building redevelopment is justified.”

201.  R1 raised an issue as to whether an order for sale with a reserve price made in accordance with the RDV under Schedule 2 which is lower than the EUV would be unconstitutional by infringing Art.6 and Art.105 of the Basic Law by coercing the interest of the minorities to be (i) mandatorily acquired below the EUV and (ii) without any compensation for other losses suffered as a result of the compulsory acquisition and hence should not be made at all.

202.  In our view the bases of the argument advanced by R1 are flawed. The first plank, that minorities interests were coerced to be acquired below EUV misstates the facts and fails to recognize the purpose of the EUV under the Ordinance. The second plank seeks to rely on compensation provisions in other statutory regimes and not the statutory scheme to fix the reserve price applicable in these proceedings.

203.  R1 argues that there is a lack of compensation for losses and expenses other than the land value itself that are compensatable in other compensatory regimes, such as under the Land Resumption Ordinance. Examples given are disturbance, relocation costs, business losses, stamp duty for replacement property, compensation to tenants, loss of rental income, severance, repair and renovation costs spent or funds contributed to the IO. R1 acknowledges that there is no such compensation mechanism in the Ordinance. Notwithstanding the absence of express statutory underpinning R1 submits that:

(1)  The Tribunal should set the reserve price at least equivalent to the EUV at the time of commencement of the proceedings as the cut-off date where minority owners were precluded from selling their interests in the open market, plus a fair and reasonable premium above the EUV, say 15% to cover the compensation for other losses and expenses suffered as a result of the compulsory acquisition, based on the principle of equivalence because of the absence of any premium/higher value in the RDV to be compensatable. The Schedule 2 discretion should be used to uplift the reserve price to the increased level to reflect the intent and spirit of the Ordinance. The point is not really on the existence of any residual discretion on a statutory level, but the constitutionality of the order for sale itself when it amounts to deprivation of private property without full compensation of its real value.

(2)  Minority Owners must be compensated at least for the full value of their respective properties as they stood at the time of the EUV. In a falling market, the date of commencement of the Ordinance application has to be treated as the cut-off date to represent the base compensation that the minority is entitled to.

(3)  Further or alternatively, if the property market has once risen during the course of the proceedings but eventually fell below the EUV at the time of trial, the minority should be compensated for the value of their land at the best price that they could have obtained by selling the property at that time but was prevented from doing so.

204.  In our view R1 requires the Ordinance be re-drafted. We refer again to First Kind Ltd supra, paragraph 103. The Tribunal has no power to re-write the legislation. The Court of Final Appeal in Capital Well Ltd, supra per Riberio PJ clearly explained the purpose of the EUV:

“13. Schedule I, Pt 1 sets out the requirements of the valuation report which must accompany the s 3(1) application (“the s 3(1) report”). It must have been prepared not more than 3 months beforehand and must assess the market value of each property on the lot sought to be sold, on a vacant possession basis, ignoring the possibility of a compulsory order under the Ordinance and ignoring the redevelopment potential of the property or the lot. The s 3(1) report therefore contains a valuation of each unit owned respectively by the majority and minority owners in the original development. It does not address the value of the projected redevelopment. As further discussed below, the purpose of the s 3(1) report is to provide the basis for apportioning any future sale proceeds between the majority and minority owners. …

(iv) Apportionment and application of the sale proceeds

19. The proceeds of sale and the associated expenses are apportioned between the majority and minority owners on a pro rata basis “in accordance with ...... the values of the respective properties of each majority owner and each minority owner of the lot” as assessed in the s 3(1) report, subject to any adjustments that may have been made by the Tribunal (Sch I, Pt 3). Thus, as noted above, the s 3(1) report is used for determining the percentage shares of each majority and minority owner in the proceeds.

20. The apportioned proceeds are then distributed by the trustees to the respective owners after deducting the sale expenses and legal costs, as well as sums to cover any liabilities to the government and to discharge any incumbrances on the property (s 11).” (bold emphasis added).

205.  The Ordinance does not provide that the EUV at the commencement of the application shall be the base level for the reserve price. The Ordinance scheme does not provide for the reserve price to be the EUV with a percentage uplift, be it 15% or otherwise. The Ordinance does not provide for fixing a reserve price or a base compensation that shall vary according to whether the market is falling or rising: in a falling market, the date of commencement of proceedings but in a rising then falling market at the best price during the cycle. The Tribunal is bound to apply the scheme of the Ordinance as it stands. It cannot pick and choose provisions from other legislation and introduce other common law claims for compensation when fixing the reserve price under the Ordinance. R1’s written opening, paragraph 126 submitted that alternatively, leave should be given to the Minority Owners to adduce further evidence to prove their actual losses suffered as a result of the compulsory acquisition. R1 did not make any application to adduce any further evidence of such matters. Nor did R2 or R3. In answer to R1’s issue, an order for sale with a reserve price made in accordance with the RDV under Schedule 2 is not unconstitutional by infringing Art.6 and Art. 105 of the Basic Law in this Application. There is no basis to depart from the usual course.

Other Incidental Matters

Trustees

206.  The Majority Owners propose to appoint Mr Anthony Chow and Ms Anna Chow, both being consultants of Messrs Guantao & Chow, Solicitors & Notaries, as the sale trustees. Based on the information on their background and experience as set out in their letter dated 25 September 2023, we are 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 to be reasonable.

Consequential directions

207.  Issue (6) is whether it is necessary for the Tribunal to make consequential directions, in light of the High Court Action. The proposals were to cater for notice to be given to and for any claim by Mr W T Chan and for notice of the High Court Action to be given to any potential purchaser, including whether additional terms should be added to the usual Particulars and Conditions of Sale. Notice would now be of the High Court Judgment, not merely the claim.

208.  Section 4(6)(a) and (b) empower the Tribunal to give directions in the following terms:

“(6) Where the Tribunal makes an order for sale, … it may also give such directions as it thinks fit –

(a) relating to –

(i) the sale and purchase of the lot the subject of the order, including (but without limiting the generality of the foregoing) settling the particulars and conditions of sale of the lot; …

(iii) subject to section 11(5), the application of the proceeds of the sale including –

(A) the holding by the trustees of such part of the proceeds as is specified by the Tribunal in view of any lis pendens affecting the lot; and

(B) the payment of that part of those proceeds, upon the occurrence of an event specified by the Tribunal, to such person or persons as is or are specified by the Tribunal;

(b) requiring the trustees under the order for sale to pay into the Tribunal the proceeds of sale of the lot the subject of the order (after any deduction, if any, pursuant to section 10(2) or 11(1) or (2)(a) and (b), which includes but is not limited to –

(i) any deposit money for the purchase of the lot;

(ii) any other part of the proceeds of sale that is required under the Ordinance to be held or paid to the trustees.…” (bold emphasis added)

209.  Section 11 provides for application of proceeds of sale as follows:

“11. Application of proceeds of sale

(1) The proceeds of sale for the lot the subject of an order for sale shall, after deduction of—

(a) the expenses referred to in section 10(1) (unless such expenses have already been deducted in accordance with section 10(2) or otherwise paid); and

(b) the legal costs on the assignment of the lot incurred by the trustees under the order as assignor to the assignment, be paid to the trustees.

(2) The trustees under an order for sale shall apply the proceeds of sale paid to them in respect of the lot the subject of the order in the following order—

(a) first, in the discharge of any liability due to the Government in respect of the lot;

(b) second, subject to subsection (3), in the discharge of any incumbrance affecting the lot;

c) third, subject to any directions given by virtue of section 4(6)(a)(iii)(A) and (B) and to subsection (4), in payment of the residue to—

(i) the majority owner of the lot in accordance with directions but only after any compensation payable by the majority owner under section 8(3) to the tenant concerned has been deducted by the trustees out of the residue payable to the majority owner; and

(ii) the minority owner of the lot in accordance with directions but only after any compensation payable by the minority owner under section 8(3) to the tenant concerned has been deducted by the trustees out of the residue payable to the minority owner.

(3) The trustees under an order for sale do not have to comply with subsection (2)(b)—

(a) where the purchaser of the lot the subject of the order is the majority owner or any minority owner of the lot; and

(b) to the extent that—

(i) any incumbrance affecting the lot is attributable to the purchaser; and

(ii) the purchaser agrees in writing that the incumbrance is not to be discharged.

(4) …

(5) The trustees under an order for sale shall pay into the Tribunal—

(a) any amount held by the trustees pursuant to any directions given by virtue of section 4(6)(a)(iii)(A) and (B) where the event referred to that section has not occurred before the trustees have started to discharge their duty under subsection (2)(c) in respect of the proceeds of sale of the lot the subject of the order; and

(b) ...

(6) Any amount or residue paid into the Tribunal under subsection (5) shall—

(a) where subsection (5)(a) is applicable, be paid to such person or persons as is or are specified in the directions concerned under section 4(6)(a)(iii)(A) and (B) upon the occurrence of the event referred to in that section;

(b) …

(7) It is hereby declared that—

(a) the application of the proceeds of sale to discharge any liability or incumbrance referred to in subsection (2)(a) or (b) shall be on the basis that the majority owner or minority owner of the lot shall pay for the discharge to the extent that the liability or incumbrance, as the case may be, is attributable to that majority owner or minority owner, as the case may be;

(b) … ;

(c) where a person claims to have had an interest in the lot sold pursuant to an order for sale, nothing in this section or in section 8(1)(a) shall prevent the person from taking any action or commencing any proceedings in relation to any proceeds of sale arising from the sale of that part of the lot to which the interest relates.

(8) Without prejudice to the operation of subsection (3), in this section incumbrance (產權負擔), in relation to a lot, does not include, unless otherwise specified in directions—

(a) if Part II of the New Territories Ordinance (Cap. 97) applies to the lot, any Chinese custom or customary right affecting the land;

(b) any easements, rights of way or rights of water; or

(c) any covenants which run with the lot.” (bold emphasis added)

210.  The two main disputes are:

a.  whether the Particulars and Conditions of Sale should expressly state that the sale is “subject to” Mr W T Chan’s High Court Action claim; and

b.  whether the Tribunal should direct the trustees to pay into the Tribunal the proceeds of sale, or any part thereof, alternatively to hold part of the proceeds in view of any lis pendens and payment of that part to “discharge an incumbrance” namely, to pay Mr W T Chan.

211.  These two disputes raised legal and factual issues, some of which in our view, could not or should not be determined in this, the second phase of the Application, in the present circumstances. The High Court Judgment has now determined that Mr W T Chan has possessory title of the Relevant Part and any order for sale has no effect on his possessory title. However, we shall address the parties’ positions and arguments in so far as necessary to determine the Particulars and Conditions of Sale dispute and the directions to be given at this stage.

212.  The Honourable Mr Justice Lam VP (as he then was) had explained in Group Leader Limited, supra, at §24 as follows:

“… Whilst it is correct that the Tribunal may give directions relating to the application of the proceeds of sale to cater for “lis pendens affecting the lot” under section 4(6)(a)(iii)(A), it does not give the Tribunal jurisdiction to determine the lis pendens. Nor would it give a plaintiff in a lis pendens the locus to seek to be heard on questions as to whether there should be a sale, the setting of reserve price and the apportionment of the proceeds between the majority and minority owners. At the highest, such a plaintiff could only seek directions from the Tribunal to secure the proceeds in respect of the shares of the lot on which he might have a claim…. ”

Majority Owners’ position

213.  The Majority Owners’ position is that Mr W T Chan cannot take part until the Lot is sold. For prudence sake and to protect his potential interest therefore, suitable directions should be made on grant of an Order for sale of the Lot.

214.  Whether Mr W T Chan would succeed in the High Court Action on his claim for possessory title against the Incorporated Owners was yet to be determined. Importantly, it was not known whether the Court would make a determination on the nature of Mr W T Chan’s possessory title to the Relevant Part, vis-a-vis whether his possessory title (if established) is or is not an “incumbrance”. Also, it was not known whether the Court would make a determination on whether he has a right to remain in possession or whether for the loss of his possessory title Mr W T Chan would be entitled to a share of the proceeds of sale of the Lot as compensation. The Tribunal was not to make an indirect ruling on the questions whether the possessory title was or was not an “incumbrance” and whether Mr W T Chan has a right to remain in continuous possession of the Relevant Part.

215.  The Majority Owners maintained that the first and second phase of the Application should not take into account Mr W T Chan’s claim for possessory title but they do require his claim to be taken into account if an Order for sale is granted. Mr W T Chan is not a party to the first and second phases and did not take part in the trial. He has never sought to be joined in this Application but has knowledge of it. Whether his possessory title of the Relevant Part, if established, would have any market value as at the date of the EUV is not a live issue.

216.  The Relevant Part is a common part of the Lot and Building and not attached to any undivided share.

217.  In the High Court Action, Mr W T Chan (“the Plaintiff”):

(a)  claimed a possessory title against the Incorporated Owners only, not the Majority Owners.

(b)  has pleaded that:

“19. The Plaintiff’s claim even if successful is a possessory title and carries with it no undivided share in the Lot.”, “20. By reason thereof the Plaintiff is as a matter of law not entitled to participate, and therefore will not be allowed to be joined as a party to LDSC 7000/2022” and “It is admitted the Plaintiff who has no undivided share in the Lot is not entitled to participate in the LDSC Application”.[33]

(c)  has expressly admitted that he is not a “minority owner” within the meaning of section 2 the Ordinance.

(d)  claimed against the Majority Owners a declaration that:

“in the event an Order for sale is made in LDSC 7000/2017, the Order is not binding on the Plaintiff and does not affect the Plaintiff’s claims herein, and that in the event that the Plaintiff’s claims herein are successful, the Order has no effect on the Plaintiff’s possessory title”[34]

(e)  claimed that “6. … any order for sale made by the Tribunal under LDSC, or indeed any Order made in any proceedings to which the Plaintiff is not a party cannot and is not binding on the Plaintiff who is entitled to remain in possession of the Relevant Part unaffected by such Order”.[35]

(f)  Did not abandon any right to claim against the proceeds of sale: “16. Further, irrespective of whether the Plaintiff is entitled to share in the proceeds of sale, that is a separate issue from whether the Plaintiff is entitled to remain in possession of the Relevant part”. [36]

218.  The Majority Owners pleaded, inter alia, that the Court should not entertain the claim against them because an Order for sale was yet to be made; there was no guarantee the Lot would be sold. The purchaser was not a party to the High Court Action and the question as to how Mr W T Chan’s possessory title to the Relevant Part should be dealt with upon the Order for sale fell within the Lands Tribunal’s jurisdiction and should therefore be determined by it according to the provisions of the Ordinance.

219.  It was the Majority Owners’ contention that in law a claim against the proceeds of sale is all that the Mr W T Chan would be entitled to.

220.  It must not be assumed that the Majority Owners, rather than an independent party, will be the purchaser at the auction. The Majority Owners submitted that the order for sale of the Lot is for the purpose of redevelopment, and the purchaser should not be burdened by any incumbrances, including lis pendens, affecting the Lot, relying on section 4(6)(a)(iii) and section 11(2) and (5). It would be against the scheme of the Ordinance, if after the purchase, the purchaser is to be engaged in disputes or even litigation with a squatter over (a) recovery of land in the Lot, or (b) any compensation due to the squatter for the loss of his right to possession of any part of the Lot.

221.  Registration of Mr W T Chan’s Amended Writ together with Re-Amended Statement of Claim in the Land Registry was withheld for reasons unknown but the Majority Owners’ solicitors were able to get a copy from the Land Registry with a memorial number printed on it. Under section 2 of the Ordinance “lis pendens” means “a lis pendens - (a) within the meaning of section 1A of the Land Registration Ordinance (Cap. 128); and (b) which is registered under that Ordinance”. Under section 1A of the Land Registration Ordinance, Cap. 128 “lis pendens” means “any action or proceedings pending in a court or a tribunal that relates to land or any interest in or charge on land”. The Majority Owners submitted that the High Court Action is registered against all the undivided shares of the Lot and was a lis pendens.

222.  They contended that the withholding does not affect the trustees’ obligation to clear the lis pendens out of the proceeds of sale. The Writ affects an interest in the Lot and if an adverse possessory title was granted, the order would have to be registered under the Land Registration Ordinance. Under section 4(6)(a)(iii) the trustees are expressly directed to hold “such part of those proceeds as is specified by the Tribunal in view of any lis pendens affecting the lot” and to pay that part “upon the occurrence of an event specified by the Tribunal, to such person or persons as is or are specified by the Tribunal”. Further, an order confirming his adverse possession is an incumbrance on the land, and “it will be the duty” of the trustee to discharge any such incumbrance affecting the Lot under section 11(2)(b). Hence, the issue of Mr W T Chan’s possessory title as a lis pendens or as an incumbrance to be discharged should be considered in relation to the proceeds of sale.

223.  The present parties’ experts opine that the sum of $1m (at most) should suffice, to reflect the alleged market value of the Relevant Part[37]. A Building Order issued by the Building Authority dated 16 May 2023 (“the Building Order”) requires the demolition of the structure in the Relevant Part[38], although Mr W T Chan has lodged an appeal. The Majority Owners suggest that the Tribunal might consider that the same is worth nothing at all, referring to Peace Ever Ltd and Others v Au Kai and Others, LDCS 28000/2018 (unreported, dated 1 August 2023), paragraphs 190-191, asking: “how could a prospective purchaser pay anything to which he has no legal title and has difficulty to enclose for exclusive use?” 

224.  The Majority Owners construed section 11 and argued as follows:

a.  Section 11 sets out the duty of the trustee and how the proceeds of sale shall be used before distribution. The trustee under section 11(2) shall use the proceeds of sale to redeem the incumbrance of the Lot.

c.  It must be read with section 8 of the Ordinance which is to protect the right of the successful bidder.

d.  Section 11(8) defines the word “incumbrance” and there are only 3 exceptions expressly identified, none of which refer to an established possessory title.

e.  In HKSAR v Cheung Kwun Yin (2009) 12 HKCFAR 568, the Court of Final Appeal at paragraph 13 held the context of a statutory provision should be taken in its widest sense and certainly includes the other provisions of the statue and the existing state of the law. To date, the existing state of the law has always been that when possessory titles are established in compulsory sale applications, those possessory title holders were only entitled to monetary compensation.

f.  In interpreting a statute the court’s task is to ascertain the intention of the legislature as expressed in the language of the statute: Cheung Kwun Yin supra, paragraph 11. Section 19 of the Interpretation and General Clauses Ordinance, Cap. 1 provides “An Ordinance shall be deemed to be remedial and shall receive such fair, large and liberal construction and interpretation as will best ensure the attainment of the object of the Ordinance according to its true intent, meaning and spirit”. In order to protect the purchaser under section 8 and to “best ensure the attainment of the object” of the Ordinance, namely redevelopment, proceeds of sale “will have to be used to discharge the lis pendens or the incumbrance” created by a possessory title.

225.  The Majority Owners said the ball should not be passed to the future innocent purchaser who succeeds at auction, who should be protected. They maintained that if the incumbrance is attributable to both the Majority Owners and the Minority Owners and does need to be discharged, the trustees will accordingly have to apply the proceeds to deal with it under section 11(3). This would be a burden to be borne by all owners before any distribution. Given that the Relevant Part is a common area and Mr W T Chan issued proceedings against the Incorporated Owners who acted on behalf of the owners, all the present owners as a collective would have to contribute to this “incumbrance”.

226.  The Majority Owners insisted that the lis pendens ought to be covered using the proceeds of sale, and this direction should be made by the Tribunal, upon grant of an order for sale. They accepted that the quantum of $1m might not be accepted by Mr W T Chan, and that he might not even wish to have a dime, but the Tribunal is still required to make an express direction, pursuant to section 4(6)(a)(iii) in view of the lis pendens and section 11(5).

227.  Mr W T Chan remains entitled to take any action or commence any proceedings under section 11(7)(c) to claim monetary compensation against the proceeds of sale of all owners. After the sale, no squatter can insist on his right to remain.

228.  The Majority Owners submitted that there were two possible options:

Option 1:  To direct the trustees to be appointed by the Tribunal pursuant to the Ordinance to pay the net proceeds of sale of the Lot into the Tribunal after paying the following:

i.  The costs and expenses of the auction and the assignment of the Lot to the purchaser in compliance with sections10(2) and 11(1);

ii.  The amount required to discharge liabilities due to the Government in compliance with section 11(2)(a);

iii.  The amount required to discharge all the confirmed incumbrances (other than Mr W T Chan’s interest) affecting the Lot in compliance with section 11(2)(b);

iv.  Any compensation due to tenants according to  sections 4(6)(a)(ii), 8(3), 8(4), 8(5) and 11(4).[39]

Option 2:

(a)  To direct the Majority Owners to notify Mr W T Chan in writing that an Order for sale of the Lot has been made by the Tribunal and to provide him with (i) a copy of the judgment of the Tribunal, and (ii) a copy of the sealed Order for sale of the Lot.

(b)  To direct the trustees to notify Mr W T Chan in writing that the net proceeds of sale of the Lot will soon be apportioned and distributed to the Majority Owners and Minority Owners. The said written notice shall be given to him by the trustees, say not less than 14 or 21 days prior to the time when the trustees are in the position to distribute the net proceeds to the Majority Owners and the Minority Owners after the trustees have cleared the payment of the following (see list (i) to (v)). Such written notification to be copied to the Majority Owners and the Minority Owners for their information.[40]

229.  Any express direction requiring the Majority Owners to inform Mr W T Chan is beyond what is required by the Ordinance. Under paragraph 1 of Schedule 2, the public will be given notice of the auction by publication in a Chinese and English newspaper. Mr W T Chan falls under this umbrella of “the public”. Nevertheless, the Majority Owners are willing to directly inform Mr W T Chan and give him express notice of the auction.

230.  The Majority Owner say by adopting Option 1:

(a)  It would give a liberty to the Majority Owners and the Minority Owners to apply for the release of the net proceeds of sale to them;

(b)  The Tribunal could play a pro-active role in addressing the issues about the application and distribution of the net proceeds of sale having regard to the development of the High Court Action;

(c)  Mr W T Chan could take part in the fourth phase, if he so wished;

(d)  It would save the costs required for remunerating the trustees.

231.  Whereas Option (2) would keep Mr W T Chan informed of the outcome of the present Application, he could decide whether he would like to participate in the fourth phase of the Application in relation to the apportionment and application of the net sale proceeds of the sale of the Lot, and commence proceedings in the Lands Tribunal pursuant to section 11(7)(c).

232.  The Majority Owners confirmed that as matters stand, Mr W T Chan is unlikely to be satisfied with any monetary compensation which may be provided to him under the Ordinance. He insists on his alleged right to remain in possession of the Relevant Part after the sale of the Lot to a successful bidder in a public auction.

233.  If that were to be the case, it would be for the purchaser of the Lot to decide whether to take out an action for recovering possession of the Relevant Part. If the purchaser is not a party to the High Court Action, it will not be bound by the High Court Action judgment or an appellate judgment.

Majority Owners Particulars and Conditions of Sale

234.  The Majority Owners proposed that to ensure that Mr W T Chan’s claim will be made known to persons interested in purchasing the Lot, a remark can also be incorporated into the Particulars and Conditions of Sale of the Lot so as to draw the attention of the general public to the High Court Action. It would now be necessary to refer to the High Court Judgment, not merely the claim.

235.  The Majority Owners attached proposed draft Particulars and Conditions of Sale to their closing submission, as Appendix 3. Their Appendix 3 includes the following addition to the usual terms at Clause 20, namely (“draft Clause 20”):

“All potential bidders are advised that, in the legal proceedings of the High Court Action No. 1581 of 2017, the plaintiff therein known as Chan Wing Tong claims possessory title to a portion of the Lot with an area of about 8.26 square meters.”

236.  The draft Clause 20 includes a second addition to the usual terms, namely that the muniments of title in the Vendors possession “(including sealed copy or copies of the Court Order) and the Amended Writ of Summons issued by Chan Wing Tong on 5^th July 2017 and re-filed on 30 May2023” may be inspected at the office of the Vendor’s Solicitors. The draft Clause 20 usual terms include advising all potential bidders to conduct their own searches against the property and to inspect and fully satisfy themselves as to the title and that the purchaser shall be deemed to have full knowledge of and to have accepted the title on the fall of the hammer and no requisition or objection in respect of title or otherwise shall be made by the purchaser.

237.  Any person interested in purchasing the Lot would thereby be fully informed when deciding whether they should proceed to purchase at the reserve price fixed by the Tribunal. Further, while registration of the Amended Writ together with Re-Amended Statement of Claim in the Land Registry is withheld, any person interested in the Lot should still be able to discover the High Court Action claim to the Relevant Part from the Land Registry. Now the High Court Judgment may be registered.

R1’s position

238.  R1’s position was that section 11(2)(b) is confined to those incumbrances which can be immediately discharged as of right in money terms without serious dispute, such as mortgages registered against an owner. All other incumbrances affecting the Lot should pass to the purchaser.

239.  Mr But submited that the biggest fallacy in the Majority Owners’ case was that there is nothing under the Ordinance which gives the Tribunal jurisdiction to compel the ‘acquisition’ of possessory title in exchange for monetary compensation. None of the provisions, including section 11(2)(b), was drafted to enable expropriation of property rights of an owner. There is no jurisdiction at the post auction phase to compel the squatter to be compulsorily bought-out by the trustees under the notion of discharge under section 11(2)(b) as if there is a compulsory acquisition under the Land Acquisition (Possessory) Title Ordinance, Cap. 130. Mr But expanded on the reasons why the Majority Owners’ incumbrance approach cannot be applicable, including that section 11(2)(b) is not an expropriatory provision. Clear words are required and they have to allow the squatter to be heard and object, with compensation mechanisms provided for taking away private property rights, which there is none. There is no statutory guidance on post-trial questions or provisions on whether, when on what grounds and how possessory titles should be compellable to be discharged; whether the squatter can show cause to resist a ‘compulsory acquisition’ of his title; the basis of the determination of the quantum of ‘compensation’ for the possessory title; apportionment of compensation payable between prior owners; and the position with regards the squatter’s costs and the prior owners’ costs vis-a-vis the purchaser.[41]

240.  Mr But asked, if it was the legislative intent to have possessory titles to also be compulsorily sold to a purchaser to facilitate “redevelopment”, why did the legislature only include “undivided shares” to form the subject matter of an order for sale under section 4(1)(b)(i) rather than “all interests”?

241.  R1 submits that if squatters are deliberately excluded from the statutory regime, both resisting an order and entitlement to compensation which concerns the sale of “undivided shares” of a lot, all parts of the Ordinance proceedings whether pre-trial or post-trial should not concern the squatter.

242.  R1 replies that the Majority Owners’ reference to the objective of the Ordinance for ‘redevelopment’ is neither here nor there in the absence of a clear provision enabling elimination of possessory title. Leaving these issues to the Tribunal to be resolved later would be seriously prejudicial to the Minority Owners. It could mean that sale proceeds would never be payable to the Minority Owners once there was any lis pendens / adverse possession claim involving common parts in the High Court until proceedings come to their final conclusion.

243.  R1 submits that the default and usual approach must be caveat emptor. The conditions of sale should contain a provision that the sale shall be ‘subject to the outcome’ of the High Court Action. After completion, all risks and consequences pass to the purchaser as the successor-in-title. Only the purchaser should deal with Mr W T Chan. None of the sale proceeds should be deducted for such purpose.

244.  Mr But says that in most circumstances, the trustees need not deal with title defects or incumbrances for example, missing title deeds or Building Orders, by retaining and/or seeking payment out of the sale proceeds, because they are to be dealt with by the purchaser as dictated by the standard conditions. Usually the purchaser is responsible for dealing with title defects, which must include a claim of adverse possession and the present case should be no exception. As a result, the minority owners would usually receive their compensation very soon. There is no need for the trustee to trouble the Tribunal for further directions on an amount to be retained.

245.  In the High Court Action, Mr W T Chan denied the Majority Owners’ counterclaim that his possessory title, if proven, would be “dischargeable” as an “incumbrance”. All he wanted was to be left alone with his possessory title. Mr But considers that in the absence of any intention on his part to claim against the proceeds of sale, there is simply no point to invite him to be joined at a later stage. Arguably he has already elected or taken the position that he would have no claim on the proceeds. If Mr W T Chan does not want money in exchange for land, the sale proceeds and particularly the Minority Owners’ proceeds under section 6 should not be withheld indefinitely or until the moment he agrees to a buy-out. [42]

246.  R1 also argued that section 16 of the Building Management Ordinance, Cap. 344 divests all rights and interests in the lane as a common part as a matter to be exclusively dealt with by the Incorporated Owners and not the owners, both before and after the auction. Mr W T Chan can only claim against the Incorporated Owners. He has no right to claim the proceeds of prior owners, even if he wished to. Therefore, the purchaser should have no right to ask former owners to pay anything to compensate him. The proper payor to discharge the incumbrance in common parts should be the Incorporated Owners, which is a legal entity that survives completion, not the prior owners. Further, Mr W T Chan was not encroaching on R1’s shop. It is not an incumbrance attributable to R1.[43]

247.  R1 objected to the Majority Owners’ Option 1 and any of the sale proceeds being subject to any withholding or deduction by the trustees under section 11(2)(b). Any withholding of their sale proceeds pending further adjudication of Mr W T Chan’s claim is highly prejudicial to R1’s interests. He considers the proposed directions for Mr W T Chan to apply at a later stage and for the trustees and/or Minority Owners to deal with him as if a possessory title is a dischargeable incumbrance under section 11(2)(b) wrong and unjust. Rather, the purchaser must have notice of the claim before acquiring the Lot to bear the risks and consequences of the High Court Action.

Minority Owners’ Particulars and Conditions of Sale

248.  The Minority Owners’ proposed Conditions of Sale to be added to the usual conditions are at Annex D to R1’s closing submission (“R1 Annex D”). They provide as follows:

(a)  R1 Annex D, clause 1 “The Purchaser declares and acknowledges that it is fully aware of the claim of one ‘Chan Wing Tong’ (“the Squatter”) against the Incorporated Owners of Kam Chung Building in HCA 1581/2017.” Mr Edward Chan SC had no objection to such a clause. The High Court Judgment is now available.

(b)  R1 Annex D, clause 2 “The Purchaser accepts that the present sale shall be subject to the adjudication of HCA 1518/2017 (and appeals therefrom, if any) and agrees not to raise any objection nor requisition on title in relation to the said proceedings. The Purchaser further acknowledges and understands that it shall bear all risks and be responsible to handle and deal with all consequences of the said proceedings, including but not limited to the possessory title of the Squatter, if any, to be adjudicated, declared or found by the High Court in HCA 1581/2017 (or appeals therefrom) and all costs thereto. The Purchaser hereby waives any right to claim against the Vendors and the Vendors shall have no liability whatsoever to the Purchaser or to any other person in respect of any loss, damage or cost which the Purchaser or any other person may suffer or incur as a result of the said proceeding.” The Minority Owners’ aim is to ensure that the purchaser acquires the Lot subject to the High Court Action and its outcome. Mr Edward Chan SC objected to the sale of the Lot being subject to the High Court Action and the claim as that would be beyond jurisdiction to order sale of the whole lot for the purpose of redevelopment. Mr Edward Chan SC had no objection to parts of clause 2, such as a term against raising requisitions on title in relation to the proceeds and waiving any claim, but submitted they are unnecessary.

(c)  R1 Annex D, clause 3 “The Purchaser agrees that the Vendors and the Trustees shall not be responsible for payment of any sums (whether in the form of compensation, costs or otherwise), directly or indirectly, to the Squatter from the sale of the proceeds or otherwise.” The clause is to make it clear that neither the purchaser nor the trustees shall demand any payment, contribution or reimbursement from the Minority Owners to pay Mr W T Chan. Mr Edward Chan SC repeated that such a clause is objectionable and directly contradicts section 4(6)(a)(iii) which requires the Tribunal to direct the trustee to retain part of the proceeds in respect of “lis pendens”, which is the current position, and against section 11(2)(b), which requires they apply proceeds “in discharge of any incumbrance”, which will be the position if Mr W T Chan succeeds.

(d)  R1 Annex D, clause 4 “The Purchaser further acknowledges and accepts that possessory title of the Squatter, if any, to be adjudicated or found by the High Court in HCA 1581/2017 and all costs thereto shall, if found by the Tribunal to form an ‘incumbrance’ of the Lot, be solely attributed to the Purchaser and not to be attributed to any of the Vendors.” Mr W T Chan’s possessory title, if so declared in the High Court Action, may be subject to further determination either by the High Court or the Tribunal as to whether it constitutes an “incumbrance” to be discharged under section 11(2)(b)(ii). The Minority Owners insist that if found to be an incumbrance by the Tribunal at a later stage it is to be attributable to the purchaser alone and not to the prior owners. Mr Edward Chan SC objects to the clause on the same bases.

(e)  R1 Annex D, clause 5 “The Purchaser agrees that the sale proceeds of the sale as paid by the Purchaser to the trustees shall be released by the trustees to the respective Vendors forthwith after discharging the usual expenses such as trustees’ costs, auctioneer costs, government rent and outstanding mortgagee/charge (if any) without any deduction, retention or payment for the Squatter in HCA 1581/2017.”  The clause is to make it clear that the prior owners shall be entitled to immediate payment/release of their respective share of the sale proceeds after deduction of the usual expenses. Mr Edward Chan SC objected to the clause, it being against directions provided for by the Ordinance in respect of lis pendens and an incumbrance.

(f)  R1 Annex D, clause 6 “The Purchaser do undertake to pay to the trustees (or into the Tribunal/ Court if so directed) further estimated retention amount(s) that the trustee and/or the Tribunal deems reasonable and necessary as potential compensation or consideration for the discharge of the possessory title of the Squatter in HCA 1581/2027 pending further determination of the Tribunal. The maximum amount of such retention shall not exceed the amount of sale proceeds as paid to the Vendors.” R2 explained that clause 6 was to cater for the possibility of Mr W T Chan’s interest being a mere incumbrance that could be discharged under section 11(2)(b) so that the purchaser may be ordered to pay into the trustees or Tribunal an amount calculated by them to be due compensation for an incumbrance on the part claimed pending further determination by the Tribunal. Mr Edward Chan SC submitted that the better course is for the purchaser to pay full price and the trustees to deal with the proceeds in accordance with the Ordinance.

(g)  R1 Annex D, clause 7 “The Purchaser be at liberty to apply to the Tribunal for further directions in dealing with the possessory title, if any, of the Squatter.” R2 adds that clause 7 should give liberty to the Applicants, the Majority Owners, the Minority Owners, their successors in title and/or the trustees to apply for further directions. Mr Chan SC had no objection to there being notice that there be liberty to apply in the Particulars and Conditions of Sale.

249.  Mr But explained that the R1 Annex D conditions aim to achieve a clean break between the owners. The purchaser could still argue against Mr W T Chan on the basis of section 11(2)(b)(ii). At the same time, the Minority Owners would not have to incur unnecessary legal costs in any subsequent rounds to be fought between the purchaser and Mr W T Chan. The clean break would also save 3 teams of legal costs at a later stage.

250.  The Majority Owners argued that it was simply unfair for them and the Minority Owners to force Mr W T Chan’s claim on to the future purchaser by requiring the order for sale to be expressly “subject to” Mr W T Chan’s possessory title or his claim in the High Court Action. The Majority Owners’ position is that the Particulars and Conditions of Sale should most certainly be silent on whether the sale is subject to his claim and/or possessory title. This is especially the case when they remained of the view that the same will have to be discharged using the proceeds of sale.

251.  R1 required that after completion, the Minority Owners be paid their full compensation forthwith without any retention for Mr W T Chan or the High Court Action (i.e take the money and go). Any further litigation shall be dealt with between the purchaser and Mr W T Chan alone. All the risks and benefits pertaining to Mr W T Chan’s claim should be vested in, passed to and borne by the purchaser, who would be in full control of the Lot and the Incorporated Owners.

R2’s position

252.  R2 was concerned that on the Majority Owners’ case that Mr W T Chan’s compensation should be determined if and when application is made by him to the trustees or Tribunal holding the sale proceeds, the owners would have to wait and apply for the release of the net sale proceeds. Meanwhile the entitlement, amount and percentage of the sale proceeds that might be due to him remains indeterminate, as does the time when those matters shall need to be determined. It is unknown when and whether Mr W T Chan will apply for compensation. As matters stand, he is unlikely to be satisfied with any monetary compensation and insists on his right to remain in possession.

253.  R2 submited that the Majority Owners’ directions or Option 1 and Option 2 do not resolve any of the practical issues regarding the High Court Action and the entitlement of Mr W T Chan. They ignore the problem until the fourth phase of apportionment and application of the proceeds of sale:

(a)  Option (1), of paying the proceeds in to the Tribunal is essentially kicking the problem into the long grass and increasing the Tribunal’s administrative burden. How much of the proceeds could be paid out before that to the owners remains unaddressed.

(b)  While R2 agrees that the Majority Owners, being a party to the High Court Action with Mr W T Chan, should keep him informed, beyond that Option (2) is not a real alternative to Option (1).

254.  Mr Edward Chan SC confirmed their position was that discharge must be done out of the sale proceeds, an order for sale will mean that the purchaser takes free of the incumbrance and that the Lot must be sold free of Mr W T Chan’s interest. They acknowledge Mr W T Chan is seeking a possessory title, with no apparent interest in monetary compensation. Madam Fok, the Majority Owners’ factual witness, confirmed in oral evidence that Mr W T Chan had not sought the payment of any sums to leave or give up his possession of the Relevant Part.

255.  R2’s position was that the Tribunal should not and need not adjudicate on the nature of Mr W T Chan’s interest, if any. However, to determine the form of the order for sale to be made and what conditions should or could be included in the conditions of sale, the scenario in which Mr W T Chan successfully establishes a possessory title should be considered vis-à-vis the effect of an order for the sale under the Ordinance.

256.  R2 addressed the legal framework if possessory title is established. R2 relies on the principle of statutory construction known as the principle of legality, as stated in U Storage Group Limited v Director of Fire Services & Director of Buildings [2020] HKCFI 2114 at paragraphs 73-76:

“73. The principle of legality is a principle of construction which requires that any abrogation or restriction of fundamental rights by statute should be done unmistakably, ie expressly or by necessary implication. In other words, in the absence of express language or necessary implication to the contrary, the courts will assume that even the most general statutory words were intended to be subject to fundamental rights…

76. Even where a statutory power authorises an intrusion upon fundamental rights, it is interpreted as authorising only such a degree of intrusion as is reasonably necessary to fulfil the objective of the provision in question…”

257.  Where a statue is silent, the common law position prevails. The position for a normal sale by a paper title owner of premises partly subject to a possessory title is this:

(a)  The paper title owner’s rights are extinguished and his right to eject the squatter is lost, but he still has his title to the land as against the Government under the Government lease.

(b)  The existing conditions of the Government lease remain enforceable as against the paper title owner.

(c)  The paper title owner remains entitled to assign his interest to a purchaser.

(d)  The purchaser steps into the shoes of the original paper title owner, and is likewise unable to eject the squatter from the part of the land to which his possessory title relates.

258.  Applying the principle of legality in the construction of the Ordinance, R2 submitted:

(a)   Any abrogation or restriction of fundamental rights, which must include property rights, by statute must be done expressly or by necessary implication in the Ordinance.

(b)  There must be some express language and logic in the Ordinance that removes the possessory title of Mr W T Chan, if established.

259.  The property ownership rights expressly abrogated by the Ordinance are those stated to be extinguished for the protection of the purchaser of the Lot under the Ordinance regime, set out at section 8. That provision limits the protection to:

(a)   Extinguishment of rights of prior owners under  section 8(1)(a), “rights” strictly being defined in that section as those exercisable by virtue of ownership of “undivided shares” and that affect the lot; and

(b)  Termination of tenancies under section 8(1)(b).

260.  There is no express language and logic dealing with the matter of possessory title not attributed to particular undivided shares and hence not a right exercisable by virtue of ownership of undivided shares:

(a)   Such possessory title does not fall within section 8 of the Ordinance.

(b)  It is possible for rights in and over land to persist beyond the order for sale; there is no provision for blanket extinction of all rights in the land; and section 11(8) excludes, inter alia, easements and customary rights from the definition of ‘incumbrance” that may be discharged by application of sale proceeds.

(c)   The Court of Appeal in Group Leader, supra paragraphs 26 and 28, was accordingly of the view that section 8 does not operate as a conveyancing device giving an absolute good title to the purchaser without regard to the nature of all title problems.

261.  Ms Au submitted that section 11 provides for the order in which the trustees shall apply the proceeds of sale; this is to set out priority only.

262.  There is no provision that adverse possession rights affecting the land must be discharged by the application of the sale proceeds such that the purchaser shall take free from all proprietary rights relating to the land not attributable to undivided shares, excluded incumbrances, and/or interests not provided for.

263.  R2 accepted that in considering whether a possessory title is a mere incumbrance within the scheme of the Ordinance which the Tribunal may order to be discharged by application of the sale proceeds, notwithstanding the owner of such title has no locus to be heard at the application for the sale, the Tribunal must have regard to the objective of the Ordinance but submits this does not include imputing intention to the legislature where there is none:

(a)   While the Majority Owners stressed the statutory objective of redevelopment, the Tribunal should not concern itself with the feasibility of the redevelopment. In any event, here the claimed Relevant Part should be a non-building area as well as a means to escape under the Code of Practice for Fire Safety in Buildings and would not affect redevelopment of the land.

(b)  The central objective of the statue is to facilitate sale of all the undivided shares and there is no intention that the purchaser must be able to take an unimpeachable title free of all other interests whatsoever.

264.  Ms Au concluded that there being no express abrogation of the proprietary right as claimed by Mr W T Chan, nor any mandatory stipulation that the Tribunal should ensure the purchaser may take free of any and all prior interests, the common law position should apply upon the sale and there is no question but that the objectives of the Ordinance are still fulfilled.

265.  R2 confirmed the R1 Annex D conditions should be added to the usual boilerplate conditions of sale. Ms Au proposed that the prudent course was to take into account the possibility that in the High Court Action Mr W T Chan succeeds in his claim put at its highest so relying on section 4(6)(a)(1), the Tribunal should direct that the Conditions of Sale should fully disclose the High Court Action so that the winning bidder can be out on notice and purchase subject to Mr W T Chan’s entitlement if it is ruled in the High Court Action that it is a possessory title and not dischargeable as an incumbrance.

266.  So that the trustees shall be given proper guidance, R2 asks the Tribunal to expressly rule that the net sale proceeds are to be paid out to the owners of the undivided shares in the Lot apportioned on the basis of the EUV as determined by the Tribunal.

R3’s position

267.  R3 confirmed it also required the R1 Annex D additional conditions be included in the Particulars and Conditions of Sale. R3’s position was that though Mr W T Chan could commence an action to claim against the proceeds of sale after the court declared he had possessory title to the land on which the stall was erected, Option (1) and Option (2) involving paying the sale proceeds into the Tribunal or notifying Mr W T Chan of the sale (actually inviting contest) are to R3’s disadvantage, as they would entail time and costs in applying for payment out or arguing against the quantum of Mr W T Chan’s claim. R3 submited that adopting a market reality approach, it would suffice if the intended purchaser is put on notice that there is a potential claim from Mr W T Chan.

Discussion

268.  In King, Benji Henry v Asia Harbour Investment Limited and Others, HCMP 1823/2017 & HCMP 423/2018 (unreported, dated 20 June 2019) G Lam J (as he then was) granted the plaintiff, King a declaration of possessory title of a property on a portion of a roof in the common parts that was not attached to any undivided shares of the land and building. G Lam J held, inter alia, that:

“29. The first of the declarations sought by the plaintiff is that he has acquired, by way of adverse possession, ownership over the Property as against all the defendants…  I think it is in order to grant a declaration in each case that, as between the plaintiff and defendants, the plaintiff has acquired, by way of adverse possession, ownership over the Property as against all the defendants being the co owners of the Lot in question.

30. I also grant a declaration in each case that any and all of the defendants’ rights and interests of and in the Property have been extinguished pursuant to s 17 of the Limitation Ordinance.

31. In the originating summonses the plaintiff also claims a declaration that he is “entitled”, by virtue of his rights acquired by way of adverse possession, “to compensation for any loss or damage resulting from a compulsory sale pursuant to The Land (Compulsory Sale for Redevelopment) Ordinance … of all of the undivided shares in the Lot.

32. It seems to me that the questions of compensation and application of proceeds of sale may well be matters for the Lands Tribunal in the proceedings for compulsory sale, already pending, rather than in such an action as the present before the Court of First Instance. Mr Sham has foreshadowed an argument that no value should be attributed to the rooftop which was not allocated any undivided share in the Deeds of Covenants. Moreover, it is in my view wrong in principle to make such a vague declaration of entitlement to compensation in the abstract especially when Ms Lau is unable to identify precisely the basis of the “entitlement” contended for. The passage in Hong Kong Civil Procedure 2019, vol.1, §15/16/3, cited by Mr Sham, that “a declaration ought not to be made upon a preliminary point in an action brought for that purpose, where the substantive relief must be claimed in another action”, seems to me to be apt in the present case.

33. Ms Lau relied on Chung Chiu Hing v The Personal Representative of Law Sam, deceased, HCMP 2384/2011 (unreported, dated 9 June 2017) for her submission that the declaration sought is something that this court has jurisdiction to and should deal with. With respect, Chung Chiu Hing is a materially different case. There the plaintiff contended he had acquired title to a flat and the 1/364^th undivided share allocated to that flat by adverse possession. The Lands Tribunal had ordered all the undivided shares to be sold by auction and they had been sold accordingly. The proceeds of sale attributable to the property and share in question were already ascertained. It was in these circumstances that B Chu J held in that case that, having found that the plaintiff had established adverse possession, there was no reason why the plaintiff could not be regarded by the trustee appointed for the compulsory sale to be the owner of the undivided share relating to the flat, and no reason why the entirety of the relevant part of the sale proceeds should not be paid to the plaintiff to discharge the encumbrance created by his possessory title. In the present case, no undivided share is allocated to the Roof Floor, let alone the Property standing on that floor. The dispute on compensation may involve argument not only about whether compensation should be paid, but also about the quantum of compensation payable and by whom or from which fund it should be paid. It should finally be noted that even in Chung Chiu Hing itself, while B Chu J observed that she saw no reason why the trustee should reject the plaintiff’s claim for the sale proceeds, she did not actually make any declaration about entitlement to compensation (see §§137, 139).

34. I decline therefore to grant the third declaration sought.”

269.  We are informed that King, Benji Henry was joined as a respondent in the compulsory sale application LDCS 4000/2017 (unreported, dated 27 November 2020). Asia Harbour as Majority Owner took issue with King’s locus standi to take part on the ground that he was not a “minority owner”. There was a settlement agreement before the issue was determined.[44]

270.  In this Application Mr Edward Chan SC has already foreshadowed an argument that no value should be attributed to the Relevant Part claimed by Mr W T Chan which was not attached to any undivided share in the DMC. There is the Building Order for demolition of the structure thereon but Mr W T Chan has appealed against that order. The facts may be distinguished from Chung Chiu Hing v The Personal Representative of Law Sam, deceased, supra, on the same basis. The plaintiff in Chung Chiu Hing contended he had acquired title to a flat and the 1/364^th undivided share the flat attached to by adverse possession. The proceeds of sale attributable to the property and share in question were already ascertained. Mr W T Chan has not claimed any undivided share. And, unlike King, Benji Henry, Mr W T Chan has not sought a declaration or any entitlement to compensation for loss suffered due to the Application, either before the Court of First Instance or the Tribunal.

271.  On all the evidence and information available to the Tribunal to date Mr W T Chan has not shown any interest in claiming compensation from the Tribunal. He is not before the Tribunal so we do not know his actual position, which may change.[45] Were he to make a claim, we are conscious that as in King, Benji Henry the dispute on compensation for him may involve argument not only about whether compensation should be paid, but also as to the quantum of compensation payable and by whom or from which fund it should be paid. The Majority Owners submit these matters fall under the fourth phase, apportionment and application of proceeds, as set out by Ribeiro PJ in paragraphs 19 and 20 of Capital Well supra.

272.  At the time of closings it was unknown whether it would be held in the High Court Action that Mr W T Chan has acquired, by way of adverse possession, ownership over the Relevant Part and that the 1^st Defendant’s rights and interests of and in the Lot have been extinguished pursuant to section 17 of the Limitation Ordinance and whether the Court would also determine the issue of whether his interest is an “incumbrance” in terms of the Ordinance. If so, the subsequent issue of whether or not upon a proper construction such incumbrance is bound to be “discharged” out of the proceeds of sale. The Majority Owners had argued the possessory title must be so discharged. The Minority Owners made substantial submissions to the contrary.

273.  The Order for sale is of the undivided shares of the Lot. The Tribunal does not presume to make any determination in respect of any right of Mr W T Chan, who is not before the Tribunal, nor on any issue that has been determined by the Court in the High Court Action. We have not determined the value of the Relevant Part at any point in time. Were that issue to come before the Tribunal, obviously Mr W T Chan would not be bound by any determination on his interest in any event. The Majority Owners and the Minority Owners would also be entitled to deal with the valuation issue uninhibited by any second phase finding of this Tribunal in that regard.

274.  Both the Majority Owners and the Minority Owners have prayed in aid case management factors to follow the course they propose to obviate argument in the fourth phase. Were Mr W T Chan to make a claim against the proceeds of sale, the Minority Owners are quite rightly concerned that considerable legal costs could be incurred and a lengthy period of time may ensue before they receive their full entitlement to the proceeds of sale. The Application is in the second phase identified by the Court of Final Appeal in Capital Well. The Tribunal seeks to further the underlying objectives Order 1A, rule 1, Cap. 4A which are applicable to the Tribunal[46], but in the present circumstances it is not possible to obviate all fourth phase issues. The Tribunal would remind the parties of the underlying objectives and in particular, Order 1A, rule 3, Cap. 4A, namely:

“3. Duty of the parties and their legal representatives (O. 1A, r. 3)

The parties to any proceedings and their legal representatives shall assist the Court to further the underlying objectives of these rules.”

275.  We refer to the decision of the Court of Final Appeal in Sin Ho Yuen v Fineway (2011) 14 HKCFAR 497 at paragraph 25, per Bokhary PJ, set out in R1’s opening submission, paragraph 114:

“25. As the title of the Ordinance states, it provides mechanism for the compulsory sale of land for redevelopment, by giving to the tribunal the power to order the sale of a property in multiple ownership, over the objections of a minority owner.  In order that the entrenched right of private ownership of property in Articles 6 and 105 of the Basic Law be not infringed, the protection of minority interest under the Ordinance becomes therefore a key factor. In turn, it behoves the tribunal, in carrying out the scheme of the Ordinance, to ensure that such protection be not diminished, or be whittled down through inefficiency and delay. And there would be diminution if, for instance, the minority owner bore, at the end of the day, an inordinate burden of costs, so that what he got by way of his share of the proceeds of sale was largely taken away by the costs incurred in the legal process.”

276.  It behoves the Tribunal to ensure that the Minority Owners’ compensation is not diminished or delayed and we make orders and give directions to that end. There are matters not before the Tribunal and matters that may yet come before the Tribunal. Going forward we would urge the parties to assist the Tribunal in furthering the underlying objectives. Sin Ho Yuen may be a cautionary tale. While the present parties cannot control steps taken by third parties, they are able to work to minimise the costs and prevent delays. The parties and their legal advises should work to ensure that the costs expended and time incurred after this second phase is not out of all proportion to any sum in dispute.

277.  The Tribunal must determine the form of the order in light of the High Court Judgment and Mr W T Chan’s  possessory title of part of the common area of the Lot in circumstances where he may or may not seek monetary compensation from the Tribunal.

Particulars and Conditions of Sale

278.  We direct that the Particulars and Conditions of Sale include additions in similar terms to set out in the Majority Owners’ draft Clause 20, to ensure notice of the High Court Judgment (not merely the action) is given to and relevant documents, in particular the said Judgment, are available to any potential bidder. The Majority Owners’ prepared set of draft Particulars and Conditions of Sale of the Lot Appendix 3, subject to any amendment that may become necessary as a result of our ruling on the arrangement of auction herein, are also reasonable.

279.  We do not direct that the Particulars and Conditions of Sale include an express condition that the sale is “subject to” the High Court Action. We do not direct that the additional terms set out by the Minority Owners in R1 Annex D, clauses 2 to 6 be included in the Particulars and Conditions of Sale.

280.  The Majority Owners have no objection to R1 Annex D, clause 1. Such clause may be included in the Particulars and Conditions of Sale.

281.  Section 4(9) of the Ordinance provides that “In any case of doubt or difficulty or in any matter not provided for under this Ordinance, the trustees under an order for sale, or the majority owner or any minority owner of the lot the subject of the order, may apply to the Tribunal for directions”. However, the Order shall expressly include liberty to apply. There is no objection to the Conditions and Particulars of Sale also containing notice of a liberty to apply.

282.  The precise terms the Conditions and Particulars of Sale remain otherwise a matter for the trustees and subject to any further agreement between the Majority Owners and Minority Owners.

Further directions

283.  Mr But referred to the overarching consideration of the Ordinance. He points out that the regime strives to offer the maximum protection to majority and minority owners to ensure their entitlements or compensation payable if auctioned not to be delayed or stalled indefinitely by any ongoing litigation, which must include against a squatter. The Ordinance only concerns the sale of their undivided shares in favour of a purchaser. After completion the minority owners stake becomes compulsorily acquired. They must be entitled to payment and release of the sale proceeds forthwith and without undue delay.

284.  Whereas the Majority Owners’ proposed Option 1 directs payment of the proceeds into the Tribunal or a sum to be withheld by the trustees and requires that the Majority Owners and Minority Owners apply for payment out.

285.  The choice faced by the Tribunal is to ensure that the Majority Owners and Minority Owners receive the full sum due to them as soon as practicable or to secure a potential claim by Mr W T Chan. There are outstanding factual and legal issues that suggest it could be some time before there is a final resolution in that regard. The High Court Judgment has now been delivered. Mr W T Chan had shown no intention of making a claim if granted possessory title, but this could change. The amount that may be due is undetermined. The legal issues had included whether his possessory title is an encumbrance in terms of the Ordinance which upon a proper construction of the Ordinance was bound to be “discharged” requiring time and costs to determine. The High Court Judgment has determined that the Order for sale has no effect on Mr WT Chan’s possessory title. In all the circumstances we decline to exercise our discretion under section 4(6)(a) of the Ordinance to direct the trustees to hold part of the proceeds of sale in view of the High Court Action. We do not require that the trustees pay into the Tribunal the proceeds of sale pursuant to section 4(6)(b). The Majority Owners’ Option 1 is rejected.

286.  We give directions in terms of the Majority Owners’ Option 2 (a) and (b). Under Option 2(b) the period of the notice to be given by the trustees that the proceeds of sale shall soon be apportioned and distributed shall be not less than 21 days prior to distribution of the net proceeds to the Majority Owners and the Minority Owners, in accordance with the terms of the Ordinance. Subject to any application by Mr W T Chan, further order or agreement of the parties hereto, upon expiry of the 21 days, the net sale proceeds shall be paid out to the owners of the undivided shares in the Lot apportioned on the basis of the EUV as determined by the Tribunal. The directions aim to ensure that the proceeds of sale shall be paid out to the Majority Owner and the Minority Owners, in accordance with terms of the Ordinance, as soon as reasonably practicable.

Order

287.  This Tribunal makes the following holdings, orders and directions:

(1)  This Tribunal is satisfied that the values of the Minority Owners’ units as assessed in this Application are fair and reasonable and are fair and reasonable when compared with the values of the Majority Owners’ units;

(2)  This Tribunal is satisfied that the redevelopment of the Lot is justified due to the age or state of repair of the Building, and that the Majority Owners have taken reasonable steps to acquire all the undivided shares in the Lot including that of the Minority Owners;

(3)  All the undivided shares in the Lot, the subject of the Application, be sold by way of public auction for the purposes of redevelopment of the Lot;

(4)  Mr Chow Wing Kin Anthony (周永健) and Ms Chow Suk Han (周淑嫻), nominated by the Majority Owners, be appointed trustees (“the Trustees”) to discharge the duties imposed on trustee under the Ordinance in relation to the Lot and the Trustees be authorized to charge such remuneration for their services in accordance with the terms set out in the letter from Messrs Guantao & Chow, Solicitors & Notaries, dated 25 September 2023;

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

(a)  The sale of the Lot be on the particulars and conditions of sale substantially the same as those in the draft Particulars and Conditions of initialed and approved by the Tribunal;

(b)  The reserve price be set at $801,000,000;

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

(6)  The Majority Owners do notify Mr W T Chan in writing that an Order for sale of the Lot has been made by the Tribunal and provide him with (i) a copy of the judgment of the Tribunal, and (ii) a copy of the sealed Order for sale of the Lot.

(7)  The trustees do notify Mr W T Chan in writing that the net proceeds of sale of the Lot will soon be apportioned and distributed to the Majority Owners and Minority Owners. The said written notice shall be given to him by the trustees not less than 21 days prior to the time when the trustees are in the position to distribute the net proceeds to the Majority Owners and the Minority Owners after the trustees have cleared the payment of the following:

(a)  the costs and expenses incurred in the auction sale of the Lot;

(b)  the costs and expenses incurred in the assignment of the Lot to the purchaser;

(c)  the costs and expenses required for discharging all the liabilities due to the Government in relation to the Lot (if any);

(d)  the costs and expenses required for discharging all the incumbrances affecting the Lot (if any) other than Mr W T Chan’s interest, if any;

(e)  the compensation payable to the tenants of the Majority Owners (if any) and the tenants of the Minority Owners (if any).

(f)  Such written notification to be copied to the Majority Owners and the Minority Owners for their information

(8)  Liberty to the Majority Owners, the Minority Owners and the Trustees to apply to the Tribunal for further directions.

Costs

288.  We make a costs order nisi that:

(1)  The Majority Owners do pay the Minority Owners the costs of these proceedings, if any;

(2)  Costs awarded are to be taxed at High Court scale if not agreed, with certificate for counsel.

289.  Unless any of the parties applies by summons to vary it, the costs order nisi shall be made absolute upon expiry of 14 days from the date of this judgment.

Appendix 1

Residual Valuation