CENTURY SUPREME INTERNATIONAL LTD v. KAM CHI KIT CHARLES AND OTHERS

LDCS 24000/2018

[2022] HKLdT 6

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LAND COMPULSORY SALE MAIN APPLICATION NO 24000 OF 2018

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BETWEEN

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J U D G M E N T

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BACKGROUND

1.  This is the applicant’s application for an order for sale, for the purposes of redevelopment under the Land (Compulsory Sale for Redevelopment) Ordinance, Cap 545 (“the Ordinance”), of all the undivided shares of and in section A of Inland Lot No 6365 and the extension thereto, section B of Inland Lot No 6365, section C of Inland Lot No 6365 and the extension thereto, and the Remaining Portion of Inland Lot No 6365 and the extension thereto (“the Lots”), together with a building erected thereon known as Ventris Court, No 16 Ventris Road, Hong Kong (“the Building”).

2.  The Building comprises two 9-storey residential blocks (i.e. the front block consists of Blocks A, B, C and D, and the rear block consists of Blocks E, F, G and H) over carports, and each residential block is served by one lift and two common staircases. The two residential blocks are not connected except through a passage at the carports.

3.  According to the building plans approved by the Building Authority on 22 October 1959 and 29 May 1963 and the Permit No H86/63 issued for the Building on 29 May 1963, there are a total of 66 flats. The basement is planned as carports for non-domestic use, the ground floor is planned as 2 flats for domestic use and carports for non-domestic use, the 1^st floor is planned as 5 flats for domestic use and carports for non-domestic use, the 2^nd to 7^th floors are planned as 8 flats for domestic use, the 8^th floor is planned as 7 flats for domestic use, and the 9^th floor is planned as 4 flats for domestic use.

4.  According to the records of the Land Registry, the ground floor of the front block comprising Blocks A, B, C and D as shown in the approved building plans and as named in the Permit No H86/63 is re-designated as the 1^st floor, and the 1^st floor to 8^th floor of the front block are re-designated as the 2^nd floor to 9^th floor.

5.  According to the approved alteration and addition plans, there are (1) an addition of staircase connecting Blocks A & B on 9^th Floor and Roofs of Blocks A & B; (2) an addition of staircase connecting Block C on 8^th Floor, Block C on 9^th Floor and the Roof of Block C; and (3) a covered roof on the Roof of Block D and an addition of staircase connecting it with Block D on 9^th Floor.

6.  According to the Deed of Mutual Covenant, Block F on 1^st Floor is a non-domestic playground. It is also described as “Playground” in the records of the Land Registry.

7.  There are discrepancies in the number of car parking space as shown in the records of the Land Registry, the approved building plans and the assignment plans. Nevertheless, according to a declaration of a solicitor registered vide memorial No 3011555, there are a total of 22 car parking spaces only scattering at 3 levels in the Building, and the total number and numbering of car parking spaces as mentioned in it match with those as shown in the assignment plans.

8.  The Lots together with the Building standing thereon are allocated 68 undivided shares. Blocks A & B on 9^th Floor (i.e. including Roofs of Blocks A & B) as 1 flat is given 2 undivided shares; Block F on 1^st Floor as a playground is given 1 undivided share; and each of the other 65 flats is given 1 undivided share, making a total of 68 undivided shares. No undivided share is given to the car parking spaces.

THE REMAINING RESPONDENTS

9.  At the time of trial, the following 9 respondents remain in the present proceedings. Except otherwise stated, the reference to “the respondents” in the discussion below refers to these remaining respondents: -

Respondent		Premises
1st Respondents	(“R1”)	Block A on 4th Floor (“R1’s Property)
2nd Respondent	(“R2”)	Block A on 7th Floor, and one car parking space (i.e. Car Parking Space No 7) (“R2’s Property”)
3rd Respondent	(“R3”)	Blocks A and B on 9th Floor, the Roofs of Blocks A and B, and Car Parking Space Nos 3 & 4 on Ground Floor (“R3’s Property”)
4th Respondent	(“R4”)	Block B on 5th Floor, and Car Parking Space Nos 1 & 2 on Ground Floor (“R4’s Property”)
5th Respondents	(“R5”)	Block C on 5th Floor (“R5’s Property”)
6th Respondent	(“R6”)	Block E on 7th Floor (“R6’s Property”)
7th Respondent	(“R7”)	Block G on 5th Floor (“R7’s Property”)
8th Respondent	(“R8”)	Block G on 9th Floor, and the Roof of Block G (“R8’s Property”)
10th Respondents	(“R10”)	Block H on 8th Floor, and one car parking space (i.e. Car Parking Space No 15) (“R10’s Property”)

10.  The applicant is represented by Mr C Y Li, SC (“Mr Li”) leading Mr Li Pak Hei and Mr Chester Kwan. The respondents are represented by Mr Ambrose Ho, SC (“Mr Ho”) leading Mr Desmond Leung (for R1, R3, R4, R6 and R7), Mr Tyrone Tang (for R2 and R10), Mr Harrison Cheung (for R5) and Ms Anna Chow (for R8).

ISSUES FOR DETERMINATION BY THE TRIBUNAL

11.  The parties cannot agree on the list of issues and they have proposed two different lists of issues for trial. In our view, the two lists are by and large similar and the differences mainly lie on description/classification of issues rather than on substance. We will discuss the following issues in this judgement: -

(1)	Whether the applicant has fulfilled the prerequisites for making this application?
(2)	Whether the applicant has taken reasonable steps to acquire all the undivided shares in the Lots on terms that are fair and reasonable in accordance with section 4(2)(b) of the Ordinance?
(3)	Whether the redevelopment of the Lots is justified due to the age and/or state of repair of the Building in accordance with section 4(2)(a) of the Ordinance?
(4)	What was the respective existing use value (“EUV”) of all units, including all flats and car parking spaces, in the Building as assessed in accordance with Part 1 of Schedule 1 of the Ordinance?
(5)	If an order for sale should be granted, what should then be ordered by the tribunal (i.e. including the reserve price) for the purpose of auction sale?

PREREQUISITES FOR AN APPLICATION (ISSUE 1)

12.  Mr Ho confirms at trial that the respondents would not positively dispute the threshold requirements except putting the applicant to proof that they have been met.

Ownership of the Applicant

13.  At the time of filing of the Notice of Application on 27 September 2018, there were 10 respondents and the applicant owned 83.82% (i.e. 57/68) undivided shares in the Lots.

14.  Section 3(1) of the Ordinance prescribes that the minimum percentage of undivided shares that an applicant or applicants should possess before making an application under the Ordinance is 90%.

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

16.  The Land (Compulsory Sale for Redevelopment) (Specification of Lower Percentage) Notice, made under section 3(5) of the Ordinance (“the Notice”), was gazetted on 12 January 2010 and came into operation on 1 April 2010. Section 3 of the Notice lowered the threshold for compulsory sale of specified classes of lots from 90% to 80%. Those classes of lots include:

“a lot with each of the buildings erected on the lot issued with an occupation permit at least 50 years before the relevant date”

17.  Since the occupation permit of the Building was issued in 1963, i.e. more than 50 years before the date of application (i.e. 27 September 2018; the relevant date under the Notice), the applicable percentage is therefore 80%.

Valuation Report

18.  Section 3(1)(a) and Part 1 of Schedule 1 of the Ordinance stipulate that an application should be accompanied by a valuation report, prepared not earlier than 3 months before the date on which the application is made. In these proceedings, the accompany valuation report was dated 21 September 2018.

19.  We are satisfied that as at the date of application, the applicant owned more than 80% of the undivided shares in the Lots and the application was accompanied by a valuation report prepared not earlier than 3 months before the date on which the application was made. We are therefore satisfied that the applicant is entitled to make the present application under section 3 of the Ordinance.

SECTION 4(2) OF THE ORDINANCE - REASONABLE STEPS AND JUSTIFICATION (ISSUES 2 & 3)

20.  Section 4(2) of the Ordinance provides that: -

“2.	The Tribunal shall not make an order for sale unless, after hearing the objections, if any, of the minority owners of the lot the subject of the application under section 3(1) concerned, the Tribunal is satisfied that —
	(a)	the redevelopment of the lot is justified (and whether or not the majority owner proposes to or is capable of undertaking the redevelopment) —
		(i)	due to the age or state of repair of the existing development on the lot; or
		(ii)	on 1 or more grounds, if any, specified in regulations made under section 12; and
	(b)	the majority owner has taken reasonable steps to acquire all the undivided shares in the lot (including, in the case of a minority owner whose whereabouts are known, negotiating for the purchase of such of those shares as are owned by that minority owner on terms that are fair and reasonable).”

Whether the applicant has taken reasonable steps

21.  Before the application, the applicant had made two offers to each of the respondents: -

	1st Offer	Date	2nd Offer	Date
R1	$48,000,000	13-Jun-18	$48,000,000	14-Aug-18
R2	$50,000,000	13-Jun-18	$50,000,000	14-Aug-18
R3	$109,000,000	29-Jun-18	$109,000,000	14-Aug-18
R4	$50,260,000	29-Jun-18	$50,260,000	14-Aug-18
R5	$32,000,000	14-Jun-18	$32,000,000	14-Aug-18
R6	$32,500,000	18-Jul-18	$32,500,000	14-Aug-18
R7	$31,850,000	29-Jun-18	$31,850,000	14-Aug-18
R8	$36,110,000	18-Jul-18	$36,110,000	14-Aug-18
R10	$34,370,000	18-Jul-18	$34,370,000	14-Aug-18

22.  The 2^nd offers were accompanied with the respective valuation letters prepared by Savills Valuation and Professional Services Limited (“Savills”), which assessed the EUV of all units in the Building and the redevelopment value (“GDV”) of the Lots as at 29 June 2018. All the 1^st offer prices and the 2^nd offer prices are higher than the then RDV attributable to the respective units owned by the respective respondents as assessed by Savills.

23.  After the application and about 10 days before the trial, as revealed in R8’s supplemental witness statement dated 4 March 2021, the applicant has made a 3^rd offer to each of the respondents on 1 March 2021 as follows: -

R1	$32,063,000	R6	$23,312,000
R2	$35,517,000	R7	$23,867,000
R3	$80,740,000	R8	$25,988,000
R4	$36,072,000	R10	$25,811,000
R5	$23,445,000

24.  The 3^rd offers were also based on the valuations of Savills, and have reflected the then RDV attributable to the respective units owned by the respondents, but in these offers no premium was added on top of Savills’ assessment.

25.  In assessing the reasonableness of the offers, we have considered the Court of Final Appeal’s judgment in Capital Well Ltd v Bond Star Development Ltd [1] particularly in paragraphs 33 and 36 thereof Ribeiro PJ has this to say: -

“33. In making that assessment 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. It is obviously necessary to recognise that there will often be differences of opinion on that matter …

…

36. ... We are of course not suggesting that it is necessary for the offer to ‘beat’ the valuation as if it were a payment into court. 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 …”

26.  Considering the quantum of the offers, we agree that the respective offer prices fall within the range of what may broadly be regarded as fair and reasonable compensation for the interest in question. In these proceedings, there is no evidence that Savills’ valuations were unreliable, and in fact the determinations of this tribunal to be discussed in the latter parts of this judgment are close to the assessments by Mr Charles Chan (“Mr Chan”) of Savills, the valuation expert appointed by the applicant.

27.  Although Mr Ho criticizes Mr Chan has finally retracted in the RDV assessment adoption of the comparables in Regent Hill and therefore his original RDV assessment was not fair and reasonable, we make no such finding. We only take the view that the transactions in Regent Hill are not the most relevant comparables and could be excluded in the assessment if other better comparables are available.

28.  Mr Ho contends that by virtue of the language in section 4(2)(b) of the Ordinance which states that “no order for sale shall be made unless the tribunal is satisfied that the majority owner has taken reasonable steps to acquire all the undivided shares in the lot”, the majority owner should try to reach agreement with the minority owners to purchase the latter’s interest on fair and reasonable term and it is only after such an offer is made – and rejected by the minority – that the tribunal may proceed to order a sale by public auction. Paragraph 32 of Capital Well is cited by the respondents to support the contentions that the minority owners are perfectly entitled to refuse to sell at the price offered even though the tribunal may regard that price as fair and reasonable.

29.  We do not consider paragraph 32 of Capital Well relevant to our present concern. This paragraph brings forth the view that the minority owners shall not be considered as “wrong” in rejecting the majority owner’s offer because money is not everything and the minority owners may have their personal reasons why they do not wish to sell their properties. Be that as it may, the view in paragraph 32 cannot be taken to mean that as long as the minority owners reject the offers and refuse to sell and since they could not be regarded as “wrong”, then the tribunal must desist from making an order for sale. In our view, the emphasis on whether the minority owners are right or wrong in refusing to sell at a fair price is misplaced because their “rightness” or “wrongness” is irrelevant and the true concern is whether the statutory requirements and the grounds for redevelopment are satisfied.

30.  Mr Ho submits that the quantum of the offers aside, from the perspective of procedural fairness, the steps taken by the applicant coupled with their hard-line uncompromising stances fall far below the requirement to take reasonable step.

31.  It is submitted that since the Ordinance involves a serious undermining of the respondents’ property rights, requiring the applicants to take such “reasonable” and “minimal” steps to find out more about the individual circumstances of the respondents is perfectly reasonable. The individual circumstances of the minority owners are mainly: -

R1	Their personal / emotional attachment to their property (i.e. unit 4A) and their parents’ reminder that their property should not be sold but should be passed on to the next generation.
R2	His old age (91 years old at the time of making witness statement). Personal feelings on the property (i.e. unit 7A) being unique and have special meaning to him and his family.
R3	Their personal / emotional attachment to their properties (i.e. units 9AB), closeness to Sanatorium hospital to receive medical treatments, plan to renovate the properties for family use, emotion stress, financial burden and practical difficulties in relocation.
R5	Their personal / emotional attachment to their property (i.e. unit 5C), great affection to the local district which cannot be measured by monetary value, convenience in location, good internal condition and stamp duty concern.
R6	Age, personal/emotional attachment to his property (i.e. unit 7E) and personal plan to spend the rest of his life in the property, difficulty in purchasing property of similar size at the offered price.
R7	Old age and emotional attachment to her property (i.e. unit 5G), stress from home removal and having to adapt to new premises.
R8	Personal/emotional attachment to their property (i.e. unit 9G), efforts made to upkeep its internal conditions.
R10	Personal/emotional attachment to their property (i.e. unit 8H), reluctance to move out from Happy Valley community where their family have long-time friends.

32.  In response, Mr Li submits that the majority owner should not be required to find out the individual circumstances of the minority owners. The fair and reasonable terms in the regime of the Ordinance would just mean adequate recompense to the minority owner for having to sell his property which cover his share of the redevelopment potential of the lot[2]. It is because in law, there is no legal basis to say that the majority owner is obliged to enquire into the individual circumstances of the minority owner and to satisfy his particular requirements (whether in term of money or other matters). On fact, there is no evidence that the respondents had ever disclosed their alleged personal circumstances to the applicant. Evidence shows that some of the responsive respondents were just looking for higher offers.

33.  As to the deadline of 14 days set for the respondents to respond and the one-month time table after signing of formal agreement for delivery of possession, Mr Li submits that it is not unusual for an offeror to impose a time line for acceptance of the offer and it is also a usual term in conveyancing for completion to take place one month after formal agreement. As the applicant’s factual witness Mr CK Yu deposed, the respondents could make counter-offer or ask for a longer completion date but the fact is except R2 and R5, the respondents did not even make any counter-offer. It is also a red herring to insinuate that the minority owner cannot find an alternative accommodation without obtaining the entire proceeds upon completion first because appropriate arrangement could be made to enable them to use the deposit, further deposit and completion money for acquiring alternative accommodation.

34.  It appears to us that the so-called individual circumstances of the minority owners are not likely to be something which the majority owner can find out by themselves but are likely things that are privy to the minority owners. We believe requiring the applicant to take into consideration the personal or individual circumstances of the minority owners which can be varied, diversified, sentimental and uncertain and which the applicant may not be able to resolve would likely land the majority owner in an impossible position.

35.  As we understand it, a major objective to be achieved by the requirement of taking reasonable steps to acquire all the undivided shares is to prevent pre-mature filing of a compulsory sale application by the majority owner so that if acquisition of all undivided shares could be achieved by way of agreement between the parties, then the time and costs of having to commence a compulsory sale application and to go through the litigation process could be saved.

36.  One would see that the individual circumstances of the minority owners in the present case as set out in paragraph 31 above mainly involve their subjective emotional attachment to their properties and their unwillingness to sell. Such sentimental factors of the minority owners cannot be satisfied and their intention to stay on at their premises cannot be achieved unless the majority owner gives up acquiring the undivided shares of the minority owners and hence gives up the redevelopment plan. To suggest that the majority owner would have to give up the very purpose of a compulsory sale application (i.e. give up acquiring the undivided shares of the lots for redevelopment) in order to be regarded as having satisfied the statutory requirements for making a compulsory sale application is no different from putting the cart before the horse and is unpersuasive to us.

37.  It is clear that the Ordinance does not require the applicant to take reasonable steps to “satisfy the individual needs of the minority owners” but requires the applicant to take reasonable steps to “acquire all the undivided shares”. With that in mind, we just do not see how the respondents’ complaints could be substantiated. We are satisfied that the applicant has taken reasonable steps in an attempt to acquire all the undivided shares of the Lots on terms that are fair and reasonable.

38.  The respondents raise the incidental question of whether, apart from the requirements of (1) taking reasonable steps to acquire the undivided shares; and (2) age or state of repair, there are other considerations (such as the personal or individual circumstances of the respondents) which the tribunal should take into account in deciding whether to grant an order for sale.

39.  This question originates from the wording of section 4 of the Ordinance which stipulates that the tribunal shall not make an order for sale unless it is satisfied that redevelopment of the lot is justified due to the age or state of repair and the majority owners have taken reasonable steps to acquire all the undivided shares in the lot. The statutory requirements are expressed by way of using two forms of grammatical negation in one phrase or sentence, i.e. double negative.

40.  In our view, such textual expression does not compel the tribunal to make an order for sale once the “age or state of repair” and “reasonable steps” are satisfied. This means the tribunal could refuse to grant an order even though the criteria are met. However, the Ordinance does not indicate upon the occurrence of what events or due to the existence of what circumstances the tribunal should refuse to make an order for sale despite the statutory requirements are satisfied. Since the primary objective of the Ordinance is to facilitate urban renewal and redevelopment of aged buildings, in our opinion that those highly subjective and general factors such as emotional attachments to the properties and fondness of the neighbourhood or local community, stress in relocation arrangements, family plan etc should be insufficient to render an otherwise successful compulsory sale futile and a failure. As for other considerations of the minority owners such as proximity between their properties and the Sanatorium hospital or proximity between their properties and family business in Happy Valley etc, we believe such locational preference could possibly be resolved by the minority owners’ acquiring another property in Happy Valley.

41.  In assessing the strength of this argument of the respondents, one can imagine that if the respondents’ contention is right, the chance of the majority owners being able to successfully obtain a compulsory sale order would be slim if not fanciful. The entire redevelopment plan/project of lots through compulsory sale applications would become highly vulnerable at the whim of any minority owner who can effortlessly claim the existence of subjective circumstances or sentiments which the majority owner is not even in a position to prove or disprove.

42.  In this regard, we find the Provisional Legislative Council Brief on the Land (compulsory Sale for Redevelopment) Bill has some discussions which are quite relevant. Paragraph 2 thereof stated that the purpose of the bill was to “enable owners holding a clear majority of the shares in a lot which merits priority redevelopment to sell the whole lot, despite legal interests of the minority owners not having been acquired”. Paragraph 3 further acknowledged and noted the problem that individual owners may refuse to sell for personal reasons or demand unreasonably high prices. Taking those problems on board, the Bill was made to address the problem “with a view to facilitating private sector participation in expediting urban renewal”.

43.  Weighing everything we cannot find any basis to the assertion that in the scheme of things of compulsory sale applications, the scale should be tilted that much in favour of the minority owners such that their personal circumstances in the nature as described in paragraph 31 above would justify refusal of an otherwise successful compulsory sale application. Whilst acknowledging that private property right ought to be respected and reasonably protected, we equally subscribe to the thinking that protection of such rights shall not be overstretched to extent of fundamentally hindering the operation and undermining the primary objective of the Ordinance.

44.  To conclude, we find that none of the personal circumstances of the respondents would have an impact on our determination as to whether an order for sale shall be granted.

Whether development of the Lots is justified due to the age and/or state of repair of the Building

45.  Mr Ho contends that the Ordinance is to ensure that the right of private ownership protected under Basic Law Article 6 should not be overridden without justification while giving the majority owner a statutory means to justify the exceptional interference with such right. Given this exceptional context, the language in section 4(2) of the Ordinance imports a more stringent threshold. The Ordinance should not be interpreted in a way so as to make it easier for an applicant to succeed or to facilitate its compulsory sale application.

46.  It is further submitted that the approach in Intelligent House v Chan Tung Shing and Others [3] should be critically revisited as it was doubted by the Court of Appeal in Fineway Properties Ltd v Sin Ho Yuen Victor, the Administrator of the Estate of Sin Yat [4]. Mr Ho identifies several inherent deficiencies with the tests formulated in Intelligent House. First, the formulation adopted in Intelligent House insisted on comparing a building subject to a compulsory sale application (constructed some 50 years ago) with what are reasonably expected of in modern-day standard or in the present day circumstances for the type of building in question. However, even a well-maintained building with sound structural conditions will fall short of a building built in modern-day standards, thus will not be able to satisfy the “tenantable condition” standard as formulated in Intelligent House. This cannot be consistent with the Ordinance which aims to provide for urban renewal in respect of old and dilapidated buildings. For the same reason, the “tenantable condition” standard also does not sit comfortably with the natural and ordinary meaning of the phrase “state of repair of the existing development on the lot” in section 4(2)(a) which phrase only mentions the state of repair of the existing development and requires no comparison or consideration of the state of buildings built in modern-day standard.

47.  Mr Ho submits that “age” and “state of repair” are two separate grounds. In assessing these grounds, the tribunal “do[es] not have to formulate any general test for age and state of repair, and would consider if the expert evidence is sufficient to show that the age and state of repair is in such state that redevelopment of the relevant lot is justified [5]”. The tribunal should follow the approach suggested by the respondents’ expert, Ms Joy Leung, to assess the conditions of the Building on a holistic manner by reviewing the results of all the tests and determine whether the building conditions are up to “habitable conditions” – “[if] the condition of the structural frame, the building components, the finishes and the buildings services installations are in reasonable condition which is fit for use.”.

48.  As to whether the Ordinance shall be construed restrictively, Mr Li submits that whether the statutory criteria of “age or state of repair” are satisfied is a matter of evidence. The tribunal would consider if the expert evidence is sufficient to show that the age or state of repair is in such state that redevelopment is justified. Once the statutory criteria have been met and an order for sale is made, the minority owners are obliged to sell their shares. The minority owners would receive fair and reasonable compensation for their interests in the lot. Mr Li relies on paragraph 21 of the Court of Final Appeal’s judgment in Capital Well which succinctly summarized that the objectives of the compulsory sale regime under the Ordinance are to facilitate urban renewal in respect of old and dilapidated buildings by assisting private developers who have already acquired the required percentage of shares of the lot to complete the acquisition, while ensuring that the minority owners receive fair and reasonable compensation. The applicant sees no basis in the respondents’ contention that additional criteria or restrictive interpretation shall be imported. Instead of vaguely debating whether a restrictive approach should be adopted in construing the Ordinance, it seems more constructive to cut the chase to directly discuss the relevant test/considerations in applying section 4(2) of the Ordinance.

49.  In response to the respondents’ proposition that “age” and “state of repair” are two separate grounds and that no general test is needed, Mr Li submits that these questions are not really at issue.

50.  In our view, since the Ordinance does not specify any particular age of the building that merits redevelopment, nor does the Ordinance indicate what state of repair of the building would justify redevelopment, the two factors despite being put in the alternatives in section 4(2)(a) must be related as they both relate to the physical state of the building in question. To discuss whether “age” and “state of repair” are two separate grounds does not serve useful purpose.

51.  As for whether a general test is needed, in our opinion, the respondent’s proposition that it was not necessary to formulate a general test for state of repair would not further the respondents’ case because such proposition does not entail the conclusion that the assessment could be done in a vacuum. Whilst each case must depend on its own facts, there is a set of factors which are always relevant to the tribunal’s exercise of its discretion in this regard. In Top Sail International Limited v Cheng Kai Ming, Executor of the Estate of Chan Hue also known as Chan Sum Hiu, Deceased [6], the tribunal acknowledged that factors such as physical age, physical conditions and the obsolete design of a building are all pertinent to the issue of whether redevelopment is justified on the ground of the age of the building. The following paragraphs in the judgment are particularly relevant:-

“23. … 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 would 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 …”

52.  The same set of criteria was adopted by the tribunal in Charmlink Limited v Lee Tong Hing and Others [7] which aptly demonstrate that obsolescence and maintenance costs are relevant consideration:-

“… The relevant factors in the present case are that the Building is over 50 years old and it has passed its designed life. It is also obsolescent in design and not economical to maintain. All these factors point to the fact that the Building has come to an end of its physical as well as economic life. Thus, we find that redevelopment is justified on the ground of the age of the Building.

… With the clear evidence from the two experts that the Building is in a poor state of repair and in fact untenantable without substantial repair works to be carried out over a long period of time, we have no hesitation in finding that redevelopment is justified by the state of repair of the Building.”

53.  We agree with Mr Li’s observation that the respondents’ stance on the relevant scope of consideration is ambivalent. Whilst contending that a general test is not needed, they acknowledge that obsolescence and design working life were relevant consideration adopted by the tribunal in previous cases but then they stopped at saying that “each case must depend on its own facts” without further input. Such position is not very helpful because even though a general test with a specific name given to it may not be needed, the tribunal still needs to take into account certain factors in considering the “age” and “state of repair” of a building with some degree of consistency.

54.  For the limb of “age”, the respondents appear to take the stance that only physical age would be the predominant consideration and this is most likely satisfied if the building is very clearly due for redevelopment. The applicant describes such argument as tautology, which we agree.

55.  As regards the respondents’ submission that redevelopment could be justified on the ground of “age” if “there is undisputed evidence that a building has reached the end of its physical life”, such formulation of the assessment of “age” is too stringent and does not accord with the authorities including those which the respondents rely. For example, in Top Sail, the tribunal held at paragraph 24 that “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”.

56.  Similar observation was made in Harvest Treasure Limited and Others v Cheung Fat Enterprises Limited [8] at paragraph 115 stating that “The [physical] age of a 50 years old building by itself does not point to any direction but it has to be weighed amongst other factors, for instance, the design and design working life of the Building.”.

57.  The respondents seek to water down Intelligent House with reference to the Court of Appeal’s decision in Fineway. Mr Li considers that the respondents have over-generalised Le Pichon JA’s (as she then was) criticism on Intelligent House which is actually confined to the concept of economic lifespan and the economic test. Other than that, Fineway does not impinge on the adoption of the standard of “tenantable condition” or the relevant factors laid down by the tribunal in Intelligent House in assessing the “age” and “state of repair” of a building.

58.  We agree with the applicant on this. The crux of the criticism in Fineway can be found at paragraph 35 of the judgment which states that:

“Nevertheless, I have some reservations as to their correctness. Admittedly, this is no more than a preliminary view without the benefit of hearing full argument on the point but it would not be inappropriate to highlight the fact that the concept of “economic lifespan” does not feature in the Ordinance. It is a concept that might have currency with economists. Be that as it may, it found favour with the Tribunal in Intelligent House Ltd v Chan Tung Shing to the extent that the Tribunal considered it to be one aspect of the meaning of ‘age’ and “state of repair” for the purposes of section 4(2)(b) of the Ordinance. Whether that interpretation is sustainable in a higher court remains to be seen. As to the meaning of that concept in the context of ‘age’ (see paragraph (1)(b) of the citation from Intelligent House Ltd v Chan Tung Shing in paragraph 32 above), suffice it to say that the meaning and scope of the proviso appear to be far from clear.”

59.  Apparently, the criticism was directed at the concept of “economic lifespan”. Based on this concept, the applicant in Intelligent House formulated the “land economic test” as whether “the economic value of the building is less than the economics value of the cleared site on which the building stands”. In the context of “age”, if the cleared site value of the lot significantly exceeds the existing use value of the building and the reasons for this are attributable to age alone, the economic lifespan of that building is said to have come to an end[9]. In the context of the “state of repair”, the economic test poses two questions:- (1) whether the cost of repair exceeds the existing use value of the building; and (2) whether a reasonable person, having looked at the difference between the repair cost and the enhancement value, would find it worthwhile economically to proceed with repair and maintenance [10].

60.  The applicant submits that the essence of the economic test lies in the comparison of figures which probably forms the basis of the Court of Appeal’s comments in Fineway at paragraph 36 that it may not right to approach the issues from the “perspective of an economist”. But the applicant makes it clear that they do not approach the issues from the perspective of economists, the parties actually adduce no expert evidence on land economics, and the applicant’s case is not about crude comparisons between EUV and RDV and the repair costs and the estimated gain in a hypothetical RDV valuation.

61.  As we observe, although the economic tests formulated in Intelligent House was subject to some reservations in the Court of Appeal in Fineway, whether the test was correct or not did not actually come up for decision by the Court of Appeal. More importantly, the economic test is not the only and exhaustive test laid down in Intelligent House for consideration. It was held that in addition to the economic test:-

(1)	The tribunal was entitled to consider any factor or matters that are directly or indirectly related to the element of “age” or “state of repair”[11].
(2)	To consider whether redevelopment is justified, the tribunal may look at any comparison between the existing building and a new building or any proposed redevelopment[12].
(3)	It is open to the tribunal to consider and look at the obsolescence of the existing building in terms of its functional items or facilities since this is something related directly or indirectly to the “age” of the building[13].
(4)	Comparison may be made of the facilities of the existing with what a modern-day building could correspondingly offer whether as required by the present day regulations or law, or because of the advance of technology, or because of the rising expectations of the public for proper, safe and hygienic habitation and occupation[14].
(5)	In considering the cost of the “state of repair”, the tribunal is entitled to look at the repair works which are necessary to render the building a tenantable condition, which is reasonably fit for use in the sense that it should be safe and hygienic for occupiers and visitors, and provide a standard of comfort and convenience which is reasonable in the present day circumstances for the type of building question, even though the repairs need not be carried out to make the old building “as new” by today’s standard. Modern finishes and installations are not invariably required unless where it is required by law or good safety practices[15].

62.  As rightly observed by the tribunal in Pacific Base Holdings Limited and Others v Lee Hop Biu and Others [16], the Court of Appeal in Fineway actually did not make any adverse comment on the standard of “tenantable condition” or other related considerations as discussed above. Putting aside the different labels of “habitable standard” and “tenantable standard”, the tribunal in previous cases has approached the matter consistently and has essentially considered the same or similar set of factors when the age and state of repair of a building came to be assessed.

63.  In our view, Fineway as properly construed and comprehended, does not assist the respondents in attacking the consideration of obsolescence and the adoption of the tenantable standard in assessing whether the statutory criterion of “age or state of repair” is satisfied.

64.  Premised on the above discussions, we now specifically answer Mr Ho's challenge to the tenantable condition standard as summarised in paragraph 46 above. Mr Ho considers that standard deficient because it requires comparison of a building subject to a compulsory sale application (constructed some 50 years ago) with what are reasonably expected of in modern-day standard. In his view, such comparison is wrong because:- (1) old building must fall short of a building built in modern-day standard and will not be able to satisfy the tenantable condition standard any way; and (2) on the natural and ordinary meaning of the phrase "state of development of the existing development on the lot" in section 4(2)(a) of the Ordinance, since it makes no mention of any other building, the tribunal should focus on the state of repair of the subject building rather than making comparison with other developments.

65.  With respect, we cannot agree to this view. In relation to point (1), whilst it may bear some truth to say that generally old buildings would fall short of buildings constructed in modern-day standard, it is a misconception to think that whenever the subject building is found to be inferior than modern buildings, then the tribunal must reach the conclusion that redevelopment is justified. To what extent the existing building falls short of modern-day standard certainly is one of the considerations to be taken into account. To suggest that in the evaluation exercise under section 4(2)(a), the tribunal must strictly confine its scope of vision to the subject building and must ignore the current living standard as demonstrated by more up-to-date buildings is just like sticking to the beaten track and resting complacently on one's laurels. In relation to point number (2) (i.e. natural and ordinary meaning of the phrase in section 4(2)(a)), whilst it is true that the phrase does not mention any building other than the subject building, it is clear that the words “redevelopment” and “justified” in section 4(2)(a) provide the context against which the grounds of “age” and “state of repair” could be assessed. Therefore, in considering whether it is “justified” to demolish and replace the existing building with a new development, the court certainly could compare the state of the existing building with what a new building could provide. To suggest otherwise is to limit our own progress in achieving betterment.

66.  Having discussed the legal arguments, we shall now move on to analyse the evidence adduced so that a conclusion could be made at the end of this part in the context of the evidence available. The applicant adduces the building expert evidence of Mr So Kin Shing (“Mr So”), a structural engineer of K S So & Associates Limited and Mr Benson Wong Sai Ning (“Mr Wong”), a building surveyor of Benson Wong & Associates Limited. Mr So conducted a structural survey of the Development and prepared a Structural Assessment Report dated 16 December 2019. Mr Wong conducted a condition survey of the Development and prepared a Condition Survey Report dated 16 December 2019. Mr Wong opines that redevelopment is justified due to both the age and state of repair of the Building.

67.  The respondents have appointed Mr Lo Kwok Kay (“Mr Lo”) as their structural engineer and Ms Joy Leung (“Ms Leung”) as their building surveyor. Mr Lo and Ms Leung have prepared the Structural Assessment Report and Condition Survey Report respectively on 24 April 2020.

68.  The 4 building experts have also prepared their respective rebuttal reports. Subsequently, Mr So and Mr Lo have prepared a Joint Statement on Structural Assessment dated 24 June 2020. Mr Wong and Ms Leung have prepared a Joint Statement on Condition Survey dated 24 June 2020.

69.  It is common ground that the Building was over 56 years of age at the time of trial (the Occupation Permit was issued on 29 May 1963). Mr Wong remarks that the Building is one of the oldest buildings[17] in its neighbourhood which is not disputed by Ms Leung though she remarks that such comparison is irrelevant to the question of whether redevelopment is justified.

70.  In addition to the physical age, Mr Wong also considers three other factors in assessing the age of the Building: - (1) design life of the structural frames; (2) physical obsolescence; and (3) functional obsolescence.

71.  In terms of the design life of the structural frames, Mr Wong referred to SKS’s SAR[18] which stated that the design life of a building structure should be shorter than 50 years. Given the physical age of the building (viz. 56 year-old), the structural frames of the Building have already passed their design working life.

72.  In terms of physical obsolescence, Mr Wong identifies 3 aspects of such obsolescence regarding the Building[19]:- (1) the appearance of the Building is just a plain looking block with monotonous elevations and in lack of architectural features and fins for aesthetical purpose; (2) the cement rendering and paintwork of part of the external wall of the Building is outdated when new buildings are finished externally with self-cleaning, durable and stylist materials; and (3) the piecemeal installations of aluminium windows (replacing the original painted mild steel windows) resulted in an overall untidy appearance for the elevations of the Building.

73.  In terms of functional obsolescence, Mr Wong listed 12 aspects of such obsolescence regarding the Building[20]:

(1)	The obsolete design and construction of the structural frames of the Building;
(2)	The determination of Habitable Floor Area by the old parameters of “Volume” and “Open Space” (instead of the new parameters of plot ratio, site coverage and open space);
(3)	The fire services installation is sub-par when compared to the current Code of Practice for Minimum Fire Service Installations and Equipment 2012 (“FSI Code 2012”);
(4)	The fire escape arrangements are unsatisfactory when compared to the current Code of Practice for Fire Safety in Buildings 2011 (“the Fire Safety Code 2011”);
(5)	The fire resisting construction of the fire escape route is outdated when compared to Fire Safety Code 2011;
(6)	Regarding the Emergency Vehicular Access (“EVA”), the means of access for fire-fighting and rescues to the Building does not comply with Fire Safety Code 2011;
(7)	The Building has not been provided with the required barrier free access facilities as prescribed in the Design Manual: Barrier Free Access 2008 (“BFA Manual”);
(8)	There is no proper refuse disposal system as prescribed by Building (Refuse Storage and Material Recovery Chambers and Refuse Chutes) Regulations (Cap 123H);
(9)	There is no lightning protection system on the roof of the Building;
(10)	There is no pipework provided for proper drainage of the condensates from air-conditioning units installed externally on various facades of the Building;
(11)	There are no overhangs at roof and floor levels on the building elevations; and
(12)	There is no management office provided in the Building.

74.  Mr Wong opines that 7 out of the above 12 aspects of functional obsolescence (being items (1), (2), (6), (7), (8), (11) and (12)) cannot be rectified unless the Building is demolished and redeveloped. He also clarifies in the witness boxes that in assessing obsolescence, he is approaching the issue from the perspective of safety, hygiene, comfort and convenience. The applicant’s case is that the Building is structural obsolete because there are a number of aspects in which the Building cannot satisfy the present-day standards set by the New Concrete Code and 2011 Fire Code. The Building is also nearing the end of its design working life, which should only be around 50 years.

75.  Ms Leung does not adopt these factors in assessing the age of the Building. It is the respondents’ position that all the features of obsolescence are irrelevant to the assessment of age in reliance on the case Fineway.

76.  In her discussion of the age of the Building, Ms Leung refers to a research paper (“the CityU Research Paper”)[21] funded by the Hong Kong Institute of Surveyors and conducted by City University of Hong Kong on the benchmarking of management and maintenance fees for residential properties (public and private in 2007-2008) suggesting that the common belief that repair cost will increase with building age is not substantiated.

77.  It is noted that Ms Leung actually relied on the same CityU Research Paper in Pacific Base where she asserted that “the repair costs will not increase when age of building increase provided there is regular maintenance”. She makes a similar statement in the present case[22].

78.  The tribunal in Pacific Base rejected Ms Leung’s assertion for a number of reasons and made reference to the following provisions contained in the CityU Research Paper[23] which were found at paragraph 127 of the judgment to be “quite conclusive against any reliance on the finding of the research paper”:-

“It is interesting to note that the study finds no relationship between building age/MR [i.e. Management Remuneration] and the maintenance and management fee. Perhaps some major renovations are not being included in the daily expenses and fees. Further study is recommended to investigate major renovations being done in aging estates/buildings and how the MR and the administration fee are decided in an estate/building in Hong Kong.”

79.  When Ms Leung was challenged in this regard during cross-examination, she took a rather ambivalent stance and was unable to provide a forthcoming answer despite rounds of questions from the bench and the applicant. At the end, Ms Leung confirmed that she would not rely on the CityU Research Paper.

80.  On state of repair, the primary data obtained by the laboratories instructed by both structural experts are not challenged. The state of corrosion and propensity for corrosion indicate that the structural aspect of the Building is at the beginning of extensive corrosion. The carbonation depth test and open up survey show that corrosion is widespread throughout many samples.

81.  The respondents complained about the sample size used by Mr So’s team which, in their view, does not give a representative picture of the condition of the structural elements of the Building. However, it is noted that for many of the test results Mr Lo’s tests actually reveal a worse state of the Building than Mr So’s test do. This coupled with the fact that Mr So also relied on Mr Lo’s test results and gave analysis thereon has reduced the significance, if any, of the respondents’ complaints about sample size.

82.  Ms Leung opines that the Building has been well-maintained and is assessed to be in good habitable condition and does not exhibit any sign of deterioration such that the overall structural stability would be of concern.

83.  Notably, a recurring theme of Ms Leung’s evidence is that regular maintenance has been undertaken in the Building and therefore redevelopment is not justified[24]. However, the cross-examination of Ms Leung reveals a rather weak basis for the suggestion that there has been regular maintenance in the Building because by “regular maintenance”, Ms Leung was only referring to 4 instances of maintenance works: - (1) external wall repair in 2001; (2) replacement of the lifts in 2005; (3) renovation works at the lift lobbies in 2009; and (4) fire services improvement works in 2013.

84.  When one talks about “regular” maintenance, one would expect maintenance work having been done to the same aspect in uniform, constant, periodical or at least repeated time intervals in order to fulfil the word “regular”. However, the evidence simply does not support any contention of regularity. Take the external wall repair as an example, Ms Leung admits that she only has record of maintenance work being done in 2001. Whilst she acknowledges that maintenance work for building services other than external wall would have to be done every 5 or 10 years, she could not point to any evidence of such regular maintenance to the Building.

85.  Mr Wong adopts a “tenantable standard” in assessing the state of repair of the Building, i.e. necessary repair would be carried out to render the Building fit for the enjoyment of its tenants and visitors, which are reasonable in the present day circumstances for the type of building in question, and with its structural frames, components, finishes and service installations in either fair or good conditions, requiring no repair in the near future.

86.  Ms Leung attacks “tenantable standard” on the basis that it concerned decorations and attractiveness of the Building[25]. Under cross-examination, she acknowledges that “tenantable standard” includes considerations on safety and hygiene and admits that sometimes distinction cannot be easily drawn between safety and aesthetics, and that a proposed repair work may cover both at the same time.

87.  Ms Leung also clarifies that by adopting the “habitable standard”, her proposed repair would not take into account legislation and regulations which are relevant to that particular aspect but legally unenforceable against an old building. In our view, one of the major drawbacks of Ms Leung’s approach is that it wholly disregards the modern-day standards and expectation on aspects such as safety and hygiene which are actually the important aspects which many new legislations aim to deal with in order to improve the environment and achieve a better standard of living or occupation.

88.  Ms Leung also draws a distinction between “essential repair” and “improvement work”. According to her, “essential work” either cures defects or enhances safety of the Building. These works require immediate attention and their completion would bring the building to habitable condition. For items under “improvement work”, no immediate attention is needed. However, Ms Leung acknowledges during cross-examination that normally she would recommend owners of a building to do both the essential and improvement works. This answer shows that Ms Leung’s distinction between “essential repairs” and “improvement work” may serve no practical purpose. Evidence also demonstrates that such dichotomy has been inconsistently applied by Ms Leung, below are some examples of the inconsistency in the respondents’ evidence as to the scope of essential repairs: -

(1)	PineBridge (which was engaged by Ms Leung to prepare a report) concluded that only the lightning protection system and underground drainage pipe required immediate repair[26]) (Adopting Ms Leung’s definition, only these two items would be classified as “essential repairs”). However, Ms Leung classified the provision of “fire enclosures to electrical installations” as essential work[27] which was not part of the essential repair work recommended by PineBridge.
(2)	Ms Leung recommends improvement works to be done to the lifts which was not recommended by PineBridge.
(3)	She recommends repainting of the external wall which would seem to relate to the aesthetics of the Building.
(4)	She agreed with Mr Wong on the repair works concerning (a) tiling of kitchen floor; (b) kitchen wall; (c) stained paintwork on kitchen ceilings; (d) kitchen sink sand cabinets despite she admitted that these items mostly concern aesthetics. When pressed to explain why, Ms Leung gives the answer that she agreed to these items only for the sake of calculation.

89.  Both parties have adduced voluminous expert evidence about the age and the state of repair of the Building and have made exhaustive and extensive submissions in relation to each and every item/aspect of the Building which they consider relevant to the statutory criteria. We have no intention to set out herein parties’ respective arguments on all individual items to avoid undesirably lengthening the judgment and overloading it with unnecessary details. Above all, on the evidence available to this tribunal, we prefer the observations and conclusions of Mr Wong to those of Ms Leung.

90.  To conclude, we find Ms Leung’s distinction between essential repairs and improvement works artificial by nature and is in lack of consistency in application. Whilst the respondents challenge the application of the “tenantable standard” in the consideration of the state of repair and the cost of repair, they apparently are unable to suggest any better alternative. In our view, the “habitable standard” advocated by her is basically the bare minimum requirements with limited referential value for the assessment. Such a standard is a disincentive to improvement in living/occupation condition and is unattractive to us. As a matter of principle and policy, the Ordinance was passed for the purpose of assisting assembly of land for redevelopment which is plainly for improvement of the environment. It makes more sense to say that in considering the age and state of repairs, one should put emphasis on or at least be receptive to the up-dating of the environment rather than being gratified by a mere satisfaction of the minimum safety requirement for the public and the occupiers. Having considered all the evidence available with or without the application of any particular test, we are satisfied that redevelopment is justified by reason of the age or state of repair of the Building.

THE EUV OF ALL UNITS IN THE BUILDING (ISSUE 4)

91.  Pursuant to section 4(1)(a)(i) of the Ordinance, if there is a dispute between the parties on the EUV of the units as assessed in the application, the tribunal shall determine the proper value.

92.  Section 4(1)(a)(ii) further provides that, in the case of any minority owner of the lot who cannot be found, the majority owner of the lot is required to satisfy the tribunal that the value of the minority owner’s property as assessed in the application is: -

“(A) not less than fair and reasonable; and

(B) not less than fair and reasonable when compared with the value of the majority owner’s property as assessed in the application.”

93.  There are disputes between the applicant and the respondents on both the EUV and RDV valuations, and they rely on the valuation expert opinion of Mr Chan and Mr Wayne W K Lee (“Mr Lee”) of Wayne Lee & Associates Limited respectively. Mr Chan and Mr Lee have prepared various valuation reports, supplemental and / or rebuttal reports respectively. Mr Chan and Mr Lee have also prepared their 1^st Joint Statement dated 12 March 2020, and after they updated their respective RDV assessments in early 2021 they have prepared their 2^nd Joint Statement dated 1 March 2021.

94.  Mr Chan has prepared 2 scenarios in his EUV valuation, one with additional values of unauthorized building works (“UBW”) (i.e. Scenario 1) and another without such additional values (i.e. Scenario 2). Although Mr Chan initially contended that his Scenario 1 should be correct, he indicated at trial he would adopt Scenario 2 only, which is in line with Mr Lee’s approach. Without any persuasive argument and objective evidence that can prove the existence of additional values attached to the UBW in these proceedings, we agree to disregard the values of UBW if any in the subject EUV valuation.

95.  Mr Chan and Mr Lee agree to use comparison method to arrive at their valuation and adopt Car Parking Space No 5 and Block A on 5^th Floor as the reference units. They also agree on the particulars and conversion factors of the comparables and the units in the Building, except (1) the conversion of roof area of Block G on 9^th Floor; and (2) the internal condition of 3 flats (i.e. Block C on 5^th Floor, Block H on 8^th Floor and Blocks A & B on 9^th Floor).

96.  Although Mr Lee considers that the UBW in the Building cannot bring any additional value, he assigns a higher value to the covered roof of Block G on 9^th Floor, which is an UBW and owned by R8, because R8 had intention to apply for its regularization. We consider this particular assessment of Mr Lee illogical and unreasonable, and is unacceptable. While Mr Lee cannot prove this roof structure can be regularized retrospectively, we are of the view that it cannot be regularized and agree with Mr Chan to value it as an open roof only.

97.  The 3 flats that have disputes on their internal condition are owned by R3, R8 and R10 respectively. Mr Chan considers that they are fair, but Mr Lee considers that they are good. Having considered the photos in the reports filed by the parties and with the benefit of site inspection together with the parties, we agree with Mr Chan that the respective internal conditions of these 3 flats as at the date of valuation (i.e. 29 June 2018) were fair only.

Car Parking Spaces

98.  Mr Chan adopts 8 comparables in the assessment, and Mr Lee adopts 1 comparable only, which is located in the adjacent development Winsfield Building. Mr Lee has also introduced 10 other comparables in the 1^st Joint Statement. Mr Lee considers that the 8 comparables adopted by Mr Chan, which are located in the inner part of Happy Valley, are not suitable for selection because their demand could come from residents of the development or neighbouring development or from investors.

99.  Mr Lee contends that if the 8 comparables adopted by Mr Chan are acceptable, the other 10 comparables introduced by him, which are also located in the inner part of Happy Valley, should also be considered in the assessment. Mr Lee opines that there are great variations in prices of the comparables in the inner part of Happy Valley. In addition, a discount of 40% shall be applied to all comparables, except Comparable C9 proposed by him, because no undivided shares are allotted to the car parking spaces in the Building, and unlike other comparables, owner of Comparable C9 is likely owner of a flat in the same development due to the distinct and isolated location of Winsfield Building.

100.  Mr Lee’s arguments look interesting at the first glance but are not persuasive under closer scrutiny. Although the comparables in the said inner part of Happy Valley, a slightly different locality, are a bit far from the Building, they can be adopted for comparison if no better comparables are available, and Comparable C9 proposed by Mr Lee is not a relevant comparable. As rightly pointed out by Mr Chan, Comparable C9 is out of line with the previous car parking transactions in Winfield Building. We further agree with Mr Chan not to make any discount just because no undivided shares are allocated to the car parking spaces in the Building. The difference in value between car parking spaces with or without undivided share is minimal in this instance and in the market.

101.  We would extend the analyses to the other comparables introduced by Mr Lee, but the comparisons be restricted to the transactions in 2018 only, excluding Comparables C6, C7 and C8 proposed by Mr Chan. We also agree with Mr Chan to exclude Comparables C10, C11, C13, C14 and C19 introduced by Mr Lee, which are open car parking space, accessible by car lift, or located at the corner, or was subsequently transacted in the same year.

102.  We share the view of Mr Lee that there are great variations in prices of the comparables, but this is not attributed to the vagaries in supply and demand in a particular location as alleged by Mr Lee. There is great fluctuation of transaction price of individual car parking space because very often if a car parking space is sold together with a flat, there is arbitrary allocation of prices between the two. All these can be analysed with much more efforts, but there is no such evidence and analyses from the parties in these proceedings. Therefore, it is better not to rely on 1 comparable and to extend the number of comparable in the assessment.

103.  The valuation of the car parking space reference unit is listed in Appendix I of the judgment. We agree to the adjustments for time, access and level proposed by Mr Chan, and as discussed in the above paragraphs not to make any discount just because no undivided shares are allocated to the car parking spaces in the Building. Regarding the car park ratio, we consider that Comparables C2 and C4 at the ratio of 1.22 should be adjusted at +15%, and Comparable C1 at the ratio of 0.85 should be adjusted at +5%, but no adjustment is required for the other comparables at the ratios of 0.35 to 0.57.

104.  The car parking space reference unit is assessed at $2,400,000, and all the car parking spaces in the Building are assessed at $46,450,000, which are listed in Appendix II. Mr Chan and Mr Lee agree on the adjustment rates for accessibility, the adjustment for size to Car Parking Space No 18, and nil adjustment for level to the car parking spaces on ground level. Mr Lee proposes adjustment rates at -2% and -4% to the car parking spaces on level 1 and level 2 respectively, but Mr Chan suggests that nil adjustment is required because the inconvenience caused by the subject ramp is minimal. With the benefit of site inspection, we agree to make adjustment for level, but the adjustment rates for levels 1 and 2 should be -1% and -3% respectively.

Flats

105.  Mr Chan and Mr Lee propose 12 comparables and 15 comparables respectively in the assessment, and 5 of them are common (i.e. Comparables R1, R3, R4, R7 and R8). We agree to select the other 4 comparables (i.e. Comparables R2, R5, R6 and R9) proposed by Mr Chan, and discard Comparables R10, R11 and R12 that were transacted in 2017. We agree with Mr Chan that the high floor level of Comparables R5 and R6 can be adjusted properly by the rate at 0.5% per floor as agreed by the parties.

106.  On the other hand, we agree to select the other 3 comparables (i.e. Comparables R13, R18 and R22 in Rose Court) proposed by Mr Lee, but discard all the comparables in Winsfield Building. Although Winsfield Building is located immediately next to the Building, the character of Winsfield Building, which has been renovated about 10 years ago particularly its Blocks A and B, and is larger in scale with facilities, is different from the Building, and its comparables could be discarded if there are other better comparables. Although we agree to select the comparables in Rose Court for analysis, their results should be further reviewed after comparison because all the units in Rose Court are larger in size and may have a different character that is hardly to be quantified in the assessment.

107.  Some of the comparables were the sale of a flat together with a car parking space. Before their comparison with the flat reference unit, their consideration should be adjusted to exclude the value of a car parking space. Mr Chan assumes the value of each car parking space to be $2,400,000, same as the assessed value of the car parking space reference unit, and then makes adjustment for time, whereas Mr Lee assesses the value of a car parking space in Ventris Terrace and Rose Court to be about $1,000,000 only. Both Mr Chan and Mr Lee have not provided details and analysed the car parking space transactions in the developments of the selected comparables, but we prefer Mr Chan’s adjustment to that of Mr Lee. We consider that Mr Lee’s adjustment, which is far from the assessed value of the car parking space reference unit as determined by the tribunal, is out of line.

108.  The 2 valuation experts agree on the adjustment for time with reference to price indices, and adjustments for view and physical condition to all selected comparables. Although they agree on the adjustment for floor at 0.5% per level, there is disagreement on the adjustment rates for Comparables R3, R7 and R8. Since we accept Mr Chan’s explanation that the comparable development Ventris Terrace is located on a podium above the road and hence its comparables are located on a higher effective floor, we accept the adjustment rates proposed by Mr Chan for Comparables R7 and R8. Nevertheless, we accept the adjustment rate at -3.5% proposed by Mr Lee for Comparable R3 because it appears to have 7 levels above the flat reference unit.

109.  Regarding the adjustment for location and environment, Mr Chan suggests nil adjustment for all comparables, whilst Mr Lee agrees to apply nil adjustment to Comparables R7 and R8 only, and he proposes +5% to the other comparables. With the benefit of site inspection together with the parties, we agree with Mr Lee that the location and environment of the Building along Ventris Raod is better than Comparables R1, R2, R3, R4, R5, R6 and R9 along Wong Nai Chung Road close to its junction with Blue Pool Road with provision of retail shops on ground level, but the adjustment rate should be +2% only, and there should have nil adjustment to Comparables R13, R18 and R22 in Rose Court along the section of Wong Nai Chung Road closer to Causeway Bay.

110.  Regarding the adjustment for size, we prefer the adjustment rate at 1% per 10-square meter proposed by Mr Chan to the adjustment rate at 1% per 5-square meter suggested by Mr Lee. We are of the view that the comparables and the flat reference unit which are all medium-size flats are less susceptible to the change in size.

111.  Regarding the adjustment for age, we agree with Mr Chan the adjustment rate at 0.25% per year instead of 0.2% per year only proposed by Mr Lee. Regarding the adjustment for lighting and ventilation, they agree on all the adjustment rates except those for Comparables R3, R5 and R6, and we agree with Mr Chan not to make any adjustment to these 3 comparables because, with reference to the respective floor plans, they appear to be similar to the flat reference unit.

112.  Nonetheless, we agree with Mr Lee to make adjustment for noise to all comparables along Wong Nai Chung Road, but the adjustment rate should be +3% only instead of +5%. We are of the view the noise from the busy Wong Nai Chung Road is more disturbing than the noise from the school opposite to the Building. We also agree with Mr Lee not to make any adjustment for scale and facilities to all comparables including Comparables R13, R18 and R22 in Rose Court, for which Mr Chan proposes adjustment at -20%. We are of the view the scale and facilities of Rose Court and the Building are similar.

113.  The flat reference unit is assessed at $225,000 per square meter, which is listed in Appendix III of the judgment. The average adjusted unit rate is $239,329 per square meters, and the average excluding Comparables R1 and R2, which are the highest and the lowest rates in the analyses, and Comparables R13, R18 and R22 in Rose Court, which appear to be out of line, is $225,176 per square meter.

114.  All the flats in the Building are assessed at $1,546,590,000, which are listed in Appendix IV of the judgment. Mr Chan and Mr Lee have agreed on most of the adjustments in the Building. We also agree with Mr Chan the adjustment rate for size at 1% per 10-square meter, but we prefer not to make adjustment for size to Block F on 1^st Floor as a playground. In addition, as discussed above, we agree with Mr Chan that the respective internal conditions of Block C on 5^th Floor, Block H on 8^th Floor and Blocks A & B on 9^th Floor as at the date of valuation were fair only and therefore nil adjustment for internal condition should be made to them.

EUVs of All Units in the Building

115.  The EUVs of all units in the Building as at the relevant date of valuation, i.e. 29 June 2018, and adopted by this tribunal are appended below: -

CPS No	EUV		CPS No	EUV
1	$2,040,000		12	$2,040,000
2	$1,560,000		13	$1,560,000
3	$2,040,000		14	$2,380,000
4	$1,560,000		15	$2,380,000
5	$2,400,000		16	$2,380,000
6	$2,040,000		17	$2,380,000
7	$1,560,000		18	$3,560,000
8	$2,040,000		19	$2,380,000
9	$1,560,000		20	$2,330,000
10	$2,040,000		21	$2,330,000
11	$1,560,000		22	$2,330,000
			Sub-total:	$46,450,000

Floor	Block	EUV		Floor	Block	EUV
1	A	$28,060,000		5	F	$20,340,000
1	B	$26,660,000		5	G	$21,300,000
1	E	$18,590,000		5	H	$20,840,000
1	F *	$2,550,000		6	A	$30,620,000
2	A	$28,210,000		6	B	$29,700,000
2	B	$26,780,000		6	C	$21,870,000
2	C	$20,990,000		6	D	$18,700,000
2	D	$17,850,000		6	E	$20,880,000
2	E	$21,100,000		6	F	$19,840,000
2	F	$18,240,000		6	G	$21,390,000
2	G	$20,350,000		6	H	$20,300,000
2	H	$18,960,000		7	A	$30,770,000
3	A	$28,090,000		7	B	$29,860,000
3	B	$26,900,000		7	C	$21,980,000
3	C	$21,100,000		7	D	$19,380,000
3	D	$17,940,000		7	E	$21,630,000
3	E	$21,210,000		7	F	$19,920,000
3	F	$18,610,000		7	G	$20,870,000
3	G	$21,080,000		7	H	$20,410,000
3	H	$19,070,000		8	A	$30,920,000
4	A	$29,090,000		8	B	$29,090,000
4	B	$27,050,000		8	D	$19,470,000
4	C	$21,210,000		8	E	$21,740,000
4	D	$18,020,000		8	F	$20,650,000
4	E	$21,320,000		8	G	$21,600,000
4	F	$18,130,000		8	H	$21,150,000
4	G	$20,540,000		9	A & B	$71,560,000
4	H	$19,150,000		8 - 9	C	$48,250,000
5	A	$30,470,000		9	D	$23,320,000
5	B	$29,550,000		9	E	$23,300,000
5	C	$21,760,000		9	F	$21,480,000
5	D	$18,610,000		9	G	$23,330,000
5	E	$20,770,000		9	H	$22,120,000
*	Playground
					Sub-total:	$1,546,590,000

116.  We therefore assess the total EUV of the Building at $1,593,040,000 ($46,450,000 + $1,546,590,000).

RESERVE PRICE FOR THE PUBLIC AUCTION (ISSUE 5)

117.  We are satisfied that redevelopment of the Lots is justified and that the applicant has taken reasonable steps to acquire all the undivided shares in the Lots. Such being the case, we are satisfied that an order for sale should be granted in favour of the applicant.

118.  For redevelopment of the Lots, Mr Chan and Mr Lee agree on the net site area of 1,634.62 square meters, maximum plot ratio of 5 and maximum gross floor area of 8,173.10 square meters. In addition to the valuation by residual method, which is adopted by both parties, Mr Chan has also assessed the RDV by direct comparison method. In the residual valuation, although they agree on some of the valuation parameters such as marketing cost at 3% of gross development value (“GDV”), professional fees at 6%, demolition cost, development period of 3.75 years and developer’s profit at 15%, they disagree on the valuation date, form of optimum development, total saleable area, interest rate, GDV and construction cost, and whether there should have allowances for stamp duty and legal cost on residual land value.

119.  It is rather unusual that the parties cannot even agree on the valuation date. The difference is 8 days only. For ease of reference, we adopt 14 February 2021 as the valuation date in these proceedings which should not have any material impact on the valuation in any event.

Direct Comparison Method

120.  Mr Chan uses the transaction of No 135 Tai Hang Road (i.e. registered site area of 3,990 square meters, maximum plot ratio of 3 and maximum gross floor areas of 11,970 square meters) to verify the reliability of his residual valuation. Tender for sale of it was awarded on 18 December 2019 at $3,200,000,000 (i.e. an accommodation value of $267,335 per square meter). Although there are special conditions in this tender sale that are not applicable to the redevelopment of the Lots, we agree to compare this land sale transaction with the Lots and in the RDV assessment makes reference to its adjusted accommodation value.

121.  The respective valuation adjustments made by Mr Chan and Mr Lee to this site comparable are as follows: -

Adjustments	Mr Chan	Mr Lee
Time	0.0%	0.0%
Location & Environment	-10.0%	10.0%
Scale of Development	-5.0%	5.0%
View	-10.0%	-5.0%
Total Adjustments	-23.1%	9.7%
Adjusted Accommodation Value	$205,581	$293,266

122.  We consider that the location and environment of this site comparable at Jardine’s Lookout should be better than the Lots, its view should be much better than the Lots, and the effect of scale on value appears not to be significant in this instance. Accordingly, if nil adjustment is made for both time and scale of development, -10% is made for location and environment, and -10% is made for view, the adjusted accommodation value would then be $216,541 per square meters. The accommodation value of the Lots should not be higher than the accommodation value of this site comparable.

Hypothetical Development

123.  The main dispute is whether the car parking spaces should be accommodated below ground as proposed by Mr Chan or above ground as suggested by Mr Lee. There are also disagreements on the size of common areas, the number of car parking space and the number of domestic floor.

124.  Mr Lee opines that, having reviewed (1) the ground on which Buildings Department may refuse to give approval under section 16(1)(g) of the Buildings Ordinance, Cap 123, and (2) the Practice Note PNAP APP-2 issued by Buildings Department together with the Joint Practice Note JPN-4 issued by Buildings Department, Lands Department and Planning Department, and the relevant Outline Zoning Plan on calculation of gross floor area for car parking spaces, he considers that the building of car parking spaces above ground in the hypothetical development can be exempted in the calculation of accountable gross floor area under the Outline Zoning Plan and can also comply with the stipulations in the Building (Planning) Regulations, Cap 123F.

125.  The applicant has quoted an example (i.e. Babington Hill) to illustrate the exemption of gross floor area at basement, but we consider that this example on a sloping ground along Babington Road is not so relevant and cannot be applied to the Lots along Ventris Road directly. On balance, we come to the view that building of car parking spaces above ground on the Lots should be 50% accountable for the gross floor area, and therefore the hypothetical development should have underground car park only. We agree with Mr Chan that the sustainable building guidelines for improvement of built environment as imposed by the recent practice notes should prevail as at the valuation date. In any event, there is an underground car park to be built in the adjacent development of the Lots.

126.  Accordingly, we agree to adopt the hypothetical development proposed by Mr Chan. We also agree with Mr Chan on the size of common areas, the number of car parking space, the number of domestic floor, the saleable area and the construction cost, which appear to be reasonable and conform with the hypothetical development.

GDV

127.  Mr Chan and Mr Lee agree on the GDV of each car parking space at $3,000,000, but they disagree on the GDV of the residential portion. Mr Chan assesses his domestic reference unit (i.e. 74.9 square meters saleable) at $378,434 per square meter and, after consideration of view, floor, ancillary areas, special units and etc., the overall unit rate at $384,000 per square meter, whereas Mr Lee assesses his typical domestic unit (i.e. 89.1 square meters saleable) at a much higher value of $487,443 per square meter.

128.  Mr Chan proposes domestic comparables in both Broadwood Twelve and The Altitude, but Mr Lee agrees to adopt 2 comparables in Broadwood Twelve only. Mr Lee suggests that direct comparison should also be made to the comparables in Leighton Hill.

129.  We agree with Mr Chan to adopt the comparables in The Altitude, which in terms of location and environment has no great difference from the hypothetical development, and not to adopt the comparables in Leighton Hill because there are substantial differences in its scale and facilities.

130.  Mr Chan and Mr Lee agree on the adjustment for time with reference to Private Domestic Indices (All Classes), the adjustment for floor at 0.5% per 1-level, the adjustment for age at 1% per 1-year and the adjustment for headroom at 4% per 1-meter.

131.  Regarding the adjustment for location and environment, we agree with Mr Chan nil adjustment should be made to the comparables in Boardwood Twelve, which is similar to the hypothetical development, but the adjustment to the comparables in The Altitude should be +2% only instead of +5% proposed by Mr Chan and +10% proposed by Mr Lee. The location and environment of The Altitude is inferior than that of the hypothetical development marginally. We also agree with Mr Chan to adjust for view to the comparables in Boardwood Twelve at -10%, but the adjustment to the comparables in The Altitude should be +4% instead of 0% proposed by Mr Chan and +10% proposed by Mr Lee. In addition, we agree with Mr Chan to adjust for lack of proper entrance in The Altitude at +5% only instead of +10% proposed by Mr Lee.

132.  In terms of size, we agree with Mr Chan to make adjustment at 1% per 10-square meter, a lesser sensitive rate in this instance, instead of 1% per 5-square meter proposed by Mr Lee. Nevertheless, we agree with Mr Lee to make a further adjustment at +5% for brand-newness, fittings, furnishings and appliances to the comparables. We consider that the agreed adjustment for age at 1% per 1-year cannot fully reflect the differences in quality between the comparables developed about 10 years ago and the hypothetical development and the relatively strong demand for brand-new domestic flats in the district.

133.  The RDV flat reference unit proposed by Mr Chan is assessed at $399,311 per square meter, which is listed in Appendix V of the judgment. The price of a car parking space as suggested by Mr Chan is firstly deducted from the transaction price of each comparable to assess the value of the flat. Further, having applied the adjustments for view, floor, ancillary areas and special units proposed by Mr Chan, the average unit rate for the residential portion is assessed at $405,000 per square meter, about 1.4% above the adjusted unit rate of the flat reference unit.

Residual Method

134.  The parties dispute on mainly the interest rate and whether there should have allowances for stamp duty and legal cost on residual land value. Given that the developer’s profit at 15% is agreed by the parties, the inclusion of stamp duty and legal cost in the residual valuation would increase the overall return of the project.

135.  Having considered the property market as at the valuation date, we agree with Mr Chan to adopt the interest rate at 4% per annum, instead of 3.5% per annum proposed by Mr Lee, and that there should have allowances for stamp duty and legal cost on residual land value.

136.  Although there has been a relatively low interest rate environment for a period, the hypothetical interest rate reflecting the overall risks for such commercial loan as at the valuation date still maintained at the level of about 4% per annum. The then property market was also relatively uncertain amid the pandemic, the social movement and the proposed changes of political system, and would justify a higher return for the hypothetical developer in our opinion.

137.  The residual land value is assessed at $1,732,000,000, in between Mr Chan’s valuation at $1,625,000,000 and Mr Lee’s valuation at $2,435,100,000, which is listed in Appendix VI of the judgment.

RDV of the Lots as at 14 February 2021

138.  Based on the agreements between the two valuation experts and the above determinations, we assess the RDV of the Lots at $1,732,000,000, equivalent to an accommodation value of about $211,915 per square meter (i.e. about $19,687 per square foot), which should be the reserve price for public auction.

ORDERS

139.  For the reasons given in this judgment, we make the following orders: -

(1)	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;
(2)	Mr Ma Ho Fai and Ms Hung Suet Shan Catherine, nominated by the applicant, be appointed the trustees (“the Trustees”) to discharge the duties imposed on them as trustees by the Ordinance in relation to the sale of the Lot;
(3)	The Trustees be authorized to charge such remuneration for their services in accordance with the terms set out in the letter of Messrs Woo Kwan Lee & Lo dated 18 January 2021;
(4)	For the purposes of the sale of the Lots by public auction: -
	(a)	the sale of the Lots be on the particulars and conditions of sale the same or substantially the same as those set out in the draft Particulars and Conditions of Sale to be approved and initialed by the tribunal; and
	(b)	the reserve price be set at $1,732,000,000;
(5)	Subject to further extensions that the tribunal may subsequently allow upon the application of the purchaser of the Lots or its successor in title, the redevelopment of the Lots and the Building shall be completed and made fit for occupation within a period of 6 years after the date on which the purchaser of the Lots becomes the owner of the Lots; and
(6)	Liberty to the applicant, the respondents and the Trustees to apply to the tribunal for further directions.

COSTS

140.  Following Good Faith[28], we make a costs order nisi that the applicant do pay the costs of these proceedings (including any reserved costs) to the respondents, with certificate for counsel, to be taxed on the High Court scale if not agreed. Unless any parties apply by summons to vary the costs order nisi, it shall become absolute upon expiration of 14 days from the date of this judgment.

141.  We thank counsel for their able assistance.