ORIENTAL GENERATION LTD AND OTHERS v. LUK YUNG AND OTHERS

LDCS 4000/2013

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

APPLICATION NO. LDCS 4000 OF 2013

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D E C I S I O N

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1.  This is the hearing of 2 summonses taken out by the 40^th Respondent (“R40”) on respectively 17^th October and 16^th December 2014 against the applicants for specific discovery (under O.24 r.7 of RHC) of initially 7, but later reduced to 4, categories of documents. She asks for time extension to file and serve the evidence (including expert evidence) in reply 28 days from discovery of documents. The applicants oppose the applications.

2.  At the call-over on 24^th October 2014, leave was granted for R22, R33 and R34 (all represented by the same firm of solicitors) on request to participate in the hearing of the said summonses whereas attendance of all other respondents was excused. The summonses were mainly argued by counsel Mr. Y.C. Mok for the applicants and Mr. George Hui for R40. Mr. Bosco Cheng of counsel appearing for R22, R33 and R34 basically relied on Mr. Hui’s argument and supported R40’s applications.

Brief Background

3.  On 4 lots of land given street numbers 53, 53A, 55 and 55A of Kwun Tong Road stand 4 blocks of 7-storey commercial/residential buildings known collectively as the Kai Tak Mansion (“KTM”). Served by six common staircases, KTM consists of 16 retail shops, 288 residential units and 100 car parking spaces. It is however over 50 years old. The applicants being the majority owners consider it the appropriate time for re-development. They took out the present application under the Land (Compulsory Sale For Redevelopment) Ordinance, Cap 545 (“LCSRO”) for compulsory sale of KTM in January 2013.

4.  Although KTM is situated in a convenient and easily accessible location in the Kwun Tong/Ngau Tau Kok region, it is surrounded by a primary school (8-storey), children playground and buildings of historical significance. Next to it is a 1-storey Grade 3 listed building – the Sam Shan Kwok Wong Temple. There is a 10-m wide slope at the back of KTM and behind such slope is the former Royal Air Force (“RAF”) Headquarters Building and Officers’ Compound (now occupied by the Hong Kong Baptist University Academy of Visual Arts) which are both 2-storey high and Grade 1 listed buildings. The re-development of the KTM site apparently has to take into account of its unique neighbours. Its re-development is subject to quite a number of restrictions, some contained in the Government lease and some imposed by the Town Planning Board (“TPB”).

5.  Because of the restrictions, the 1^st applicant herein had since 2011 initiated a number of litigations against, inter alia, the TPB concerning the site’s re-development. As described by Reyes J in the judicial reviews (“JRs”) in Oriental Generation Limited v Town Planning Board[2012] 3 HKC 369, the re-development project of KTM is not an easy one[1] due to its special location in the region.

6.  Reyes J has summarized the then restrictions KTM was (and apparently is still) subject to in Oriental Generation. In so far as they are relevant to the present case these restrictions are briefly repeated as follows:

i) The Government lease for the KTM site requires that no tenement shall exceed the level of the lawn of the RAF premises;

ii) KTM has been zoned as Residential Group (A) and subject to a plot ratio of 9;

iii) The TPB gazetted the draft Outline Zoning Plan (“OZP”) 26 on 19 November 2010 imposing, inter alia, three restrictions for the first time, namely,

a) A Building Height Restriction of 110mPD (later agreed to be raised to 130mPD) (“BHR”);

b) A Non-building Area of 10-m wide along the boundaries of the site (“NBA”); and

c) A Building Gap of 20-m wide for the middle of the site (“BG”) at 15 mPD

     (“collectively referred to as “the 3 restrictions”).

7.  Prior to gazettal of draft OZP 26, the 1^st applicant submitted plans to the Building Authority on 30^th September 2010 for re-development of the KTM site consisting of 2 towers having a height of 203 mPD (“the 1^st set of building plans”) based on OZP 25 which did not have the 3 restrictions. They were rejected for, inter alia, non-compliance with OZP 26.

8.  The 1^st applicant then made representations to the TPB. The Board later agreed to increase the BHR from 110 mPD to 130 mPD. However, a second set of proposed re-development plans submitted to the TPB in the meantime (“the 2^nd set of building plans”) was rejected on 24 June 2011 for non-compliance of OZP 26. The TPB insisted on the justifications for the 3 restrictions.

9.  On 7^th October 2011 the TPB gazetted OZP 27 introducing amendments unrelated to the KTM site. The 3 restrictions originally imposed on OZP 26 remained in OZP 27. The amendment of the BHR from 110 mPD to 130 mPD was not incorporated, though the TPB assured the 1^st applicant in correspondence that the said amendment would take effect.

10.  Feeling aggrieved by the TPB’s decisions, the 1^st applicant took out 3 judicial review applications (“JRs”) in the Court of First Instance (HCAL 62/2011, 109/2011 and 34/2012) to challenge OZP 26, OZP 27 and TPB’s decision not to relax the 3 restrictions apart from raising the BHR to 130 mPD.

11.  The 3 JRs were consolidated and heard by Reyes J. On 11^th May 2012, the learned judge handed down his judgment quashing the 3 restrictions imposed by the TPB in OZP 26 and 27 as well as the Board’s refusal to consider their relaxation. The court considered the 3 restrictions arbitrary. It referred the question of whether, and if so what, restrictions should be imposed to be re-considered by the TPB in accordance with the judgment.

12.  Both TPB and the 1^st applicant lodged their respective appeal to the Court of Appeal (CACV 127/2012 and CACV 129/2012). Execution of the Reyes’s judgment was stayed pending the appeal or further order.

13.  It was noted that the CA allowed new expert evidence to be introduced by both parties to argue whether full plot ratio could be achieved with a BHR of 130 mPD.  Interim stay of the draft OZP 26 and 27 to be submitted to the Chief Executive in Council was ordered, pending disposal of the appeal.

14.  The appeal was heard by the CA in March 2014. The TPB’s expert argued even with a BHR of 130mPD, the KTM site can still be developed to its full plot ratio and permitted gross floor area. The 1^st applicant’s expert appeared to argue otherwise[2].

15.  Shortly thereafter, the TPB gazetted OZP 28 imposing the same 3 restrictions, with the BHR amended to 130 mPD. Mr. Mok submits that the TPB, in its own wisdom, wants to safe-guard against a situation when the OZP under challenge is quashed but no new OZP is in place. When this situation arises, it may lead to a flood of building applications as there will then be no valid zoning plan to regulate development in that particular region.

16.  The 1^st applicant took out another judicial review to quash TPB’s decision to gazette OZP 28 (‘the 4^th JR”), which serves to supersede OZP 26 and 27, rendering any CA’s decision to be delivered meaningless. The 4^th JR was stayed, pending the CA’s decision.

17.  There are also the following parallel application/proceedings in the meantime:

i) The 1^st applicant made an application (Application No. Y/K13/1) to the TPB under section 12A of the Town Planning Ordinance (“TPO”), Cap 131 for an amendment of OZP 25 to re-zone the KTM site from “Residential (Group A)” to “Residential (Group A)1”. The TPB decided on 11^th October 2013 to defer its decision on this application until the final disposal of the JRs;  

ii) By HCMP2161/2012, the 1^st applicant issued proceedings against the Government in October 2012 for a declaration that, on the true construction of the Government lease, the height restriction imposed on any building on the KTM site not exceeding the level of the lawn of the RAF quarters has ceased to be of any effect (the “interpretation proceedings”).

18.  R40’s 1^st summons herein was issued before the CA handed down its decision of the appeal on 13^th November 2014. The 2^nd summons herein was issued after the call-over of the 1^st summons when representative of the applicants disclosed to the tribunal that there were the interpretation proceedings pending against the Government.

19.  On 13 November 2014, the CA handed down its decision dismissing the TPB’s appeal and upholding the decision of Reyes J.

20.  The TPB filed a Notice of Motion for leave to appeal to the Court of Final Appeal on 16^th December 2014. The 1^st applicant and the TPB agreed to further extend the stay of the Reyes J’s decision, the 4^th JR, and submission of OZP 26 to the Chief Executive in Council until determination of the leave to appeal application. Up to the time of writing this decision, the leave application has not been heard.

21.  It was said by the 1^st applicant that the interpretation proceedings have remained dormant since February 2013 until October 2014 when it decided to discontinue the same. As evidenced by correspondence exchanged between the legal teams of the 1^st applicant and the Government, the 1^st applicant had agreed to discontinue the interpretation proceedings with costs to the Government. According to Mr. Mok, counsel for the applicants, the 1^st applicant is basically accepting a defeat. However, on 3^rd November 2014, R40 applied to join in the interpretation proceedings. The discontinuance and joinder application have been adjoined for disposal before a Master in the Court of 1^st Instance on 3^rd February 2015.   

R40’s Present Applications

22.  It is R40’s case that in assessing the redevelopment value (“RDV”) of the KTM site for the present compulsory sale application, the applicants’ expert has produced a valuation report dated 12^th July 2013 which adopted the following assumptions:

i) The site is still subject to the 3 restrictions including the height restriction of 130 mPD;

ii) The optimum development model should be 2 blocks of 32-storey residual building, over a 5-storey podium for shops, etc with 2 levels of basement car parks; and

iii) In order to realize the site redevelopment potential, a land premium must be paid to the Government to modify/remove the height restriction in the Government lease.

23.  R40 considers the 7 categories of documents relevant for considering the RDV proposed by the applicants as they are either relating to:

i) whether the applicants could make full use of the plot ratio available to the site in the optimum development model, particularly the Government’s experts seemed to have suggested in the appeal that the plot ratio of 9 can be fully utilized with the 3 restrictions, rendering payment of premium in the re-development unnecessary, contrary to what has been asserted by the applicants’ expert (items 1, 3, 4 and 5 as defined in paragraph 25 below are therefore relevant); or

ii) whether the optimum development model should be residential blocks or a hotel (item 2 defined in paragraph 25 below is therefore relevant);

iii) whether the optimum development model would require a modification of Government lease for the KTM site and payment of land premium (items 6 and 7 defined in paragraph 25 are relevant).

24.  At the hearing, Mr. Hui indicates R40 does not intend to pursue items 1 and 3 of the 1^st summons, i.e. the disapproved 1^st and 2^nd sets of building plans. Mr. Hui also indicates since the applicants have confirmed there being no correspondence between the applicants and the Director of Lands regarding lease modification of KTM, R40 also drops her discovery of item 6, i.e. copies of all correspondence between the applicants and/or its solicitors and/or representatives with the Director regarding lease modification of KTM. However, R40 insists on discovery of the remaining 4 items. He submitted that once relevance is established it is for the applicants herein to show that discovery is not necessary either for disposing of the cause or matter fairly or for saving costs. Mr. Mok does not seek to quarrel as to who has the burden of proof. Mr. Mok submits that the discovery sought is neither relevant nor necessary.

25.  For easy discussion, the item asked for by R40 in her 2^nd summons is termed item 7. The items that requires the tribunal’s adjudications are:

i) Item 2: Copies of all documents submitted to the TPB under the planning Application No.Y/K13/1 referred to above[3];

ii) Item 4: Copies of all Court documents filed under the 3 JRs[4] disposed of by Reyes J;

iii) Item 5: Copies of all Court documents filed under the 2 appeals to CA[5]; and

iv) Item 7: Copies of all Court documents filed in the interpretation proceedings[6].

26.  In my judgment, it will be difficult for the applicants to argue that the remaining 4 categories of documents are not relevant. They are relevant at least they relates to the issues in question. They may lead a train of enquiries. The question is whether production is necessary either for disposing fairly of the cause or matter or for saving cause.

Items 4 & 5 – Court Documents in JRs and CA proceedings

27.  In §13 of affirmation of Lui Pui Chung affirmed on 21^st October 2014 filed in support of R40’s application, the justification for the application for these two items is that R40 believes

“… such documents would have indicated the proposed development the Applicants are intending and hence, the disclosure of the same are (sic) necessary.”

28.  Mr. Hui submitted that in the 2 CA proceedings the TPB expert had ever expressed an opinion on a development scheme which can fully utilize the plot ratio of the KTM site despite, inter alia, the 130 mPD restriction. It helps rebut the opinion of the applicants’ expert in the present application that payment of premium is required. The applicants’ opinion for payment of premium in the redevelopment model in the present application, if accepted, will greatly reduce the compensation which the minorities may receive in the event the tribunal grants a compulsory sale order. The TPB’s model will help destroy the applicants’ case. Further, the 1^st applicant’s models in those proceedings as to how the 3 restrictions limit the utilization of the maximum plot ratio should also be disclosed.

29.  In Capital Well Ltd v Bond Star Development Ltd (2005) 8 HKCFAR 578, Ribeiro PJ, after examining the scheme of the LCSRO, considers the enactment is to ensure a minority owner receive fair and reasonable compensation for his interest in the lot. Such compensation may be that which the minority owner agrees to accept or that which represents his share of the market value of the lot (reflecting its redevelopment value, often termed “RDV”) as determined at a public auction, subject to a reserve price approved by the tribunal. In this connection, the “maximum” RDV assessed by the tribunal will be set as the “minimum” reserve price for the purpose of the auction. The market value of a minority owner’s unit will then be determined by market force through the process of auction.

30.  Accordingly, while the redevelopment models proposed by the applicants at the stage of JRs or CA proceedings may be relevant as a matter of background, these models may not necessarily be the ones which can produce the maximum RDV for setting the reserve price. Further, they were put forward a couple of years ago and as a matter of fairness, should not be regarded as binding on the applicants nor the minority owner as to the exact building that is to be erected on the site in case of redevelopment. In order to assess the RDV for the purpose of setting the reserve price, it will be the valuation experts, who are not hired guns of any parties but impartial and independent professionals, to come up with their own models having the maximum RDV with justifications based on their professional knowledge and experience. In formulating the hypothetical optimal development model, all constraints in the current legislations, Government lease and the OZP for the time being in force will be taken into consideration in order to come up with a model utilizing the maximum redevelopment potential of the site.

31.  In the circumstances, even the TPB’s expert might have come up with certain models contrary to the applicants’ redevelopment models, they are in the nature of opinion which all experts, including that of R40, are exactly engaged for and are expected to provide. The TPB’s models in the CA proceedings are therefore only some of the many models that competent professionals may be able to come up with. Even if they were disclosed, they should never be adopted in a wholesale manner. These principles likewise apply to the 1^st applicant’s models. All are only hypothetical models in the nature of opinion.  Any valuation expert still has to exercise independent professional judgment to conclude whether, and if so, which of the disclosed models is the optimal one. In the tribunal’s judgment, discovery of these models, if ordered, is no more than adding a few more possible redevelopment models to R40’s research or reference list in a shortcut manner.

32.  According to R40, the discovery becomes necessary because the applicants insist the KTM site being subject to the 3 restrictions which have been quashed by orders of Reyes J and the CA. Mr. Hui considers the 3 restrictions are no longer applicable and therefore the redevelopment model for the KTM site should only be limited by the maximum plot ratio and gross floor areas available to the site without regards to the 3 restrictions in OZP 26, 27 and even 28[7].

33.  With respect to Mr. Hui, his aforesaid argument as a support for the discovery is difficult to understand. If R40 is of the views the 3 restrictions are gone, his expert can always put forward her own redevelopment model(s) with the 3 restrictions removed for assessing the maximized RDV. However, in the tribunal’s judgment, before the final disposal of the 3 restrictions by a court of competent jurisdiction, it would be quite impossible for the time being for this tribunal to direct the RDV be assessed on basis as if the 3 restrictions have gone. It is because firstly, despite the quashing of the 3 restrictions in OZP 26 and 27, OZP 28 with exactly the same 3 restrictions is operative in the region. That perhaps explains why the 1st applicant sees the need to issue the 4^th JR to quash OZP 28. Mr. Mok has referred this tribunal to the CA expressing understanding of the need to challenge OZP 27[8] in support of his submission that there is a similar need to challenge OZP 28. I share his view.

34.  Secondly, the 3 restrictions are said by the CFI and CA to be arbitrary, and the TPB was directed to re-consider whether, and if so, what restrictions are to be imposed. Take the example of the BHR, this tribunal considers it fair to say that the CA also considers some restrictions justified in order to protect the Lion Rock ridgelines[9]. It is the choice of reference viewing location (in the present case a footbridge near Choi Hung Estates) in assessing the visual effects of the BHR which was held to be arbitrary. It will be difficult to see what the Government will do as a follow-up. They may wish only to challenge the court decisions and do nothing else. On the other hand they may wish to undergo further studies to justify the original choice of observation point or select other point(s) for assessing the visual effect. If that is the case, the optimal height restriction, if any, probably will depend on the outcome of the further studies. The result of any further studies, again, will be impossible to predict. I accept Mr. Mok’s submission that there is no telling as to what will then be the restrictions, if any, after the re-consideration.

35.  In any event, if the parties differ on whether the 3 restrictions are still applicable in assessing the RDV for the purpose of the compulsory sale order, it is a question on the legal effect of the CA decision and/or what approach should be adopted in scenario like the present one. It needs be argued at trial. Discovery of the requested documents, in the tribunal’s judgment, cannot help resolve the argument.

Item 2 – Documents in the Re-zoning Application

36.  In the re-zoning application for the KTM site to be re-zoned from “Residential (Group A)” to “Residential (Group A)1”, the 1^st applicant proposed to build 2 composite blocks of building up to 214.8 mPD (64-storey) comprising 532 residential flats and 120 hotel rooms[10]. The gist of Mr. Hui’s submission is that the hotel re-zoning application documents will help damage the applicants’ valuation assumption that the optimum development model should be and/or must be based on the legal status quo (i.e. that the KTM site has not been rezoned for hotel use yet)[11].

37.  Mr. Hui relied on Ultra Alpha Ltd v The Personal Representative of Chan Ping Chiu, Deceased[12], to support a proposition that even though the occupation permit prescribed a domestic use, it will not prevent the tribunal from valuing the premises as retail premises. In the tribunal’s judgment, Ultra Alpha may be relevant when one seeks to argue “hope value” of premises apparently put to prohibited use, but is not helpful to this discovery application.

38.  In Ultra Alpha, there is apparently no restriction in the land grant to its user but the occupation permit specified a domestic use for units including those on the ground floor. The tribunal accepted evidence from experts that by submission of necessary plans for alterations and additions building works (referred to as the “A & A plans” in the industry) to the Buildings Department, it is almost certain that ground floor units can legally be converted to retail shops. The learned member of the tribunal accepted the evidence of the said expert that the Building Authority had never taken any enforcement action against such during his 35 years professional life. Accordingly valuation of ground floor units was done as if they were shops and not ground floor domestic units.

39.  In the present case, the re-zoning application is lodged to the TPB. As pointed out by Mr. Mok, and I think correctly, the re-zoning application was made under s.12A of the TPO. What follows is the statutory consultation and decision making procedure governed by s.12A (6) to (24). The procedure includes making available the application and any responding comments by any parties for public inspection, notifying the public by, inter alia, newspaper notices, inviting comments, requesting further information, holding board meeting to consider the application, and hearing the applicant and stakeholders’ comments (if any) before making a decision. The final decision is entirely a matter for the TPB after taking into considerations all circumstances, including stakeholders’ comments, and even objections.

40.  Further, it is not in dispute that hotel use is a column 2 use under both “Residential (Group A) and “Residential (Group A) 1”. The applicants still have to make application to the TPB under s.16 of TPO even re-zoning is permitted. A statutory regime similar to the s.12A consultation and decision making process will apply. So submitted Mr. Mok, and this tribunal agrees, unlike Ultra Alpha, there is no telling of what will be the decision of the TPB regarding the re-zoning application.

41.  The aforesaid distinguishes the 1^st applicant’s re-zoning application from Ultra Alpha. In the latter case, the granting of permission was found as a fact would be accepted by the authority as norm. In the present case whether it will be approved is uncertain. Though very often professionals may give an education guess of the prospect of success, given the statutory scheme in place for the unique re-zoning proposal, unlike the A & A Plans scheme, it is impossible to predict the outcome of a re-zoning application with any degree of certainty. In any event, as a matter of logic, the fact that an application is lodged sheds no light to its chance of being approved. They are simply unconnected.

42.  Apparently, R40 would like to rely on the residential/hotel model proposed by the applicants in the re-zoning application to challenge the residential only model in assessing RDV in the present application. The issue therefore is whether, short of any approval by the TPB in the re-zoning application, the 1^st applicant’s proposed re-zoning model should be adopted to assess the RDV if a compulsory order is made. In the tribunal’s judgment, like items 4 and 5, discovery of item 2 cannot in any way help resolve this question. Valuation experts still need to take into consideration all the constraints in coming up with the RDV. Whether, and if so, how much “hope value” is to be attached to a pending re-zoning application remains a live issue even if discovery were ordered.

43.  The gist of the 1^st applicant’s re-development proposal was contained in the document entitled “Broad Development Parameters of the Indicative Development Proposal in Respect of Application No.Y/K13/1”. R40 has already had a copy of it. According to the TPO consultation regime, the application, materials and comments of those who had responded are available to the general public upon request.  For reasons stated above, discovery of item 2 is neither useful nor necessary.

Item 7 – Documents relating to the Interpretation Proceedings

44.  In support of the discovery of item 7, it has been affirmed on behalf of R40 that:

“… if the plaintiff [1^st applicant] is successful in his Action [interpretation proceedings], the values of all interests in KTM will be increased significantly.”

45.  Irrespective of whether the 1^st applicant has decided to withdraw the application, Mr. Hui submits on behalf of R40 that the said court documents are necessary:

i) To assess the prospect of success of any argument to the effect that the height restriction in the Government lease has become obsolete; and

ii) To consider and fairly determine whether or not the optimum development model would require the payment of a land premium for modification of the Government lease in view of such argument[13].

46.  The 1^st applicant in the interpretation proceedings seeks a declaration that the height restriction contained in the Government lease of KTM site is of no effect on a true construction of the said lease. It is basically a construction of documents exercise unlikely to involve any factual dispute. In the tribunal’s judgment, the court documents of the interpretation proceedings are of no or very little use in assessing the prospect of success and thus payment of premium in KTM redevelopment model. Since it is basically a legal question based on uncontroversial facts, R40’s legal team is in the same position as anyone else in doing the assessment. Further, it appears unnecessary for R40 to discover the applicants’ documents, e.g. affirmation filed by the 1^st applicant therein, to counter the land premium paying assumption adopted by the applicants’ valuation expert in the present application because by taking out the interpretation proceedings, it is obvious the 1^st applicant is seeking to argue just the opposite.

47.  Although it is submitted on behalf of the applicants that they are accepting a defeat, it is viewed by R40 with skepticism being a tactical move. Be that as it may, the issue is whether the applicants are barred, short of a definite court order, from adopting a position in the present RDV assessment different from that argued in the interpretation proceedings. Discovery of documents in the interpretation proceedings, in the tribunal’s judgment, cannot help answer the question.

48.  The other issue is: short of a definite court order, whether the height restriction in the land grant remains binding, and thus be taken into consideration together with all other restrictions such as those in the OZP and other enactments applicable to the site in assessing the RDV. The question is similar to the issue raised in the re-zoning documents (item 2 above). Now that it has been confirmed by the applicants there being no correspondence between them and the Director of Lands on modification/premium. The Government is apparently adopting a non-compromising stance in the interpretation proceedings. The tribunal has serious doubts documents in the interpretation proceedings can be of any help in resolving this issue. It will be basically a legal question to be resolved through proper argument.

Conclusion and Orders

49.  By reasons set out above, this tribunal does not consider discovery of the requested documents necessary in disposing fairly of the issues or matters in question or for saving costs. R40’s two summonses are dismissed.

50.  In view of the time constrain, the time limit for R40 to file and serve its evidence in reply pursuant to paragraph 2 of the tribunal’s order dated 17^th September 2014 is extended to 2 February 2015.

51.  The tribunal proposes and hereby make an order nisi that each parties participating in the argument, namely, the applicants, R40, R22, R33 and R44 do bear its own costs of the summonses, and such order nisi be made absolute if within 14 days there is no application to vary the same.