TOP SAIL INTERNATIONAL LTD v. CHENG KAI MING

LDCS 18000/2010

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

Land Compulsory Sale Application No. 18000 of 2010

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JUDGMENT

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Background

1.  This is an application for compulsory sale of all the undivided shares in Aberdeen Inland Lot No. 269, known as No. 1 Tang Fung Street, Hong Kong, and Aberdeen Inland Lot No. 270, known as No. 3 Tang Fung Street, Hong Kong, (collectively referred to as“the Lots”) for the purposes of the redevelopment of the Lots pursuant to s. 3(1) of the Land (Compulsory Sale for Redevelopment) Ordinance, Cap. 545 (“the Ordinance”).

2.  There is a pair of 6-storey composite buildings (collectively referred to as “the Buildings”) served by one common staircase erected on the Lots.  The building at Lot No. 269 has 6 equal undivided shares with each floor from the Ground Floor to the 5^th Floor allotted 1 of the undivided shares. Likewise, the building at Lot No. 270 has the same allotment of the undivided shares.  The Applicant owns all the undivided shares of Lot No. 269 and 5 undivided shares of Lot No. 270.  The Respondent owns the 2^nd Floor of the building at Lot No. 270 and the only remaining 1 share of Lot No. 270. Thus, the average of the percentage of the undivided shares owned by the Applicant in the Lots is 91.67%.

3.  Having failed to acquire the remaining 1 share from the Respondent, the Applicant commenced the present proceedings against the Respondent on 10 December 2010.  The Applicant contends that it is entitled to make the present application by virtue of s. 3(2) of the Ordinance.

4.  In the Notice of Opposition filed by the Respondent on 3 January 2011, the Respondent opposed the application on the ground that, inter alia, the valuations and considerations adopted in the Applicant’s assessment are incorrect.  In his witness statement dated 18 April 2011, the Respondent stated that he does not dispute the existing use value (“EUV”) of the Buildings, but disputes the redevelopment value (“RDV”) of the Buildings.

5.  Nevertheless, on the first day of the trial, Mr. Samuel Yip, Counsel for the Respondent, confirmed that the Respondent does not oppose the Applicant’s application but simply requires the Applicant to prove its case.  Thus, the Respondent did not call any witness or produce any expert report.  The Respondent also did not cross-examine any of the Applicant’s witnesses, or make any closing submission, save that the Respondent does ask for costs against the Applicant.

6.  In view of the concession made by the Respondent, Mr. C.Y. Li, Counsel for the Applicant, simply called the Applicant’s witnesses to confirm their evidence as produced in exhibits “AR1” and “AR2”.  During the trial, we raised some questions to the Applicant’s valuation expert, Mr. Alnwick Chan.  In response, Mr. A. Chan produced some further evidence as contained in exhibits “AR3” and “A1” to “A4”. As a result of our queries, Mr. A. Chan raised his assessment of the RDV of the Buildings from $48.99 million to $50.58 million, and then to $51.42 million.  The Applicant contends that all the requirements of the Ordinance have been satisfied and asks for an order for sale in terms of the draft order submitted.  The Applicant also asks the Respondent to pay costs, or alternatively, there be no order as to costs.

Section 3 of the Ordinance – Ownership of the Applicant

7.  S. 3(1) of the Ordinance requires the Applicant to have not less than 90% of the undivided shares in a lot before it can make an application.  The Applicant owns 100% of Lot No. 269, but only 83.33% (5/6 x 100%) in Lot No. 270.  However, s. 3(2)(b) of the Ordinance stipulates that an application under s. 3(1) may cover “2 or more lots –(i) on which one building is connected to another building by a staircase intended for common use by the occupiers of the buildings; and (ii) where the average of - (A) the percentage of the undivided shares owned by the majority owner in the lot or lots on which one of the buildings stands; and (B) the percentage of the undivided shares owned by the majority owner in the lot or lots on which the other of the buildings stands, is not less than the percentage specified in subsection (1)”.

8.  As the Buildings are connected by a staircase intended for common use by the occupiers of the Buildings, and the average percentage of the undivided shares owned by the Applicant in the Lots is more than 90% as stipulated in s. 3(1), the Applicant is clearly entitled to make the application by virtue of s. 3(2) of the Ordinance. 

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

9.  In determining the Applicant’s application, s. 4(2) of the Ordinance requires us not to make an order for sale unless, after hearing the objections, if any, of the Respondent, we are satisfied that:-

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

(b)  the Applicant has taken reasonable steps to acquire all the undivided shares in the Lots (including negotiating for the purchase of the undivided shares owned by the Respondent on terms that are fair and reasonable).

10.  Mr. Li submits that the tests under section 4(2)(a)(i) of the Ordinance have been visited in a number of cases.  In the case of Good Trader Ltd v. Hinking Investments Ltd [2007] 3 HKC 219, the Tribunal took the view that "the age" and "state of repair" could each separately constitute a ground to justify redevelopment. Mr. Li shares this view and submits that the Applicant’s case is justified on both grounds.  However, as the Court of Appeal in Fineway Properties Ltd v. Sin Ho Yuen Victor [2010] 4 HKLRD 1 has expressed reservations on the correctness of the tests of “age or state of repair” formulated in Intelligent House Ltd v. Chan Tung Shing & Ors [2008] 4 HKC 421, which are based on the concept of “economic lifespan”, Mr. Li invites us to consider the age and state of repair together, albeit the primary focus is on the state of repair which also reflects the age of the Buildings.  We are of the view that “the age” and “state of repair” are two separate grounds and even though there may be considerations common to both, we should still consider them separately.  Since Mr. Li relies primarily on “state of repair”, we shall deal with this ground first.

State of Repair of the Buildings

11.  The Applicant’s expert, Mr. Raymond Chan of Raymond Chan Surveyors Limited, in his Condition Survey Report, gives his opinion, inter alia, that:

(a) The Buildings are generally in a dilapidated and potentially dangerous condition. The structural stability of the Buildings is also affected by the existing defects and unauthorized building works.

(b)  In particular, Mr. R. Chan points out that the waterproofing of the main roof and upper roof should reach the end of its life expectance as serious water seepage, damp patches and peeling off paint were noted at the ceiling of the topmost storey and stair hood.  This indicated that the waterproofing system has failed to function.

(c)   Mr. R. Chan also points out that water seepage, mould growth, loose plaster, cracks and concrete spalling were commonly observed.  These building defects can adversely affect the building condition.  Signs of water seepage were noted at the interior.  Site evidence shows that the external walls and the light well, which serve as an external envelope for weather protection, are defective.

(d)  Site evidence also shows that a lot of unauthorized drying racks, supporting racks/frames at various residential flats remained at the external walls.  Subject to weathering, fixing bolts/nails of these metal frames were rusted which might expand and slowly push off the concrete cover and resulted in more serious concrete defects.

(e)   The condition of the light well is also poor.  Subject to weathering, those rusted pipes might break and cause water leakage from drainage pipe which will further worsen the concrete condition and the hygienic condition of the light well.  In addition, with the unauthorized wall and window enclosure to the parapet wall facing external and light well, it might affect the weather protection of the external envelope.

(f)    The rusted drainage pipes along the external wall are also in a very poor condition.  It might not only affect the Buildings but also cause danger to the neighbourhood as the broken pipee might fall down and hurt the passers-by.

12.  Based on the result of his condition survey, Mr. R. Chan concludes that the Buildings are in a state of disrepair with their structural frames in dilapidated condition.  Some of the building components and finishes are at the end of their effective life span. Without substantial repairs, the Buildings are not up to tenantable standard.  Indeed, putting aside the astronomical costs need to be incurred for the repair and maintenance of the Buildings, it is not feasible or practical to undertake such a course as it would entail a closure of the Buildings for a substantial period of time.  The Buildings are indeed in potentially dangerous condition and the only sensible solution is to rebuild the same.

13.  Another expert of the Applicant, Dr. James Lau, also gives his opinion in his Structural Assessment Report as follows:-

(a)    He inspected the Buildings on 24 March 2011 with the intention of inspecting the conditions of the Buildings and to identify locations on the Buildings for the structural integrity tests.

(b)    For his desk study, he read the approved building and structural plans of the Buildings dated 25 January 1957.  He also studied the design calculations of the Buildings. He noted that the Buildings were designed as a reinforced concrete frame structure based on the London County Council By-law of 1938.  This was a reinforced concrete design code commonly used in Hong Kong in the 1950s.

(c)    During his inspection, he found the Buildings in very poor conditions.  The conditions are poorer than a building of similar age. These conditions were caused by years of neglect and poor maintenance.  Many slabs, beams and columns have deep cracks and spalling. In some important structural elements, the cracks had cut into the concrete cores.  The reinforcing steels likewise showed an advanced stage of corrosion.  The diameters of the steel bars had been reduced significantly due to corrosion.  The reduced concrete sections and steel diameters had reduced the strengths of the structural elements.

(d)    The stability of the Buildings is provided by framed actions of the concrete frames.  The frames worked only if the columns, beams and their connecting joints were intact.  From what he could observe, this was clearly not the case.  The corrosion had cut into the moment joints and reduced the strengths of the columns, the beams and the joints.

(e)    The Buildings has to be repaired immediately.  His estimate is that it costs $11,820,000.00 to properly repair the Buildings.  It is worthwhile to repair the Buildings at such a cost if there is a need to preserve the Buildings due to historical, cultural or artistic reason.  Otherwise, it is more cost effective to demolish and rebuild the Buildings.

(f)     Meanwhile, due to the danger inherent in the Buildings and as a contingency measure, he recommends that temporary steel struts be put up next to columns C1, C7, C9 and C10 from the Ground Floor to the 5th Floor to give temporary support to the Buildings. He also recommends that the tenants and residents should be informed of the conditions of the Buildings and the risks of staying in the Buildings.

14.  Dr. Lau was assisted in his findings by Stangers Asia Limited, a laboratoryaccredited under The Hong Kong Laboratory Accreditation Scheme, which was asked to carry out various integrity tests on the Buildings. The tests included cover metre survey, core samples and uniaxial compression tests, carbonation tests, determination of chloride contents and opening up inspection for steel reinforcements.

15.  The poor state of repair of the Buildings is also evidenced by a number of building orders registered against the Buildings, the latest ones being dated 2 February 2010.

16.  As the Respondent did not challenge any of the evidence adduced by the Applicant, we accept the Applicant’s evidence in whole.  In particular, we are satisfied that based on the evidence of Mr. R. Chan and Dr. Lau, redevelopment of the Lots is justified due to the state of repair of the Buildings.  It is not necessary for us to formulate a general test for state of repair as in the case of Intelligent House.  We think that with the evidence before us as aforesaid, the Buildings are clearly in a very poor state of repair and indeed in dangerous condition.  There is no doubt that redevelopment is justified in the present case.

Age of the Buildings

17.  As to the age of the Buildings, there is no dispute that the Buildings are 53 years old.  The relevant occupation permit was issued on 15 April 1958.

18.  Mr. Li submits that we should not consider just the physical age of the Buildings, but should also consider the physical conditions of the Buildings.  He relies on the remarks of Dr. Lau that it would cost $11,820,000.00 to properly repair the Buildings and that it was more cost effective to demolish and rebuild the Buildings. From our own calculation based on the evidence before us, the repair cost of $11,820,000.00 is about 31% of the EUV of the Buildings, which is $38,196,849.00 as assessed by the Applicant’s valuer (see the discussion below). This is a very substantial percentage.

19.  Mr. Li also refers us to the findings in Dr. Lau’s report on the obsolete design of the Buildings.  Dr. Lau found that the structural system of the Buildings was one of reinforced concrete framed structure.  This type of structural system was very common for buildings built in the 1950s.  Unlike buildings that were designed to the modem design codes, these old type of buildings were not designed against progressive failures.  In late 1960, a building at Ronan Point, England collapsed in a progressive manner because of the failure of one structural element.  Progressive failure means the debris from the collapse of one floor overloads the lower floor causing the lower floors to fail in a domino manner.  The construction industry the world over was severely alarmed by the possibility of progressive failure.  Since then gradually all modem design codes, including those in Hong Kong asked for designs against progressive failures.  This requirement is now inherent in the 1987 and the 2004 Hong Kong codes.

20.  Dr. Lau also found that another feature of these old types of buildings such as the Buildings is the lack of "redundancy" in the structural design. In the language of structural engineering, it means that there cannot be a failure in any load-bearing column.  In other words, "every single load-bearing column counts".  Some degrees of redundancies are important to guard against catastrophic failure.  In Dr. Lau’s opinion, this was what happened in the collapse of the old building in Ma Tau Wai two years ago.  Someone accidentally damaged a column and the whole building came down, killing and injuring a number of people.

21.  Another feature of the 1950’s reinforced concrete framed structures found by Dr. Lau is that the lateral stability of the building depended on the integrity of the concrete frames.  The building loses its lateral stability if the concrete frames cease to function.  The concrete frames comprise columns and beams that are connected by moment joints. The concrete frames serve an important function.  They are designed to transfer lateral loads such as wind loads from the upper floors to the foundations.  In structural engineering, moment joints require the continuity of reinforcements between the columns and beams.  For the framed structure to work the reinforcing steels in the beams must continue into the columns.  If reinforcing steels in the beams could not for some reasons pass from the beams into the columns, there would be no frame actions and the building could not stand.  The building would collapse under lateral loads and fail as a mechanism.  In the case of modern buildings, the lateral stability of the building is not provided by framed actions.  It is provided by the use of concrete cores.  Lateral loads are transferred laterally into a concrete core, which is usually the walls containing the lift shafts or staircase.  The concrete core brings the lateral loads to the foundation.  Consideration of the stability of a concrete framed building and that of a modern concrete cored building is different.

22.  Thus, Mr. Li submits that the Buildings should be redeveloped as they are of obsolete design.

23.  Again, without formulating any general test as in the case of Intelligent House, we are of the view that when the requirement of “the age” of the Buildings is considered, we should not restricted our consideration to just the physical age of the Buildings.  There are many factors related to the age of a building should also be considered.  As held in the case of Good Traders,the Ordinance does not define “the age” in s. 4(2)(a)(i) and it is difficult to determine at what age a building should be redeveloped.  If one just looks at the physical age, a building’s physical life can be prolonged by proper maintenance.  Thus, it is unclear at what physical age a building should be redeveloped.  Does the Ordinance intend to have a properly maintained building or a building which can be properly maintained redeveloped just because it is over certain physical age?  If so, why is there no specific physical age mentioned in the Ordinance?  On the other hand, should the Tribunal always refuse the granting of a compulsory sale order for buildings that are perfectly maintained no matter how old they are?  If so, why is there a separate ground for “the age” in the Ordinance and would it not be sufficient to have the ground for “state of repair” alone in the Ordinance?  Answers to these questions may not be apparent from the wordings of the Ordinance itself, but 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.

24.  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 a 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.  We do not intend to list all the factors here.  Each case must depend on its own facts.  In the present case, we do have evidence concerning these 3 aspects and hence we need to consider them to see if the redevelopment of the Buildings is justified due to the age of the Buildings.

25.  Having considered all the evidence as aforesaid, we are satisfied that the redevelopment of the Buildings is also justified on the ground of the age of the Buildings due to the following factors:-

(a)   the Buildings are 53 years old;

(b)   the Buildings are in very poor physical conditions and very substantial cost is required to repair or maintain the Buildings; and

(c)    the obsolete design of the Buildings does not suit the present requirements of a building.

Reasonable Steps to Acquire All the Undivided Shares in the Lots

26.  As required by s. 4(2)(b) of the Ordinance, the Applicant is under an obligation to negotiate for the purchase of the Respondent’s undivided share in the Lots on terms that are fair and reasonable.  The evidence of the Applicant’s factual witness, Mr. Alex Au-Yeung, shows that:-

(a)   The Applicant had commissioned Knight Frank Petty Limited ("Knight Frank") to assess the value of the units in the Buildings on the existing use values basis ("EUV") and the redevelopment value ("RDV") of the Lots.  Two expert reports, one for EUV and the other for RDV were prepared by Mr. A. Chan of Knight Frank. The valuation date of both assessments is 1 October 2010.

(b)   According to the Knight Frank EUV report, the EUV of the Buildings is $38,196,849.00. The EUV of the Respondent's unit is $2,947,045.00.  In terms of percentage, the share of the Respondent's unit is 7.72%.  According to the Knight Frank RDV report, the RDV of the Lots is $41,220,000.00.  The reasonable offer to be made to the Respondent would be $3,182,184.00 (i.e. $41,220,000 x 7.72%).

27.  By a letter dated 14 October 2010 from the Applicant’s solicitors to the Respondent, the Applicant offered to purchase the Respondent's unit at a price of $3,500,000.00.  This was followed by a letter dated 29 October 2010 from the Applicant’s solicitors to the Respondent offering to purchase the Respondent’s unit at $3,550,000.00.  The Applicant through its solicitors further revised the offer to $3,600,000.00 by a letter dated 9 November 2010. 

28.  The Applicant and the Respondent conducted mediation on 22 March 2011 but was unsuccessful.  Afterwards the Applicant through its solicitors made the last offer of $4,000,000.00 by a letter dated 29 March 2011. 

29.  It is clear that the Applicant has already offered the Respondent sums that are above the value assessed by its expert.  There was, however, no response at all from the Respondent to any of these offers. 

30.  We are satisfied that, on the evidence available, the offers made by the Applicant “falls within the range of what may broadly be regarded as fair and reasonable” as said by Mr. Justice Ribeiro PJ in Capital Well Ltd v. Bond Star Development Ltd (2005) 8 HKCFAR 578 at para. 33.  Thus, we conclude that the Applicant has taken reasonable steps to acquire all the undivided shares in the Lots.

Order for Sale

31.  By reasons of the matters aforesaid, we are satisfied that an order for sale should be granted in favour of the Applicant.  The remaining question is how much we should fix for the reserve price.

Reserve Price

32.  Mr. A. Chan valued the EUV of the respective units of the Buildings as at 1 October 2010 in his EUV report dated 29 November 2010. 

33.  In his valuation of the EUV of the ground floor shop units of the Buildings, Mr. A. Chan adopted the following methodology:-

(a)   He selected the Ground Floor of No. 1 Tang Fung Street as the reference unit (“the Reference Shop Unit”).  He then took into account of 8 comparable transactions in five different buildings nearby.    After making what he regarded as the necessary adjustments (for time, location, size, building age and frontage) for all these comparable transactions, he took the average of the adjusted unit rate of the comparables to come to the unit price of the Reference Shop Unit at $76,632.00/m², which was rounded to $76,600.00/m².

(b)   He then used the unit rate of the Reference Shop Unit to assess the other ground floor shop unit.

34.  In his valuation of the EUV of the domestic units of the Buildings, Mr. A. Chan adopted the following methodology :

(a)   He selected 3rd Floor of No. 1 Tang Fung Street (“the Reference Domestic Unit”), which was situated on the middle floor of the domestic portion as the reference unit for the purpose of valuing its unit price.  The unit price of the Reference Domestic Unit was first assessed by making reference to market comparables.  Comparison was then made between the Reference Domestic Unit and the remaining domestic units of the Buildings.

(b)   He then took into account of 6 comparable transactions in five different buildings nearby.  After making what he regarded as the necessary adjustments (for time, age, view, privacy, floor, size, security, building condition and location) for all these comparable transactions, he took the average of the adjusted unit rate of the comparables to come to the unit price of the Reference Domestic Unit at $45,951.00/m², which was rounded to $46,000.00/m².

(c)    He further considered the floor difference and internal conditions of the Reference Domestic Unit and the remaining domestic units within the Buildings to arrive at the EUV of all the domestic units.

35.  Mr. A. Chan’s valuation of the EUV of all the units in the Buildings were:-

36.  The Respondent took no issue on the EUV report.  We are satisfied that the EUV valuation of Mr. A. Chan is fair and reasonable.

37.  Mr. A. Chan stated in his RDV report dated 29 November 2010 that the redevelopment value of the Lots as at 1 October 2010 to be $41,220,000.00.  This valuation was objected to by the Respondent in its Notice of Opposition dated 3 January 2011.

38.  Mr. A. Chan revised the RDV valuationas at 28 September 2011 in his Supplemental Report dated 29 September 2011 to $48,990,000.00.  At the trial, the Respondent did not object to this valuation.

39.  Mr. A. Chan’s valuation method can be summarized as follows:-

(a)   The valuation was based on the redevelopment of the Lots in accordance with the terms of the government lease taking into account the current statutory zoning and the development control imposed by the Building Authority.  He took into consideration the Government policies and measures announced on 13 October 2010 intended to reduce the gross floor area concessions which would reduce the building bulk and the marketable gross floor area as well as the relevant Joint Practice Notes (by Buildings Department, Lands Department and Planning Department) and Practice Notes issued by Buildings Department or Lands Department issued in January to March 2011 to that effect.

(b)   He then identified what he regarded as the optimum development that should be provided on the Lots.  He was of the opinion that a composite building with shops on ground floor and residential units on upper floors should be erected.

(c)    He then used the residual valuation method to assess the land value of the intended development. 

(d)   Retail and domestic comparables were identified and analysed, applying relevant adjustments as appropriate.

(e)    Mr. A. Chan used 4 shop transactions at Yue Ko Street and Ka Wo Street nearby as his retail comparables.  For domestic comparables, he used a total of 31 flat transactions in 3 developments nearby, namely Tin Wan Court, Jadewater and Bayshore Apartments.

(f)  The following unit rates were adopted by Mr. A. Chan in assessing the gross development value:

Ground Floor Retail:      $156,500.00/m²; and

Typical Domestic Unit:  $96,000.00/m².

(g)   Mr. A. Chan then deducted the development costs from the gross development value.  Allowing for developer’s profit and discounting for the development period, Mr. A. Chan determined the land value of the Lots on redevelopment basis.

40.  One of the objectives of the Ordinance, as Mr. Justice Ribeiro PJ said in Capital Well Ltd v. Bond Star Development Ltd (supra) at para. 21, is “to ensure that the minority owner receives fair and reasonable compensation for his interests in the lot”.  In order to achieve this objective, we have to set a reserve price for the public auction.  It is our duty to ensure that the valuation put forward by the Applicant reflects the market value of the Lots including their redevelopment value, even, as in the present case, when the Respondent calls no expert to challenge the valuation of the Applicant’s expert.

41.  When Mr. A. Chan gave evidence at the trial, we asked Mr. Chan to reconsider the following factors in his RDV valuation:-

(a)   Whether any value should be ascribed to the set back area on the Ground Floor required by the latest Building Design Guidelines;

(b)   Whether any of his plant room allowance of 50 m² on the Ground Floor could be relocated to the upper floors;

(c)    Whether adjustments should be made to his Yue Ko Street retail comparables taking into account of their locations;

(d)    Whether adjustments should be made to his Tin Wan Court residential comparables because they are adjacent to factories;

(e)    Whether his adjustments of -3% for facilities for the Jadewater and Bayshore Apartments residential comparables were justified because club house was also proposed in his hypothetical redevelopment of the Lots;

(f)   Whether his quantum adjustments of 1% per 10 m² of floor area for the residential comparables should be revised to 0.5% per 5 m² because the size of the flats in his proposed hypothetical redevelopment of the Lots is small;

(g)    Whether there should be adjustments for his residential comparables because one flat per floor was proposed in his hypothetical redevelopment of the Lots.

42.  We also asked Mr. A. Chan to provide us some site comparables.

43.  When the hearing resumed on 10 October 2011, Mr. A. Chan filed a Response to Queries answering our questions, in that:- 

(a)   Mr. A. Chan proposed to add $210,000.00 to the retail Gross Development Value to reflect the value of the set back area.  Mr. Chan explained that this would reflect the use that the set back area might be used for, such as exclusive sitting out area for the ground floor shops.  We agree that this is appropriate.

(b)   Mr. A. Chan proposed to relocate the plant room to the 1st Floor.  As a result, the retail area on the Ground Floor increased to 115.5 m² but there would be a resultant increase in construction cost for the increased floor loading on the 1st Floor and a reduction in residential floor area.  We agree that this would result in a net increase in the Gross Development Value.

(c)    As a result of the increase in retail area Mr. A. Chan proposed to revise the adjustments of the Retail Comparables.  The adjusted unit rate for retail premises became $153,700/ m².  We agreed that this adjustment was justified.

(d)   Mr. A. Chan proposed no change to (i) his Tin Wan Court residential comparables and (ii) the adjustments for facilities in his residential comparables.  Mr. A. Chan explained that (i) all the window openings facing the factory building at Tin Wan Court were from service areas; and (ii) carparks were provided in his Jadewater and Bayshore Apartments residential comparables but not in his hypothetical redevelopment of the Land.  We agree that Mr. A. Chan’s proposal is a fair reflection of the situation.

(e)    Mr. A. Chan proposed to change his quantum adjustments for the residential comparables to 0.5% per 5 m².  We agree that this is in line with our suggestion to Mr. A. Chan.

(f)  Mr. A. Chan proposed to add 1% adjustments for his residential comparables to reflect that one flat per floor was proposed in his hypothetical redevelopment of the Land. We agree that this is an appropriate adjustment.

44.  Mr. A. Chan said that there was no recent site transaction in the Aberdeen/Ap Lei Chau area but produced 2 site comparables in Kennedy Town.  His view was that these were not comparables to the Lots because the location was very different.  We agree with Mr. A. Chan’s view.

45.  Taking into account of the changes proposed, Mr. A. Chan revised his RDV valuation to $51,420,000.00.  We are satisfied that the revised valuation made by Mr. A. Chan is fair and reasonable, reflecting the current redevelopment value of the Lots.  Thus, the reserve price of the Lots should be fixed at this value.

Conclusion

46.  In the circumstances, we make the following determinations:-

(a)   This Tribunal is satisfied that the value of the Respondent’s unit as assessed in this Application is fair and reasonable and is fair and reasonable when compared with the values of the Applicant's units;

(b)   This Tribunal is satisfied that the redevelopment of the Lots is justified due to the age or state of repair of the Buildings, and that the Applicant has taken reasonable steps to acquire all the undivided shares in the Lots including that of the Respondent;

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

(d)   Mr. Lung Siu Wing and Mr. Luk Kam Chung Richard, nominated by the Applicant, be appointed trustees (“the Trustees”) to discharge the duties imposed on trustees under the Ordinance in relation to the Lots, and the Trustees be authorized to charge such remuneration for their services in accordance with the terms set out in the letter from Messrs. So, Lung & Associates to Messes. Kenneth C.C. Man & Co. dated 6 September 2011;

(e)    For the purposes of the sale of the Lots by public auction:-

(i)  The sale of the Lots be on the particulars and conditions of sale substantially the same as those in the draft Particulars and Conditions of Sale (as set out in pp. 721-743 of Exhibit “AR2”) initialed and approved by the Tribunal;

(ii)   The reserve price be set at $51,420,000.00;

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

(f)  Liberty to the Applicant, the Respondent and the Trustees to apply to the Tribunal for further directions.

Costs

47.  Although the parties have indicated their respective positions on costs, we have not heard their full arguments on costs.  Thus, we will only make a costs order nisi at this stage.  We are of the view that there should be no order as to costs, as the Respondent has simply asked the Applicant to prove its case and did not raise any dispute at the trial, save that the Respondent did dispute the RDV before the trial.  As discussed above, the RDV assessed by the Applicant has to be revised upward after the Tribunal raised the queries as aforesaid.  It shows that the Respondent’s challenge before the trial was not without merit.  The Applicant is also required to satisfy the Tribunal on all the matters discussed above in any event, and hence no extra costs have been incurred.  On the other hand, the Respondent is not entitled to costs against the Applicant either, as he had not responded to the Applicant’s offers at all, causing the Applicant to take out the present application, which may well be avoided if the Respondent had made a sensible counter-offer.

48.  Thus, we make a costs order nisi that there be no order as to costs for the Application herein.  If the parties do not make any further application for costs within 14 days from today, the costs order nisi shall become absolute.