GOOD FAITH PROPERTIES LTD AND OTHERS v. CIBEAN DEVELOPMENT CO LTD

LDCS 42000 of 2011

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LAND COMPULSORY SALE APPLICATION NO. 42000 OF 2011

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REASONS FOR DECISION

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1.  The applicants sought leave for a Supplemental Letter (“Mr. Chan’s Letter”) prepared by its expert, Mr. Alnwick Chan (“Mr. Chan”) dated 30 October 2012 to be adduced into evidence.  This met with objection from the respondent.  Upon hearing from parties, this Tribunal granted leave for Mr. Chan’s Letter to be adduced and indicated that written reasons for the ruling would be provided in due course. This we now do.

Background

2.  This case is an application made under the Land (Compulsory Sale for Redevelopment) Ordinance, Cap. 545 (“the Ordinance”) for an order of compulsory sale of all the undivided shares in the remaining Portion of Inland Lot No. 1486 (“the Lot”).  A composite building is erected on the Lot known as No. 20 Caine Road Hong Kong (“The Building”).  The respondent is the owner of the only commercial unit of the Building (“the Shop”).

3.  On the issue of the redevelopment value (“RDV”) of the Lot, a number of expert reports had been prepared by both parties as particularised below.

By Mr. Chan for the applicants:

a. Supplemental Report dated 24 July 2012;

b. Rebuttal RDV Report dated 27 September 2012;

c. Updated RDV Report dated 17 October 2012.

By Mr. Lai for the respondent:

a. RDV Report dated 26 July 2012;

b. Rebuttal RDV Report dated 26 September 2012;

c. Updated RDV Report dated 16 October 2012.

4.  The 2 valuation experts had, as directed by the court order made on 15 October 2012, held a joint meeting and prepared a Statement of Agreement and Disagreement dated 26 October 2012 (“the Joint Statement”).  On such occasion, both experts were aware of the fact that a new shop comparable came into existence with the shop premises at No. 38 Caine Road being sold on 17 October 2012 (“the Gramercy Shop Comparable”).  The experts then agreed that each of them should conduct an analysis of the Gramercy Shop Comparables for the Tribunal’s consideration.

5.  On 26 October 2012, the Government of HKSAR had announced 2 new measures (“the New Measures”), i.e. to adjust the duty rates and extend the coverage period in respect of the existing Special Stamp Duty, and to introduce a Buyer’s Stamp Duty on residential properties acquired by any person except a Hong Kong Permanent Resident.

6.  In line with the agreement stated in paragraph 4 above, Mr. Chan’s Letter was being prepared which is a detailed report of 76 pages addressing on 13 topics (Item (a) to (m) in the Letter).  Mr. Lai on the other hand, had prepared a 3-page letter with 3 enclosures (“Mr Lai’s Letter”).

7.  At the second day of trial, the applicants sought leave for Mr. Chan’s Letter to be adduced with an indication that they had no objection for Mr. Lai’s Letter to be adduced.  It is the contention of the applicants that the Gramercy Shop Comparable and the impact of the New Measures are relevant to the determination of the RDV of the Lot.

8.  The respondent accepts that Item (h) and (j) in Mr. Chan’s Letter are responses to be made to Mr. Lai’s Updated RDV Report which the applicants are entitled to do, but objections are raised as to the admissibility of the rest of the contents in Mr. Chan’s Letter on the ground that:

a. Mr. Chan’s Letter is not in line with what was being agreed between the experts;

b. Whatever new events occurred, the trial should not be disrupted;

c. Item (b) had already been dealt with by Mr. Chan in his Updated RDV Report dated 17 October 2012;

d. Item (i), (k) to (m) are all new matters.

Format of Mr. Chan’s Letter

9.  The complaint of the respondent is about the form of presentation in Mr. Chan’s Letter.  It is the contention of Mr. Chang for the respondent that the agreement between the experts was for the analysis to be presented by way of a letter, in the way Mr. Lai did, instead of a full report in the way Mr. Chan’s Letter was being prepared.  It is submitted that Mr. Chan’s Letter is not in line with the agreement and should not be allowed to be admitted.  Mr. Mok for the applicants answered in reply that no agreement had been reached as to the extent of the analysis.

10.  We agreed with Mr. Mok in this regard and do not agree that there was any agreement as to the format of the analysis as stated in the Joint Statement.  Even if there was such an agreement, the admissibility of expert evidence should turn on whether they are relevant and should not be confined to its format.  This Tribunal found that the challenge by the respondent solely on the format of Mr. Chan’s Letter is unfounded.  In considering the admissibility of each item in Mr. Chan’s Letter, this Tribunal bears in mind the deciding factor of relevancy.

Whether trial will be disrupted

11.  It is Mr. Chang’s contention that to allow Mr. Chan’s Letter to be admitted, the on-going trial will be disrupted and this should be unnecessary.  It is submitted that there may be changes in the circumstances but it’s not for the Tribunal to adjourn to wait and see the impact of the New Measures.  Instead, it is clear from Sin Ho Yuen v Fineway Properties Limited (FACV 13of 2010) that should there be any changes of circumstances after a reserve price has been set which may render the auction unrealistic or impracticable, the parties could simply apply to the Tribunal for a new reserve price to be set (at paragraph 15).

12.  This Tribunal found that the case of Fineway must be distinguished from the present case.  In Fineway, the scenario mentioned by the Court of Final Appeal is whether the issue of RDV should be re-opened when “a significant fall in property prices occurs after a reserve price has been set (whether by consensus or upon evidence)” (our emphasis).  This Tribunal agreed that after the RDV had been determined, the Tribunal should not re-open the issue.  But in the present case, the Tribunal have yet to determine the RDV of the Lot as at the date of the sale order.  We are duty bound to consider all circumstances that are in existence and relevant before our determination.  Both the Gramercy Shop Comparable and the New Measures come into existence before the trial of this case commenced, the Tribunal will be failing its duty if these 2 recent events were not to be considered in the determination of the RDV.  This is of course not to adjourn the trial for the impact to surface, but this Tribunal should at least consider the possible impact, if any, it may have on the determination of the RDV.

13.  There is no suggestion by either party that an adjournment is required upon admission of Mr. Chan’s Letter.  Whilst Mr. Chan is yet to start giving evidence, Mr. Lai will have ample opportunity to prepare for any evidence in reply to Mr. Chan’s Letter even if it is only allowed to be admitted at this stage.  We cannot see how the trial in this case will be disrupted by the admission of Mr. Chan’s Letter.

Item (a) Gramercy Shop Comparable

14.  Since the sale transaction of the Gramercy Shop Comparable was only completed after both valuation experts had prepared their Updated RDV Reports, it is agreed between the experts in the Joint Statement that “an analysis of the sale will be carried out for LT’s consideration”.  It is apparent from this agreement that both experts are of the opinion that the Gramercy Shop Comparable should be considered by this Tribunal in its assessment of the RDV.  This Tribunal also found that such a comparable is relevant and should be considered by the Tribunal.

15.  Under such circumstances, we see no reason not to allow Item (a) of Mr. Chan’s Letter to be admitted.

Item (b) to (g)

16.  Taking into consideration the Gramercy Shop Comparable and the New Measures into consideration, Mr. Chan had in Item (b) to (g) considered the impact of the above 2 events on his analysis and conducted a residual valuation for the hypothetical development assuming retail elements are provided for and assessed the RDV of such a scenario as of 29 October 2012.  He concluded that the Gramercy Shop Comparable is not a valid comparable and the New measures will effectively take away all potential overseas and corporate purchasers in pre-sale marketing campaign.

17.  As found above, both the Gramercy Shop Comparable and the New Measures are relevant consideration that this Tribunal needs to take into account.  Since these 2 events only occurred after Mr. Chan had prepared his Updated RDV Report, we cannot see how he could have dealt with the same in the said Report. 

18.  Given the fact that the Gramercy Shop Comparable is so close in time and proximity, it should be looked at to determine if it is a suitable comparable to be considered.  And the impact of the New Measures on pre-sale transactions, if any, is clearly relevant since it is a live issue in this case as to whether the court should consider pre-sale transactions as comparables.  Anything that may turn on the reliability or suitability of pre-sale transactions as comparables should be relevant and should be considered by this Tribunal.

19.  This Tribunal accepts that Item (a) to (g) of Mr. Chan’s Letter is relevant to the determination of the RDV of the Lot and should be admissible.   

Item (i)

20.  As pointed out by Mr. Chan in the content under this item, what he did is to draw to the Tribunal’s attention textbook authorities in support of his opinion about the problems associated with employing pre-sale comparables in residual valuation.  It is not putting forward new opinion as such but instead only stating the authorities to justify his opinion.  Expert witnesses are entitled to rely on published textbooks or studies in reaching their opinion.  The disclosure of such would assist the Tribunal in its decision as to whether Mr. Chan’s opinion is accurate and whether to accept his evidence.  The authorities should be admissible.

Item (k)

21.  Mr. Chan had included another transaction record at a development known as Oakhill to demonstrate that government index always outperforms actual transactions of flats before and after the issuance of the Occupation Permit. 

22.  This is not something new.  Mr. Chan had already adopted 4 other sets of flat transaction to demonstrate the price difference and government index difference before and after the Occupation Permit in his previous report.  The Tribunal considers that Mr. Chan is only putting forward another example to support his contention.  Mr. Lai is entitled to express his view on this additional example in his evidence.  We see no justification to exclude this item from Mr. Chan’s Letter.

Item (l)

23.  Under this item, Mr. Chan is expressing his opinion in answer to construction costs relied upon by Mr. Lai in his Updated RDV Report. Like Item (h) and (i), this is something raised in the latest report of Mr. Lai. Mr. Chan is entitled to express his feedback in his evidence.  Now that he had produced the same in writing, it would save the time for his testimony in court.

24.  This Tribunal found that Item (l) in Mr. Chan’s Letter should be relevant and admissible.

Item (m)

25.  Under this item, Mr. Chan had submitted some photos of Gramercy and the enlarged Lot Index Plan of another 3 development named by Mr. Lai, i.e. The Pierre, Centrepoint and the Soho 38 and commented on the selection of comparables at The Pierre by Mr. Lai. 

26.  The enlarged Lot Index Plan are official record prepared by the Lands Department and are of assistance to the Tribunal to have a better view of the plot of land of each development.  We see no reason to exclude them from evidence.

27.  As for the comment on the adoption of The Pierre as comparables, Mr. Chan is entitled to express opinion on it since this comparable is only mentioned in Mr. Lai’s Updated RDV Report.  Hence, any comment by Mr. Chan should be admissible.