CHEERMARK INVESTMENT LTD v. THE DIRECTOR OF LANDS

LDLR 2/2013

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LAND RESUMPTION APPLICATION NO 2 OF 2013

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JUDGMENT

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1. In this application, Cheermark Investment Limited, the applicant, applies for determination of compensation payable to it in respect of its land which was compulsorily resumed by the Government under the Lands Resumption Ordinance (Cap 124) (“the LRO”) for the implementation of the Development Scheme SSP/1/003, 004 & 005 by the Urban Renewal Authority (“the URA”).

BACKGROUND

The Properties

2. The applicant was the former registered owner of the ground floor (“the Ground Floor”), 1^st floor (“the First Floor”), 2^nd floor (the 2^nd Floor”) and 4^th floor (“the 4^th Floor”) of a 5-storey building standing on No 177 Hai Tan Street, Kowloon (“the Building”) at the time of resumption. Completed in 1954, the Building was built on a piece of ground registered in the Land Registry as Sub-section 4 of Section C of New Kowloon Inland Lot No 49 (“the Lot”), and was physically connected with its adjacent building standing on No 175 Hai Tan Street (“the 175 Building”) by a common staircase.

3. The Ground Floor and the 1^st Floor of the Building were allotted 2/5^th undivided shares of and in the Lot, whilst each of the 2^nd, 3^rd and 4^th Floors was allotted 1/5^th undivided share. There was a roof above the 4^th Floor (“the Roof”), but no share was allotted to it under the deed of mutual covenants of the Building (“the DMC”). There is no dispute that although the Roof was common parts of the Building, it had been exclusively used by the applicant.

4. The applicant had reached settlement with the URA in respect of compensation for the 1^st and 2^nd Floors and therefore the issues of these proceedings concern only its entitlements (if any) to compensation in relation to the Ground Floor, the 4^th Floor and the Roof (collectively known as “the Properties”) of the Building.

The Resumption

5. By a notice of resumption published in Gazette Notice No 7187 dated 1 November 2010 (“the Notice”), the Chief Executive ordered, inter alia, that the Lot be resumed for a public purpose and reverted to the Government on the expiration of 3 months from the date of the affixing of the Notice. In accordance with section 4 of the LRO, the Notice was affixed to the Lot on 19 November 2010. Accordingly, the Lot, including the Building, was subsequently reverted to the Government at midnight on 19 February 2011 (“Date of Resumption”).

The Application

6. On 22 February 2013, the applicant applied to the Lands Tribunal under section 6(3) of the LRO for determination of the amount payable by the respondent by way of a Notice of Application.

The Disputes

7. Mr Cheung, factual witness of the applicant, said that he purchased the Ground Floor at a price which reflected commercial use. He had either rented it out for use of commercial purpose or he had rented it to his other company for use as a shop. His other business was manufacturing of colour dye. He had factories in Tsuen Wan and China for this business. He said he could not manufacture colour dye at the Ground Floor because of the chemical ingredients involved. He said that he would however mix the dye together to create a colour to suit the order of customers. Having mentioned the use in above he said it was a shop after all at which site orders for wholesale and retail would be taken. For bulk purchase, goods would be delivered, for smaller retail transactions, deals would be done there and then. It is not disputed by the respondent that the Ground Floor had been used as a shop.

8. We have gone into the meaning of a shop in dictionaries. We found that the use of the Ground Floor corresponds with the meaning of “shop” as could be seen in the Oxford Shorter Dictionary:

Shop:

(a) A house or building where goods are made or prepared for sale and sold.

(b) A building, room, or other establishment used for the retail sale of merchandise or services.

(c) A building or room equipped and used for a particular craft or manufacturing industry; a workshop, freq. as opp. to an office. Now also, a room or department in a factory where a particular stage of production is carried out.

9. Regarding the Ground Floor, the dispute is on the permitted use of it: should it be valued as shop or residential. As to the Fourth Floor, the dispute is on whether the Roof should be included in the compensation for the 4^th Floor.

10. There is also dispute as to whether redevelopment value is to be accounted for in the circumstances of the present case. On this issue, the applicant said that it had always been his plan to redevelop the Building together with the 175 Building. The respondent on the other hand submitted that the applicant had failed to provide any or any sufficient evidence in support of the likelihood of redevelopment potential of the Properties under the principles set out in the authorities.

11. Issues to be determined by this Tribunal are as follows:

(1) Whether the Ground Floor should be valued as shop or residential premises;

(2) Whether the value of the Roof (if any) should be taken into account when determining compensation to be paid in respect of the 4^th Floor;

(3) Whether redevelopment potential should be taken into account when determining compensation to be paid for the Properties; and

(4) The applicable comparables and adjustments in the valuation of the Properties.

The LRO

12. It is not disputed that the general rule for the assessment of compensation for the resumption of land is contained in section 10 of the LRO which is supplemented by section 12. The provisions will be set out later when necessary.

ISSUE (1): SHOP OR RESIDENTIAL

(I) Whether “SHOP” permitted under the Government Lease

13. The relevant part of the Government lease of the Lot (“the Government Lease”) is this:

“… the Lessee his Executors, Administrators, or Assigns, or any other person or persons, shall not nor will, during the continuance of this demise, use, exercise or follow, in or upon the said premises or any part thereof, the trade or business of a Brazier, Slaughterman, Soap-maker, Sugar-baker, Fellmonger, Melter of tallow, Oilman, Butcher, distiller, victualler, or Tavern-keeper, Blacksmith, Nightman, Scavenger, or any other noisy noisome or offensive trade or business whatever, without the previous licence of His said Majestic, His Heirs, Successors, or Assigns, signified in writing by the Governor of the said Colony of Hongkong, or other person duly authorized in that behalf; AND ALSO that he the said Lessee his Executors, Administrators or Assigns, shall not at any time during the said term use or allow to be used the said demised premises or any part thereof for any other purposes than for Reclamation building dwelling houses workshops factories or godowns or similar purposes (“the User Phrase”) without having first obtained the licence or consent of His said Majesty, His Heirs, Successors, or Assigns, signified in writing by the Governor for the time being of the Colony of Hong Kong …” (“the User Clause”)

Punctuation of the User Phrase

14. Before we come to the interpretation of the User Clause or the User Phrase, the dispute on the punctuation shall first be dealt with. The applicant said that the User Phrase should read “Reclamation building[,] dwelling houses[,] workshops[,] factories or godowns[,] or similar purposes”. In support, Mr Lam, counsel for the applicant, contended that “Reclamation building” is the main category embracing sub-categories which follow such as “dwelling houses, workshops, factories or godowns, or similar purposes”. He further said that “Reclamation building” means any building built on the parcel of the reclaimed land and the purpose of the User Phrase is to prohibit user on the Lot for farms or fish ponds etc. It was submitted that the Building, being a “Reclamation building” with upper floors used for residential purpose and the Ground Floor used as a shop did fall within the ambit of the User Clause.

15. The respondent’s suggested punctuation is this: “Reclamation[,] building dwelling houses[,] workshops, factories or godowns[,] or similar purposes”. Mr Suen, counsel for the respondent, submitted that the meaning of the User Phrase so punctuated means that users other than those listed out therein should be prohibited. As “shop” is not on the list of permitted use therefore shop was not permitted. The respondent’s position is that: if “Reclamation building” is taken to mean “any building” that would only render the rest of the phrase redundant. If “Reclamation” and “building dwelling houses” are to be read separately, the phrase “for Reclamation” effectively means that the Lot was expressly permitted to be used for reclamation under the relevant regime.

16.On this particular point, we think the difficulty for Mr Lam is that the word “building” is in singular where as the other users including “purposes” are all in plural. We find it unlikely that an “s” would have been omitted from the word “building” had it meant to refer to buildings to be built on the reclaimed land.It would have read “Reclamation buildings, dwelling houses….”. We are of the view that the word “Reclamation” is probably for identification of the Lot as it is not disputed that the Lot is on a piece of reclaimed land. We could not agree with Mr Lam’s saying that the purpose of naming “building” was to exclude uses like farm. We are of the view that Mr Lam’s proposed interpretation was too wide. Even Mr Lam himself suggested that “Reclamation building” is the main category embracing sub-categories which include “dwelling house…etc.”. We agree with Mr Suen that it is the sub-categories that specify the permitted use. After considering the submissions, we find that the punctuations should be “Reclamation[,] building dwelling houses…” as suggested by the respondent.

Interpretation of the User Phrase

17. The next task is to see how the User Phrase is to be construed. We have to decide on the true meaning for “dwelling houses”, “workshops”, “factories or godowns” and “similar purpose” in the Government Lease. The dispute is mainly on the meaning of “dwelling houses” and whether it meant to permit “shop”in the caseof the Ground Floor.

18. Mr Suen has advanced his argument that the ordinary principles of construction should be applied in construing a Government lease. That is if the ordinary meaning of the words makes sense in relation to the rest of the document and the factual background, then the court will give effect to that language. It was submitted that from the User Phrase, nowhere it said shop use was permitted.

19. Mr Lam submitted that in the present case the Government Lease must be interpreted in context of the factual matrix at the time it was granted. Relying on Jumbo King Ltd v Faithful Properties Ltd & Others [1999] 3 HKLRD 757, at 773F-774B, Mr Lam referred us to the speech of Lord Hoffmann saying that the starting point in the interpretation of any document, including Government leases, must be the relevant background and context.

20. Mr Lam further submitted that the importance of background and context was again emphasized in Fully Profit (Asia) Ltd v Secretary for Justice (2013) 16 HKCFAR 351 a more recent decision of the Court of Final Appeal which was also on interpretation of a Government lease, per Ma CJ, at §15:

“We have been referred to the very well-known statement of principle regarding the construction of contracts contained in the speech of Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society[1], to which can be added the judgment also of LordHoffmann NPJ in Jumbo King Ltd v Faithful Properties Ltd[2]. What emerges from these cases – and other authorities on contractual interpretation – is the overall importance of context when construing contractual terms. The statements of principle in Investors Compensation Scheme and in Jumbo King refer time and again to the relevant background against which the relevant contract and contractual terms must be viewed. It is in my view not particularly helpful in most cases to refer to the “ordinary and natural meaning” of words because, as very often experience tells us, there can be much debate over exactly what is the ordinary or natural meaning of words. The surer guide to interpretation is context. Here, I would just add that in the area of statutory and constitutional interpretation, it is context that is key; context is the starting point (together with purpose) rather than looking at what may be the natural and ordinary meaning of words.[3]”

21. Gleaning from the principles set out in the above authorities, Mr Lam suggested that therefore, in the interpretation of the Government Lease, the following principles must be borne in mind:

(a) The overriding objective in construction is to give effect to what a reasonable person understood the parties to mean;

(b) In trying to achieve that objective, the natural and ordinary meaning of words may not be helpful in most cases because of dispute over what that meaning might be;

(c) The surer guide is to look at the context, i.e., the factual and legal background, under which the contract was entered into;

(d) The agreement under interpretation must be looked at as a whole; and

(e) The meaning given to the words should make sense.

Relevant Context for Meaning of Dwelling Houses

22. There is no dispute that “dwelling houses” included multi-storey buildings at the time of the Government Lease and that “dwelling”, “residential” and “domestic” all carry similar meaning.

23. On this sub-issue the applicant said that “dwelling houses” covered a building in which part of the building was used for shop purpose and the remaining part for residential / domestic purpose. The Government Lease must be construed in its context including the factual and legal background prevailing at the time when the Government Lease was granted (January 1917). The equivalence of the present date Buildings Ordinance Cap 123 at the time of grant was the Public Health and Buildings Ordinance 1903 (“the 1903 Ordinance”) and s.6(22) provided that:

“ ‘Domestic building’ means any building constructed, used, or adapted to be used, wholly or partly, for human habitation, but does not include any building where caretakers only, not exceeding two in number, pass the night.”

24. Mr Lam further submitted that the legal meaning prevailing in 1917 was that: a building was a “domestic building” or “dwelling house” even though only part of it was used for human habitation. Such meaning apparently has effect in modern terms. For instance in Hong Kong English-Chinese Legal Dictionary (with the Honourable Mr. Justice Patrick Chan as Chairman of the Editorial Board), “dwelling house” is defined, at p. 639, as:

“A building or part of a building in which people actually live or which is physically capable of being used for human habitation: Lewin v End [1906] AC 299 and Lewin v Newnes Ltd (1904) 90 LT 160. A house may be so even if a part of it is for the time being used for non-residential purpose.”

25.In Mexx Consolidated (Far East) Ltd v Attorney General & Another [1987] HKLR 1210, Deputy High Court Judge Cruden held that, where the user covenant of the Crown lease restricted the use of the premises to industrial and godown purposes, the user covenant was complied with if the “primary user” of the premises was industrial.

26. To sum up, Mr Lam submitted that the year 1917 was a time when, in the minds of Government officials handling building and land matters, a building was a “domestic building” (or “dwelling house”) if it was constructed, used, or adapted to be used, wholly or partly, for human habitation because it was so defined in the relevant ordinance. He further submitted that this probably explained why, in the User Phrase, “shop” was not specifically mentioned. He said that there was no need to do so. The use was subsumed in the term “dwelling houses”.

27. Mr Suen however said the meaning of “dwelling houses” as suggested by the applicant had already been considered and rejected by the Tribunal in Pandax Ltd v Hui Kam Kwei, unrep., LDCS 4000/2009, 14.10.2010. In that case, it was held by Deputy Judge Liu that the user restriction of “dwelling houses” in a Government lease meant for domestic purposes only and that non-domestic uses, like business or commercial uses, were inconsistent with the use as a “dwelling house” (at §42). He refused to consider the 1903 Ordinance as context for construing the Government lease therein.

28. What we could say about Pandax is that it is not binding on us and that the learned deputy judge did not have the benefit of hearing submissions on principles set out in Fully Profit which was decided after Pandax. We are not minded to apply his analysis to the present case. On the other hand, we found that Fully Profit has set out good guidelines. We also agree with Mr Lam that when the meaning of “dwelling houses” in a Government lease, in which the Government was a party and the Government lease itself was a document carrying legal effect, is in dispute, the Tribunal should look into the factual matrix by making reference to the relevant ordinances prevailing at that time for the meaning of a certain word or phrase. In our judgment, we find the 1903 Ordinance relevant background against which the Government Lease should be viewed.

29. When the Government Lease was read in the context of the definition of “dwelling house” in the 1903 Ordinance, we are of the opinion that it supports the applicant’s assertion that when the Building was primarily or partly used as residential, that was the 1^st, 2^nd, 3^rd and 4^th Floors, the Building was still a building for residential purpose. Hence, the use of the Ground Floor as shop for commercial use did not amount to a breach.

The Meaning of “or similar purposes”

30. Mr Lam submitted that the phrase “or similar purposes” is wide enough to cover user of commercial purpose. Mr Suen disagreed and he gave reasons as follows:

(a) The Applicant’s purported interpretation is contrary to the ejusdem generis rule of construction. In Chitty on Contract, 31^st edition, Vol. 1, §12-087, it is stated:

“12-087 Ejusdem Generis Principle

The so-called “rule” which is laid down with reference to the construction of statutes, namely, that where several words preceding a general word point to a confined meaning the general word shall not extend in its effect beyond subjects ejusdem generis (of the same class), applies in principle to the construction of contracts. The principle depends on the assumed intention of the framer of the instrument, i.e. that the general words were only intended to guard against some accidental omission in the objects of the kind mentioned and were not intended to extend to objects of a wholly different kind. Indeed, this principle follows as a corollary of the principle that the whole contract is to be considered, being simply that every word shall be taken in conjunction with the words that accompany it.”

(b) In light of the above principle, the applicant’s purported interpretation would deprive the whole restriction on user of any sensible meaning. The rest of the phrase “Reclamation building dwelling houses workshops factories or godowns” covers (i) reclamation, (ii) residential and (iii) industrial purposes. The addition of “or similar purposes” could not have meant to extend the user to “commercial purpose” which is not “similar” to the abovementioned categories.

31. After reading parties’ submissions and authorities referred to, we are of the view that the different users listed out in the User Clause did not point to a confined meaning for the rule to take effect. In fact §12-088 of Chitty on Contract deals with such situation:

“The ejusdem generis principle cannot, however, be applied unless there is a class to which the general words can be restricted. Therefore, where the matter specifically referred to are so various that they fall into no common category the meaning of subsequent general words is not limited by relation to them. For instance, liability was repudiated in the event of “deficiency of men or owner’s stores, breakdown on machinery, or damage to hull or other accident”. It was held that the matter specifically referred to made up no common category, so that the general words “or other accidents” extended to delay caused by stranding.”

32. We of course notice that “or other accident” is not the same as “or similar purpose”. The focus here is whether the rule should be applied. We say that the answer is no.

33. Further we are of the view that “or similar purposes” can be widely construed for the phrase to make sense in the User Clause. The reason being that definition for “dwelling houses” under the 1903 and 1950 Ordinance was wide at the time of the Government Lease and the issue of the Occupation Permit. Basically, when a building was partly occupied or used for domestic purpose, it would satisfy the designated or designed use for domestic purpose. In other words, part of the building can be used for any other use subject of course to other statutory prohibitions. We were not informed of any legislation which prohibited shop use in a domestic building in general or in particular the Ground Floor. We see no reason that if the definition on “dwelling house” was so wide, “or similar purpose” ought to be so narrowly construed to exclude “shop”.

Whether special rule of construction applies to Government Lease

34. Mr Suen, relying on New Mercury Holding Corp v Secretary For Justice unrep., CACV 73 and 74/2013, 15.4.2014 submitted that “if, on the other hand, the wording is obscure or equivocal, the court must lean towards the construction most favourable to the Crown, unless satisfied that another interpretation of the relevant words in their context is the true one”. Mr Lam argued that the opposite is the true legal position and that like any other contract, the contra proferentum rule shall apply in case of ambiguity.

35. In our judgment, the dispute does not call for a determination because both parties were of the opinion that the wording in the Government Lease was clear. We agree with parties’ observation on this and we do not think we need to discuss this topic.

Conduct of Lessor

36. Apart from the factual background showing the intention and belief of Government officials in relation to the meaning or scope of “dwelling houses” at the material time of the Government Lease as stated above, Mr Lam submitted that there is evidence of conduct pointing towards shop as permitted use under the Government Lease. To start with, Mr Lam submitted that in Halsbury’s Laws of England, 4^th Edition, 2007 Reissue, Vol. 13, §206, it is stated that:

“If, after other methods of interpretation have been exhausted, there remains a doubt as to the effect of an ancient instrument, it is permissible to give evidence of the acts done under it as a guide to the intention of the parties, in particular, of acts done shortly after the date of the instrument.”

37. In this regard, Mr Lam relied onfirst the grant of modification to shop use in the neighbouring lot (Lot 47) at nil premium and secondlythe approved General Building Plan in which all 5 ground floor units (including the Ground Floor) were marked as “SHOP”.

(a) Modification of Use in the Neighbouring Lot

38.Mr Lam relied on two modifications granted by Lands Department with no premium charged to say that shop use had always been permitted. The Government lease of the neighbouring Lot 47 was granted on 31 December 1910. It contained a user clause identical to that in the Government Lease. On 6 June 1991 and 4 October 1991 respectively, modifications of the lease of Lot 47 were granted in relation to different portions therein. At a nominal administrative fee of $10,000 and $11,000 respectively, the user clause was modified, so as to add the following:

“… notwithstanding the terms and covenants hereinbefore contained it is hereby agreed and declared that, the Ground Floor and First Floor of any building or buildings or any part or parts thereof erected or to be erected on the Lots shall be used for non-residential purposes only.”

39. Mr Lam said that it is plain that the modification was by way of clarification (rather than variation) of the original intention of the Government lease of Lot 47, or otherwise a premium (rather than just a nominal administrative fee) would have been charged by the Government.

40. After viewing the documents and hearing submissions of counsel for parties, we are of the view that the grant of modification of use to the neighbouring lot would not support the applicant’s interpretation as first it was in relation to a neighbouring lot and not the Lot itself. Further it would be speculative to say that when no premium was charged it proved that Government officials granting the modification admitted that the scope of the original user clause included the modified user namely “commercial”. We noticed that the extent of the modification was more complicated than just include shop use to ground floor units. It was not only concerned the ground floor and it was not for the purpose of removing restriction on shop use, but it imposed a new restriction on domestic use on the ground floor and that affect the use of the first floor as well.

(b)Shop Use approved by the General Building Plan

41. Mr Lam submitted that the fact that the Building Ordinance Office having approved the General Building Plan permitting shop use on 5 ground floor units (including the Ground Floor) showed unequivocally that it was the understanding of the Government officials at the time that shop use was permissible under the Government Lease. In support of his argument, Mr Lam said that the Government Lease must be one of the important documents that the responsible officer in the Buildings Ordinance Department would certainly referred to in deciding whether to approve the General Building Plan.

42. The General Building Plan was processed by the Building Ordinance Office which was at that time a division of the Public Works Department. One of the responsibilities of the Building Ordinance Office was to approve general building plans submitted by authorized architects and to issue occupation permits as could be seen from the General Building Plan dated 22 May 1953 and the Occupation Permit dated 29 January 1954.

43. We were referred to the Court of Final Appeal’s decision in Jumbo Gold Investment Ltd v Warren Yuen Cheong Leung and Another FACV 9/1999[2000] 1 HKLRD 763 at §19 in which Litton PJ commented that “It would seem very odd that the Director of Public Works (or perhaps more accurately the responsible officers of his department) in approving the plans and issuing the occupation permit did not know that Block C had exceeded the height limit of 35 feet in the Crown lease” when “the fact that Block C exceeds 35 feet can hardly be concealed”.

44. We are of the view that applying the same reasoning to the present case, it seems odd that the Director of Public Works (or perhaps more accurately the responsible officers of his department in the Building Ordinance Office) first in approving the Building Plan would not have checked and did not know about the restrictions in the Government Lease and secondly when issuing the Occupation Permit stating the Building was for residential use would not have checked and did not know that the Ground Floor was approved to be built for shop use.

45. Having said that we have to answer the questions raised in the passage of Halsbury Laws of England relied on by Mr Lam. We have to be satisfied that the officials of the Building Ordinance Office had been a party to the Government Lease. Even if the head of the Building Ordinance Office was the Director of Public Works who also had executed the Government Lease as the land agent, it was, as far as scrutinizing the proposed General Building Plans was concerned, acting as the Building Authority only. In our opinion, we are not satisfied that the Director of Public Works as the Building Authority was a party to the Government Lease.

46. Even if we were wrong on that, we are of the view that the contention of Mr Lam could not overcome the time lapse of decades between the acts done and the date of the instrument.

47. Lastly, we do not find that this is a situation where “after other methods of interpretation have been exhausted, there remains a doubt as to the effect of an instrument”.

48. In conclusion, we do not accept that there was conduct of lessor giving guidance to the intention of the parties to assist in the interpretation of the Government Lease. We however accept the applicant’s case that although “shop” was not expressly written in the Government Lease it was allowed by the user of “dwelling houses” when the Government Lease was read in light of the 1903 Ordinance. We are of the opinion that shop is a permitted use.

(II) Estoppel and Waiver

49. The applicant takes estoppel and waiver as an alternative position in the event that the Tribunal does not construe the User Phrase in its favour. The applicant relied on (i) the General Building Plan granting approval for shop use; and (ii) no enforcement action taken for the past 50 years to argue that the Government is now estopped to say that the applicant was in breach of the Government Lease and refuses to compensate the applicant according to shop use.

50. Put in a nut shell, the respondent’s position is that the doctrine of estoppels does not apply. Even if there was a waiver, it was not a waiver of the covenant; and even if there was such a waiver it was not a waiver to allow the applicant to have compensation assessed as provided in the LRO as it is excluded by s.12(b) of the LRO.

51. Although we have already ruled in favour of the applicant in the interpretation of the Government Lease, we shall deal with this alternative position of the applicant just in case that we were wrong in that. The issue is discussed below as if shop use was not permitted contrary to our findings above.

Knowledge of Breach

52. Before deciding whether the conduct of the Government amounted to acquiescence, the issue of knowledge must first be decided as a man cannot acquiesce in conduct of which he is ignorant. The applicant relied on (i) the approval of General Building Plan for shop use; and (ii) long use for shop being so common in the vicinity for over 50 years to say that the Building Authority must know about the breach, if there was any breach at all.

53. The applicant said that the Building Ordinance Office, the responsible division in the Public Works Department at the material time, when approving shop use on the General Building Plan which according to the respondent was in breach of the Government Lease, must be aware of such breach.

54. The respondent said that knowledge of the Building Authority cannot be imputed to other Government departments such as the Lands Department and such position is also reinforced by s.14(2) of the Building Ordinance:

Subject to section 28B(4), neither the approval of any plans nor the consent to the commencement of any building works or street works shall be deemed— (Amended 41 of 1982 s. 3)

(a) to confer any title to land;

(b) to act as a waiver of any term in any lease or licence; or

(c) to grant any exemption from or to permit any contravention of any of the provisions of this Ordinance or of any other enactment.

55. We are of the view that s.14(2) is not to deal with knowledge but a disclaimer to prohibit inferences to be drawn from approval or consent granted.

56. We note the decision of Huggins, J.A. in Hang Wah Chong Investment Co, Ltd v Attorney General CACV 84/1978 (unreported) in which he analysed the functions of the Director of Lands:

“11. ……. The Director of Public Works has many responsibilities besides those imposed by the Buildings Ordinance. Inter alia he is in effect the Crown's land agent and, as is notorious as a result of Ho Po-sang v Director of Public Works 1959 H. K. L. R. 632, has for many years executed deeds relating to land on behalf of the Crown, a practice now authorized by the Letters Patent. In my judgment the Director of Public Works can bind himself in his capacity as the Building Authority without binding himself in his capacity as land agent and vice versa.”

57. We have checked the General Building Plan; we do not see that it had been copied to the Crown Land and Survey Office in the same Department which was the land agent responsible for lease enforcement. There was no evidence that the Superintendent of Crown Land and Survey was aware of the layout of the General Building Plan and had consented to it. We say that we could not agree with the applicant on this point although it may sound logical.

58. Another ground relied on by the applicant is that knowledge should be imputed by long use. Knowledge has been the centre point of argument in Attorney General of Hong Kong v Fairfax Limited at all level of courts and Jumbo Gold in the Court of Final Appeal.

59. In Fairfax, (Privy Council) [1997] HKLRD (PC) 243, knowledge was dealt with in the following passages by their Lordships:

“9. Before their Lordships, the Crown contended that Fairfax had to prove that the Crown had knowledge of the developments in breach of covenant before any question of abandonment by the Crown can be presumed. A man cannot acquiesce in conduct of which he is ignorant. Whilst their Lordships accept that proof of such knowledge is essential, there is here overwhelming proof. It is true that Fairfax was unable to lead evidence showing specifically that any relevant servant or department of the Crown was aware of what was going on. But it must be borne in mind that this case is not concerned simply with what has been going on the property belonging to Fairfax, Nos. 9 and 10 Hing Hon Road. The Crown is relying on a single covenant which applies to the whole of Inland Lot 757. Therefore conduct by the Crown inconsistent with the continuing reliance upon the covenant by the Crown in relation to all parts of Inland Lot 757 is relevant to the question whether the Crown has abandoned the covenant. Accordingly the question is whether the Crown was aware of the wholesale development of the whole of Lot 757 which has taken place over the years.

10. In the absence of any explanation the only possible inference from the fact that over a period of forty years multi-storey blocks have been built over virtually the whole of Lot 757 is that everyone, including the Crown, must have been aware of those facts. An area of 22 acres has been transformed into an area of high-density high-rise buildings. It would take compelling evidence, which is lacking, to rebut the inference that everyone concerned with that land was well aware that it was not being used for villas. As Leonard J. said in the Court of Appeal: “The suggestion that the Crown as landlord did not know of the development is unrealistic.” (emphasis added)

60. Jumbo Gold concerned the question of whether good title had been proved by the vendor as there was breach of height restriction in the government lease. The passage below is relevant to knowledge of the alleged breach:

‘……. The only rational basis upon which the parties could have proceeded was that plans had been submitted by the authorized architect in the 1950s for the construction of a 5-storeyed building (to be built over car-ports on the ground floor) and that the Building Ordinance Office of the Public Works Department had inspected the completed building before the Director issued the occupation permit. What inference can properly be drawn from these two facts? Counsel for the purchaser MrChong submits that the issuance of the occupation permit is of no significance: It only meant that the new building complied with the requirements of the Buildings Ordinance and was structurally safe; it said nothing about compliance by the owner with the Crown lease conditions. The occupation permit was, however, copied to the Superintendent of Crown Lands and Survey, and the Commissioner for Rating and Valuation. However limited the responsibilities of the Buildings Ordinance Office might have been with regard to the actual construction of the building, the Crown Lands and Survey Office was concerned with lease conditions. It was an office within the Public Works Department. As the Privy Council observed in Hang Wah Chong Investment Co. Ltd v. Attorney General [1981] HKLR 336 at 341:

“… the view expressed by Huggins JA … that the Director of Public Works has many responsibilities besides those imposed by the Buildings Ordinance appears well established, one of these responsibilities being that of acting as the Crown’s land agent …”

It would seem very odd that the Director of Public Works (or perhaps more accurately the responsible officers of his department) in approving the plans and issuing the occupation permit did not know that Block C had exceeded the height limit of 35 feet in the Crown lease. ”’ (emphasis added)

61. In the present case, the applicant has prepared a summary at page 79 Bundle C1 on ground floor users stated in their respective occupation permits for building erected on N.K.I.L. Nos 47 & 48 (the neighbouring lots) with same user description in their Government leases. Relevant records are listed below.

62. We noticed that in the present case the Occupation Permit did not reveal any breach of the Government Lease as it only said “Permission is hereby granted to occupy and use the buildings for domestic purpose.” But it could be seen that the 2 occupation permits for buildings in Lot 47 and another 2 occupation permits for buildings in Lot 48, all issued after 1982, indicated “shops for non-domestic use”.

63. It is worth mentioning that the Lands Department was established in 1982 to take over the land matters from the Director of Public Works. At the same time the Building Authority granting approval for general building plans and issue of occupation permits had been changed from the Director of Public Works to Director of Buildings. Since then the two divisions no longer worked under one department head but are independent of each other with their own reference of duties.

64. We note that all of the above mentioned occupation permits were copied to various government departments including officer of the Director of Lands. From this we are of the view that it would be odd that the Director of Lands who was responsible for lease enforcement as land agent would not know from the occupation permits copied to it, saying that the ground floor of some buildings at Lot 47 and Lot 48 were used as shops. We noticed that these occupation permits which mentioned about shops were all “younger” than the Occupation Permit by more than 28 years. However, the summary in paragraph 61 illustrated that breaches had been known to the land agent on documents since at least 1982 for about 30 years until Date of Resumption.

65. Apart from proof of knowledge obtained from the occupation permits, the use of Ground Floor as shop and many others in the neighbourhood since 1950s could not have skipped the attention of the land agent if he was minded to enforce the Government Lease. In our judgment, on evidence before us, there is sufficient proof of knowledge about shop use on the ground floor units in Lot 49 and those in the neighbouring lots which according to the respondent was in breach of their respective Government leases.

Acquiescence and Waiver

66. Mr Lam relied on a passage in In re A Compensation Board HCMP 104 of 1971 (1971) HKLR 338 to establish the applicant’s case for estoppel:

‘The principle to be extracted from the decision on estoppel is stated by the learned editor of the 2nd Edition of Spencer Bower’s test book on Estoppel by Representation, in these words (p. 4):- “where one person … has made a representation to another person … in words or by acts and conduct, or (being under a duty to the representee to speak or act) by silence or inaction, with the intention (actual or presumptive), and with the result, of inducing the representee on the faith of such representation to alter his position to his detriment, the representor, in any litigation which may afterwards take place between him and the representee, is estopped, as against the representee, from making, or attempting to establish by evidence, any averment substantially at variance with his former representation, if the representee at the proper time, and in the proper manner, objects thereto.”

67. It was submitted by Mr Lam that the above exposition is in line with the general law in relation to estoppel. He applied the above in the present case by saying that, adopting the doctrine of estoppel, the Government had, by the approval of the General Building Plan, clearly made a representation to the public at large including the applicant’s predecessors, with the presumptive intention, and with the result, of inducing the applicant’s predecessors on the faith of such representation to alter his position to his detriment, viz., purchasing the Ground Floor at a price commensurate with a shop premises, which was higher than that for a domestic premises. The Government, in any litigation which may afterwards take place between it and the successive owners of the Ground Floor, is estopped, as against the successive owners including the applicant, from making, or attempting to establish by evidence, any averment substantially at variance with his former representation, namely, that the Government would not consider the use of the Ground Floor as shop to be in breach of the Government Lease.

(a) Whether Conduct of Approving the General Building Plan amounted to Acquiescence or Waiver

68. While there is no dispute that according to the approved General Building Plan, “SHOP” was marked on it. The question is whether the Director of Public Works should be bound by such conduct of officers in the Building Ordinance Office as having given his consent to modify the Government Lease or having waived the User Phrase to the extent of allowing shop use which was originally prohibited (as in the case of the respondent).

69. To answer this question, we found a passage of the speech of Huggins, J.A. in Hang Wah Chong Investment Co, Ltd v Attorney General CACV 84/1978 (unreported) helpful. Huggins, J.A. held that the conduct of the building authority would not bind the land agent although they were under the same head of Department as cited in paragraph 56 above.

70. To adopt the same reasoning, we could not readily find that by approving shop use on the General Building Plan, the Director of Public Works was bound to be taken as having also abandoned the restriction in the Government Lease or having modified the restrictions imposed to include shop use because although the Building Ordinance Office did approve shop use, it was doing such act in the role of Building Authority and therefore should not bind the Director as land agent.

(b) Whether Long Course of Usage without Enforcement Action amounted to Acquiescence or Waiver

71. The applicant also relied on long course of usage in breach of the Government Lease to say that the Government could not now after 57 years say that they are in breach. This is opposed by the respondent and Mr Suen went further to submit that a waiver of breach of the Government Lease is entirely different from a waiver of the covenant itself. He contended that if there was a waiver in the present case, it was merely a waiver of the breach. He relied on Real Honest Investment Ltd v Attorney General [1997] HKLRD 880 (Privy Council); Expressluck Development Ltd v Secretary for Justice, HCMP 1432/2005, 26. 7. 2007; and Favourable Issue Co Ltd v Secretary for Justice, CACV 254/2012, 22. 11. 2013. He said that since there is never a waiver of the covenant itself (as opposed to waiver of enforcement), there is no basis to award compensation contrary to s.12(b) of the LRO.

72. He also sought support from the dictum in In re A Compensation Board at 361-362 where Blair-Kerr Acting C. J. held that:

“[I]n all probability the Crown had waived performance of the covenant not to build without a license to a degree which in a private tenancy would prevent them from exercising their right of re-entry . . . such a waiver is a waiver of the covenant itself and not a waiver to have compensation assessed as provided in the Ordinance. ” (At 361) (Emphasis added)

“There was no evidence in the 1955 case which could possibly have warranted the inference, or the presumption, that the Crown had granted a licence to build so that the use of the land for building purposes was a permitted use. Gould J said in the clearest terms that the probable waiver was not “a waiver of right to have compensation assessed as provided in the Ordinance.”” (At 362) (Emphasis added)

73. In reply Mr Lam suggested that Fairfax is more relevant. In Fairfax, the Crown lease restricted the development of the land to the erection of one or more villa residences. Over the course of the years since 1958 (a period of not far short of 40 years), however, there had been erected on the land a whole host of multi-storey residential buildings ranging from 3 to 26 stories in height. The plaintiff in those proceedings intended to redevelop the site and erect a high-rise residential building. The Crown asserted that the proposed development would constitute a breach of the covenant and demanded a premium as consideration for the waiver by the Crown of its rights. The defendant disagreed. The Court of Appeal ([1995] 2 HKC 617) found that the proper inference to be drawn from the facts of this case is that the landlord long ago abandoned its right to insist on compliance with the covenant. The decision was upheld by the Judicial Committee of the Privy Council.

74. Applying the Fairfax approach in the present case, Mr Lam suggested that there was a long course of usage, for 57 years, which is wholly inconsistent with the continuance of the alleged user covenant. To borrow the words of Lord Browne-Wilkinson, “the court infers some legal proceeding which has put an end to that covenant, in order to show that the usage has been and is now lawful, and not wrongful”.

75. Mr Lam went on to say that the distinction between “waiver of the breach of enforcement” and “waiver of the covenant itself” cannot stand in view of Fairfax. By allowing the defendant in that case to redevelop without paying premium, their Lordships held that it was the covenant itself, as opposed to the right to take action against any breach of covenant, which had been waived. In any event, he said, the applicant does not have to go so far as to rely on a “waiver of the covenant itself”. The applicant is not seeking to redevelop or build upon the land in question. It suffices if the respondent is estopped from relying on any alleged breach of covenant. If the respondent cannot establish any breach of covenant, it cannot rely on s.12(b) of the LRO to say that no compensation shall be given in respect of any use of the land which is not in accordance with the terms of the Government Lease.

76. To determine whether the applicant could rely on the doctrine of estoppel or waiver in the present case on the basis of long course of usage, the two decisions relied on by counsel shall be looked into.

77. We agree with Mr Lam that In re A Compensation Board was decided on its own facts and should not be applied to the present application. In In re A Compensation Board, there was a course of 20 years of usage in breach of the Crown Lease. In fact, the Court of Appeal had refused to impute waiver even assuming that the breach was known to the Director of Public Works and his subordinates. Upon taking into consideration the social situation prevailing in 1949 which might explain why the Government did not take enforcement against the breach it was said that “There would be ample justification for allegations of hardship” and that enforcement action would be “a herculean task”. In the present case there was no explanation from the respondent as to why there was no enforcement.

78. The Judicial Committee of the Privy Council’s finding in Fairfax was made on the basis that the case was not concerned simply with what was going on at the plaintiff’s site, it was held that the conduct by the Crown inconsistent with its continuing reliance upon the covenant in relation to all parts of the lot was relevant to the question whether the Crown had abandoned the covenant. From the facts summarized in paragraph 73 above, their Lordships upheld the finding of the Court of Appeal that “in the circumstances, the Crown must be presumed to have released or abandoned the covenant.”

79. Mr Lam suggested that some salient features could be identified in the holding of their Lordships, they are namely:

(i) there were open and notorious breaches involving over a period of 40 years without enforcement action; and

(ii) breaches involved 18 developments in the same lot.

80. It is not disputed that in the present case not only the Ground Floor was used as shop, but at least all ground floor units of the other 4 buildings in the approved General Building Plan eventually used ground floor as shops. It could be presumed that, if the General Building Plan did not amount to approval or release of restrictions on shop use, then the ground floor units of all 5 buildings would be in breach and no enforcement action had ever been taken against any of the owners for over 50 years.

81. As we have mentioned in paragraphs 52 - 65, the 5 ground floors in Lot 49 were not the only ones in breach. There were other buildings with ground floor units being used as shops as indicated by their respective occupation permits. During our site visit, we saw the phenomenon in Hai Tan Street, Pei Ho Street and Yee Kuk Street that ground floor units were being used as shops for commercial purpose. There were a few shops at the far end of Hai Tan Street, which is away from the centre area, using the ground floor as car repair, they may be considered as workshops. But most of the others are shops for commercial purposes. The Ground Floor comparables are all shops.

82. It had come to our attention from a recommendation of the Tenancy Tribunal (Application Nos. K.163-K177 of 1948) dated 27 October 1939 that in fact another section of Lot 49 under the Government Lease which is marked as house numbers 1, 1A, 3, 3A, 5, 5A, 7, 9, 11 and 13 of Pei Ho Street (“Pei Ho Street Section”) and the section across Pei Ho Street in Lot 47 had shop use since 1921 (the “TT Recommendation”). Reading from the TT Recommendation, the then landlord owned these two sections of land with one row of single-storied structures built on each in 1921 and such structures stood on both sides of Pei Ho Street stretched between Hai Tan Street and Tung Chau Street or part thereof.

83. Mr Suen said that those “shops” in the single-storied structures were not really shops upon taking a closer look. The business being run thereat included advertising, medicial oil, sewing machines, confectioner & tobacconist, Chinese doctor and ironmonger. He said they could well be workshops which were permitted by the Government Lease. We are of the view that from its name, for example, ironmonger, a dealer in metal utensils, a hardware merchant[4], we accept that it was more likely to be a shop. Chinese doctor was held not to be a workshop by Chu J as she then was in The Incorporated Owners Of Ming Ming Industrial Centre v Mantex Supplies Company Limited and Others HCA 1505/2007. Chu J’s finding was based on the presence of several consultation rooms with only a few pots to made medicine soup. Further the business registration was for Chinese medical clinic. We also accept that the Chinese doctor, a medical clinic in the present day, rendering medical service and retail of Chinese medicine was a shop but not a godown. These are sufficient examples of shop use as reflected in the TT Recommendation. That extended the period of continuous breach to as early as 1935[5] at least and therefore adding another 20 years to shop use for about 75 years in total.

84. Mr Lam on behalf of the applicant applied to submit further evidence to give exact location of the 1921 structures. Relying on Ladd v Marshall [1954] 1 WLR1489Mr Suen opposed to admission of those documents including the TT Recommendation. The TT Recommendation, a public record, which in our mind relevant to the issues arising herein came to our notice before determination of the same. We are of the view that no prejudice would be caused to the respondent if it is given sufficient opportunity to deal with the matter arising therefrom. In any event, even if the rule of Ladd v Marshall is to be applied, we are of the opinion that in the light of the antiquity of the TT Recommendation, we accept that it could nothave been obtained with reasonable diligence for use before the Lands Tribunal at trial. Further we are of the view that the TT Recommendation probably would have an impact on the result of the present application. Those documents Mr Lam sought to produce should also be admissible as they helped to illustrate the exact location of the sub-sections.

85. We notice that the long use of Ground Floor and those ground floors in the vicinity bring the circumstances of the present case close to those in Fairfax although we agree that the magnitude of the breach as could be seen from evidence before us could not match that established in Fairfax in a sense that Fairfax involved 18 developments breaching the height restrictions in the same lot. Fairfax however did not lay down the minimum level of breach for acquiescence or waiver of the covenant to be established. Fairfax is as the Court of Appeal said “the clearest possible case of abandonment.

86. Finally, on whether compensation would be barred by operation of s.12(b) of the LRO, we are of the view that if it is found that there was an abandonment of the restrictive covenant by acquiescence or waiver on the part of the Government, it could not be said that shop use is within the “use of land which is not in accordance with the terms of the Government lease under which the land is held” thereunder. In the circumstances, the respondent cannot rely on the provision to say “no compensation shall be given”.

87. From the above analysis, we come to the conclusion that the Government was aware of ground floor units being used as shops through occupation permits in the neighbouring lots for 30 years (see paragraph 64 above). We are also of the view that it would be odd and unrealistic for the Government to say that they had no knowledge of shop use at the Ground Floor for more than 50 years and in the Pei Ho Street Section for 75 years. When no enforcement action was taken against any owners in Lot 49 or in the neighbouring lots whom the Government now alleged that they had been in breach of the Government Lease, we are of the view that the applicant has established to our satisfaction that the Government had abandoned altogether its rights under the Government Lease as opposed to having acquiesced only in taking enforcement action. We are satisfied that it is established the Government had abandoned the covenant as in the case of Fairfax, equity requires that the applicant be awarded compensation according to the acquiesced use.

ISSUE (2): VALUE OF THE ROOF

88. Mr Lam on behalf of the applicant said that it is the undisputed evidence of Mr Cheung that the applicant and its predecessors in title had been in sole use occupation and possession of the Roof since about 1972. For this reason, it was the applicant’s case that the interests of the remaining owners over the Roof had been extinguished and the applicant had indefeasible possessory title over it.

89. To determine the issue, the following questions would have to be considered:

(1) whether the applicant has established the requisite elements, namely factual possession and the intention to possess the Roof;

(2) If the answer to (1) is yes, whether there is any legal basis for the applicant, being a co-owner of the Building, to claim adverse possession against other co-owners;

(3) Whether section 34I of the Building Management Ordinance (“the BMO”) is relevant;

(4) If the applicant successfully establishes a claim for adverse possession, what value should be allocated to the Roof: whether it should be 1/6 or 1/8 of the value of the 4^th Floor; and

(5) If the applicant fails to establishes a claim for adverse possession, whether any value, and if so what value, should be allocated to the Roof on the basis that a purchaser may be willing to pay the extra price for the Roof even without title.

Intention to Possess

90. The principles on intention to possess are well established. A person claiming to be in adverse possession must be shown to have both possession and the requisite intention to possess (speech of CJ Li in paragraph 35 of from Wong Tak Yue v Kung Kwok Wai (1997-98) 1 HKCFAR). In paragraph 37, he quoted the statement of Nourse, LJ in Buckinghamshire County Council v Moran at 644, adverse possession can be described as “possession as of wrong” and “with limitation it is the intention of the squatter that is essential”.

91. Pausing here, it could be immediately observed that Mr Cheung of the applicant did not say that he was a squatter. He saidwhen the 4^th Floor was acquired from the first owner, he also “bought” the right to use the Roof (“使用權”). In the circumstances, in his mind he had not been in possession of the Roof as of wrong but as of right, a right arising from a payment paid to the first owner for use of the Roof. He had possession of the Roof with consent of the then owner due to the payment he had paid. Further Mr Cheung did not say that he had acquired an indefeasible possessory title in the Roof but only a right to use the same which might have been a “license” in proper legal terms. In such circumstances, we do not think that Mr Cheung had on balance proved that he was in possession as of wrong and therefore had the necessary intention to possess according to the prevailing legal principles.

92. We are of the view that the applicant’s claim on adverse possession could be dismissed on this point. For sake of completeness, other arguments of the parties would be discussed.

93. Mr Suen said that even if Mr Cheung had proved the necessary intention to possess, he would still face another hurdle and that is being a co-owner of a multi-story building he could not claim adverse possession against other co-owners as he is bound to comply with the provisions in the DMC. Mr Suen relied on Incorporated Owners of Chungking Mansions v Shamdasani [1991] 2 HKC 342; The Incorporated Owners of Lux Theatre Building v Fung Chi-hung, unrep., LDBM 86/2001, (11.10.2001); and 梁文光對地政總署署長, unrep., LDLR 6/2012, (16.8.2013). Mr Suen said that in accordance with the DMC and the assignment, the Roof was intended to be for the occupation and use of all the owners of the Building.

94. The respondent also contended that even if the applicant could overcome the hurdle of its being bound by the DMC, it has difficulty dealing with s.34I of the BMO which provides that:

“(1) No person may-

(a) convert any part of the common parts of a building to his own use unless such conversion is approved by a resolution of the owners' committee (if any);

(b) use or permit to be used the common parts of a building in such a manner as-

(i) unreasonably to interfere with the use and enjoyment of those parts by any owner or occupier of the building; or

(ii) to cause a nuisance or hazard to any person lawfully in the building.

(2) Any person who contravenes subsection (1) shall be deemed to be in breach of an obligation imposed on him by the deed of mutual covenant in respect of the building.”

95. It was submitted by Mr Suen that the situation had been made clear by the Court of Appeal in Wong King Lim v Incorporated Owners of Peony House [2013] 4 HKC 295, at 301I-302D in which a squatter was held to have succeeded in adversely possessed a strip of land in the rear lane although the strip of land was the common parts of a multi-story building. From the decision, one could see that whilst a stranger might be able to adversely possess a piece of land which is common parts of a multi-story building, it is not the case for a co-owner.

96. Yet further it is the case of the respondent that even if the applicant could overcome s.34I, the holding in Incorporated Owners of Man Hong Apartments v Kwong Yuk Ching & Others [2001] 3 HKC 116 would ultimately defeat the applicant’s claim. In that case, the incorporated owners did not seek recovery of the common parts occupied, but enforcement of their rights under the DMC. The Court of Appeal held that, even if the respondents were able to establish possessory title over the suit portion as a consequence of their adverse possession (which was not an issue to be determined), the suit portion would still be subject to the terms and conditions contained in the DMC. An injunction was therefore granted requiring the respondent to demolish the unauthorized structure and reinstate the passageway.

97. Having considered submissions of parties, we are of the view that on a proper interpretation of the s.34I, it is clear that a co-owner is unable, without contravening the provision, to claim that he had obtained an interest in the common parts to the exclusion of other co-owners. We therefore dismiss the applicant’s claim made under adverse possession.

The Applicant’s Fallback Position: No Indefeasible Possessory Title over the Roof

98. It is submitted by Mr Lam that even if the Tribunal were to hold that the applicant is unable to establish indefeasible possessory title over the Roof, it is submitted that the Roof, being occupied used and enjoyed solely and exclusive by the owner / occupant of the 4^th Floor undisturbed for a long period of time, would still be of value to a purchaser of the 4^th Floor, who would be willing to pay extra consideration for the use of the Roof.

99. The respondent’s position is however that if the applicant fails to establish its possessory title to the Roof, the applicant is not entitled to any compensation in relation to the Roof. The reason is that by virtue of s.6(1) of the LRO, only “the former owner” or “any person having an estate or interest in the land immediately before reversion under an instrument registered in the Land Registry” would be entitled to compensation in respect of the resumption of the land. Further by virtue of s.2 of the LRO, “owner” means “the person registered or entitled to be registered in the Land Registry in respect of any land sought to be resumed”. We agree that the applicant, without any title, registered or otherwise, of the Roof, is not entitled to any compensation in relation to the Roof.

100. The applicant also sought to rely on s.12(d) of the LRO to argue that, in determining the compensation to be paid to the Applicant, the value should be “taken to be the amount which the land if sold by a willing seller in the open market might be expected to realize”, and said that there may be purchaser who will be willing to pay extra money for the Roof when purchasing the 4^th Floor.

101. Mr Suen in reply said that there was no evidence to support the applicant’s suggestion to apply 30% discount to the value of the Roof to be determined by the Tribunal. He further submitted that such argument is erroneous for the following reasons:

(i) The applicant is not entitled to any compensation for the Roof in the first place. Section 12(d) of the LRO applies only to situations where an applicant is able to establish that compensation ought to be determined.

(ii) The applicant says that it is only claiming the value for the Roof in association with the 4^th Floor. However, this does not alter the fact that the applicant has no entitlement to compensation in respect of the Roof.

102. We agree that Eversound Investments Ltd v Wong Hiu Man, unrep., LDCS 10000/2012, 15.8.2003 should not be relied on as whether an informed and prudent purchaser would or would not be willing to pay a price for the Roof if no indefeasible possessory title could be established is a question of fact, not law. We are however of the view that the applicant had not adduced any evidence to show that an informed and prudent owner would be willing to pay extra money for a piece of land which not only was not included in the deed but was expressly provided in the DMC that it was common part. He paid for use of the Roof some 40 years ago knowing that it was common part of the Building and not included in the conveyancing documents but there was no evidence to show that as at the present time, there was informed and prudent buyer willing to do the same. Last but not the least, we agree with Mr Suen that it is untenable to argue that value should be added to the compensation on the land lawfully owned by an owner because a piece of land had been unlawfully used by him at the same time.

103. To conclude, we do not accept that the Roof should be taken into account when compensation is to be assessed.

ISSUE (3): REDEVELOPMENT POTENTIAL

104. It is the applicant’s case that value of redevelopment potential should be taken into account in determining the proper compensation as it had been the plan of Mr Cheung to redevelop the Building and he had already acquired 80% of the undivided share and interest in the Building. It was said that purchaser in the open market would be willing to pay extra for the redevelopment potential.

105. It was also submitted by Mr Lam that the test expounded by Fok JA in Siu Sau Kuen v Director of Lands [2013] 6 HKC 557 should not be applied as a strait jacket as if it is a statutory provision.

106. In response, Mr Suen disagreed with this submission. He is of the view that the test outlined by Fok JA should be applied.

107. We are of the view that the test suggested by the Government through Mr Lam at trial but revised by Fok J.A. in Siu Sau Kwun is good guidance and should be referred to in the present case. In relation to the Stage One test, Fok JA restated it as follows (at §34):

“Whether, on a balance of probabilities, the evidence discloses that, as at the date of resumption, redevelopment of the property resumed was likely. Such likelihood may be demonstrated by:

(i) actual proposals by the applicant to redevelop the property (or unlikelihood demonstrated by the absence of such proposals) whether on its own or by merger with other properties, or

(ii) evidence of redevelopment in the vicinity of the resumed property (whether accompanied by evidence of redevelopment plans for the resumed property or not), so long as such evidence of redevelopment in the vicinity supports a finding that redevelopment on its own or merger of the resumed property with other properties giving rise to a viable redevelopment scheme was likely within a reasonably foreseeable time scale.”

108. The Stage Two test is this: “If Stage One is determined in favour of a claimant, the Court / Tribunal would then proceed to conduct a valuation of the redevelopment potential”.

109. The respondent said that the applicant had failed to satisfy the tests in the present case. The crux is that there is insufficient or no evidence in support of any likelihood of redevelopment: to be demonstrated by any actual proposal or evidence of redevelopment in the vicinity of the Building.

Actual Proposal

110. It is not disputed that the Building must be redeveloped together with the adjacent 175 Building as they shared common staircase. It is therefore necessary to look at the evidence concerning any actual proposal to redevelop both the 175 Building and the Building.

111. The applicant relied on Mr Cheung’s testimony given at trial on 18 June 2014. In summary he said that he bought the 4 units in the Building for the purpose of investment and always had a wish to redevelop the Building. Four units in the Building means all but one. He even got some financial support in principle from a bank. He made attempts to buy the remaining one but for various reasons which were not within his control he was never successful on that. Mr Cheung said that he could renovate the Building even if he wouldn’t redevelop it. He had discussed his plan with his friends but no formal proposal had been put forward to the relevant authorities. In relation to proposals made by other developers, Mr Cheung did not produce any concrete evidence in support, nor did he give any particulars in this regard.

112. In relation to the 175 Building which had to be jointly redeveloped with the Building, Mr Cheung said that, in around 1982, he discussed with one Mr Yuen whom Mr Cheung said was the owner of some of the units in the 175 Building about the possibility of joint redevelopment. But the discussion did not bear any fruit in the end. Mr Cheung also admitted that, notwithstanding such discussion, he had little knowledge of the state of ownership of the premises in the 175 Building.

113. According to the above summary, Mr Suen suggested that even taking the evidence of the applicant to its highest, there was no actual proposal made by the applicant to redevelop the property despite his wish for doing so and some discussions with a banker and some friends. The fact that he had not been able to acquire the 3^rd Floor of the Building had put his wish further away from the likelihood to be materialized. The requirement for a joint redevelopment with 175 made his plan even more remote.

Redevelopment in the Vicinity

114. The applicant also sought to rely on the redevelopment in the vicinity to establish redevelopment value in the Properties. Relying on Director of Lands & Survey v Cheung Ping Kwan (1978) HKLTLR 101, Mr Lam submitted that visual inspection at site should be good evidence to conclude that redevelopment is likely. In Cheung Ping Kwan it was held that the merger of the subject site with two neighbouring site was likely. He suggested that in the present application, this Tribunal could likewise consider what could be seen in the vicinity to conclude that the area is generally ripe for redevelopment.

115. The respondent opposed to evidence relevant to the redevelopment in the vicinity of the Building to be adduced without leave of the Tribunal. It was said that no evidence had been adduced in this regard prior to the site visit made on 19 June 2014. This topic had not even been included in the agreed scope of the site visit which was: to have “an external inspection on the subject properties and the proposed comparables”. It was suggested by Mr Suen that such evidence should not be allowed otherwise the respondent would be prejudiced. He said that had the applicant chosen to put in such evidence earlier, the respondent would have put in evidence in reply and now the respondent had been deprived of such opportunity.

116. Mr Suen further submitted that in any event, the evidence now the applicant sought to put in is of no probative value, it is not supported by documents relevant to the time, history and other details of acquisitions made for the purpose. It was said that the Tribunal should disregard such evidence. Further there is also no evidence or statistical data on the percentage accounted for by those redevelopment out of the vast pool of buildings in the vicinity of the Building. Since the evidence is not adduced until during the site visit, none of the experts had addressed in their expert reports any comparison of the Building with similar buildings in the vicinity and reach conclusion on its redevelopment potential. This is of particular importance since Mr Ng, valuation expert for the applicant, conceded during cross-examination that the price of various shop and residential comparables proposed by him did not reflect any element of redevelopment potential. If so, there is no basis to distinguish the Building from buildings in which the comparables are located and suggest that, unlike them, the price or valuation of the Building should encompass an element of redevelopment potential.

117. On this, we accept Mr Suen’s submission that the respondent would be prejudiced if such evidence and submission is now accepted. The evidence now the applicant seeks to rely on was flimsy and had not been tested during trial because what Mr Ng said about redevelopment was said at the site inspection. Such statement of Mr Ng had not been set out in his expert report for the expert of the respondent to deal with. The purpose of making such statements at the site inspection was not specified. Further, although there might be signs of redevelopment going on in the vicinity, the test is not merely redevelopment potential but that it will happen in a foreseeable time scale. Mr Ng did not elaborate on how he came to the opinion that those redevelopment in the vicinity could support a finding that redevelopment on its own or merger of the resumed property with other properties giving rise to a viable redevelopment scheme was likely within a reasonably foreseeable time scale. We are of the view that the fact that there are redevelopments in the vicinity does not necessarily mean that the area is generally ripe for redevelopment. Further, the applicant has failed to prove that, but for the Development Scheme, as at the Date of Resumption redevelopment of the Building was viable within a reasonable time scale.

118. In Cheung Ping Kwan, which is dated back in 1978, probability of merger was in issue. Based on what was seen at the site inspection with plans submitted by both experts, the Tribunal found that there were no less than 16 redevelopments in the relevant area of which twelve comprised multiple lots and only four were redevelopment of single site. It was also found that out of the 4 single lot developments, 3 were incapable of merger because of adjoining development. From such findings, we see that the Tribunal in Cheung Ping Kwan did not rely on mere visual inspection but with evidence before it to come to a conclusion after thoughtful analysis. It was definitely not based on a general impression obtained from a site visit carried out for a different purpose.

119. Further there was no comparison made between the Building and those other buildings which the applicant said were “ripe for redevelopment”. We find the evidence before this Tribunal inadequate to assist in making a meaningful assessment on redevelopment value.

120. To conclude, we find that the applicant has not demonstrated a likelihood of redevelopment of the Building as at the date of the Resumption under the tests set out in Siu Sau Kuen by reference to either actual proposals or redevelopment in the vicinity at the Date of the Resumption.

ISSUE (4): THE APPLICABLE COMPARABLES AND ADJUSTMENTS IN THE VALUATION OF THE PROPE RTIES

The Evidence on Valuation

121. The parties have produced the following expert reports and documents on valuation:

(a) Mr James Ng Yiu Wah (“Mr Ng) of James Ng Surveyors Limited, on behalf of the applicant

(1) Expert Report for Ground Floor dated 15 February 2013;

(2) Expert Report for 4^th Floor & Roof dated 15 February 2013;

(3) Supplemental Expert Report for Ground Floor and 4^th Floor & Roof dated 19 November 2013;

(4) Letters of 19 June 2014 and 23 June 2014; and

(5) Valuation tables submitted on 18 June 2014 and revised valuation tables submitted on 20 June 2014.

(b) Mr Lai Wah Chi (“Mr Lai) of AA Property Services Limited, on behalf of the respondent

(1) Expert Report dated 3 September 2013;

(2) Supplemental Expert Report dated 13 November 2013; and

(3) Analysis tables and valuation tables submitted on 23 June 2014.

122. We had external inspection to the Properties and the comparables together with the parties and their experts at the site visit on 19 June 2014.

The Disputes on Valuation

123. Following the determination on the above legal issues, i.e. that the Ground Floor was permitted to be used as a shop; that the applicant had acquired no possessory title to the Roof and that the applicant had not proved redevelopment potential, the remaining arguments on valuation are as follows:

(1) Frontage of the Ground Floor;

(2) Choice of shop comparables and their measurements for valuation of the Ground Floor;

(3) Adjustments for the shop comparables;

(4) Choice of residential comparables for valuation of the 4^th Floor; and

(5) Adjustments for the residential comparables.

(1) Frontage of the Ground Floor

124. The valuation experts of both parties have agreed on all measurements of the Ground Floor except for its clear frontage.

125. The difference was caused by different views of the experts on whether there was a wall at the entrance of the Ground Floor. Relying on the General Building Plan, Mr Lai contended that there should be a concrete wall near the left bottom corner of the Ground Floor. Mr Ng contended that the General Building Plan is unclear in this regard. Mr Ng submitted that no wall was seen on site at the location as identified by the respondent. He therefore took on-site measurement and derived valuation on basis of clear frontage.

126. Mr Lai submitted that it is common practice in the Lands Tribunal to measure frontage figures based on general building plan. Mr Suen also pointed out that Mr Ng had measured all of the comparables’ frontages from assignment plans and therefore the same methodology should be adopted in the valuation. Mr Suen cast doubt on Mr Ng’s reasoning as to why there was originally no concrete wall. Mr Suen is of the view that Mr Ng is not an expert on building structures and there was no structural survey produced after all.

127. In fact, parties had neither called experts on building structures nor any structural survey had been adduced to support their respective arguments. Nevertheless, it is not disputed that even if the concrete wall was there, it lied within the boundary as shown in the assignment plan[7] and formed part of the Ground Floor.

128. We agree with Mr Lai that measuring width of frontage based on building and / or assignment plans is common practice adopted by the profession. However, the problem is, building plans or assignment plans could be inaccurate or even wrong. We consider whether measurement taken at the site to be reliable evidence depends on the fact of each case.

129. As far as the measurement of the frontage is concerned, we find that the General Building Plan is unclear and inconclusive as to whether there was a concrete wall at the frontage when it was approved. We are of the view that if the existence of a concrete wall is unclear in the perspective of valuation expert, opinion of a building expert should be called for. In the absence of such evidence, on-site measurement of the frontage should be accepted for determination of dispute. In the present valuation, we accept 3.9 meters as the clear frontage of the Ground Floor be adopted.

130. In the present case, even if there was a concrete wall as claimed by Mr Lai, we consider that the frontage of the concrete wall should have its value to be assessed in the valuation. But since the parties did not argue on the value of the wall, but only the presence of it, then it is not necessary for the wall to be assessed.

(2) Choice of Shop Comparables and their Measurements for Valuation of the Ground Floor

Headroom of ASC1 / RSC3 and ASC2 / RSC5

131. The applicant and the respondent each proposed 5 shop comparables and 2 of them are in common, namely ASC1 / RSC3 and ASC2 / RSC5 on Hai Tan Street. In relation to these 2 common comparables, the parties are divided on their measurements of headroom, but there is no dispute that both comparables contain higher headroom near the frontage as shown in their respective elevation plans[8].

132. Mr Ng contended that the higher headroom of both common comparables covers ¼ of the respective length of the shops only and was therefore disregarded because it is of little significance from a valuation point of view. Mr Lai however took the average of his measurements of the higher headroom and the lower headroom to ASC1 / RSC3. Mr Lai considered that the higher headroom located at the shop front covering about half of the shop is important in attracting attention of customers. Nevertheless, Mr Lai applied a different method to deal with ASC2 / RSC5 by allowing an upward adjustment of 2% instead of taking and considering the measurements and coverage of the respective headroom.

133. We agree with Mr Lai that higher headroom and its coverage in a shop should be considered and reflected in the assessment and the existence of higher headroom in both common comparables is not insignificant. However, we disagree with Mr Lai that areas with higher headroom extend to about half of ASC1 / RSC3. We find that, with reference to the elevation plan of ASC1 / RSC3[9], areas with higher headroom extend to about 1/3 of the shop, a figure in between those suggested by Mr Lai (1/2) and Mr Ng (1/4) respectively; we also find that the average of the lower headroom suggested by the parties respectively (i.e. about (3.5m + 3.35m) / 2 = 3.43m) should be accepted for purpose of this valuation.

134. Applying the figures presented by the parties and the same methodology to measure and consider the headroom of ASC1 / RSC3 and ASC2 / RSC5, their respective headroom to be adopted in the valuation is calculated as follows:

ASC1 / RSC3: (3.43 * 2/3) + (4.88 * 1/3) m = 3.91m

ASC2 / RSC5: (2.90 * 3/4) + (5.49 * 1/4) m = 3.55m

The applicant’s 3 shop comparables

135. The other 3 shop comparables, ASC3, ASC4 and ASC5, proposed by Mr Ng are all situated along Hai Tan Street, same as the Ground Floor, but beyond Yen Chow Street. Mr Lai objected to their being adopted as comparables because they are located in an area far away from the Building with features and characters different from those of the Ground Floor, and their respective unit rates are different that the unit rate of ASC3 is much higher than the other two.

136. We, with the benefit of site inspection together with the parties, agree with the contention of Mr Lai. In terms of business potential, the area to the west of Yen Chow Street and to the south of Lai Chi Kok Road is separated from the main business area in the district and is therefore relatively inferior. We consider they are not the best comparables in the present valuation and should not be adopted in direct comparison if there are better comparables.

The respondent’s 3 shop comparables

137. The respondent’s 3 shop comparables, RSC1, RSC2 and RSC4, are situated along Yee Kuk Street and Tung Chau Street, one street from the Ground Floor at Hai Tan Street. Mr Lai contended that the section of Yee Kuk Street where RSC1 and RSC4 are situated is similar to the subject section of Hai Tan Street in terms of nature of trade and pedestrian flow; whilst the section of Tung Chau Street where RSC2 is situated is also comparable to the subject section of Hai Tan Street.

138. Mr Ng opposed the use of RSC1 and RSC4 as comparables because they are close to a temple and a refuse collection point. Further it is said that the lack of bus service and unrestricted parking along Yee Kuk Street would affect the accessibility and visibility of the comparables. He is also of the view that these features would no doubt adversely affect their value.

139.The applicant also opposed the use of RSC2 as a comparable, saying that it is with low pedestrian flow. It faces a flyover with the jade market underneath on the opposite side of Tung Chau Street. The layout of the jade market is that it does not have windows or openings to attract people to window-shop and more importantly, no customers could enter unto it from Tung Chau Street. The appearance and the business nature of the jade market together with a flyover render the vicinity unattractive for shopping and retail activities.

140. We, with the benefit of site inspection together with the parties, agree with the applicant that RSC2 is located in an area with characters different from those of the Ground Floor and therefore should not be chosen as a comparable in the valuation.

141. Nevertheless, we have no objection to include RSC1 and RSC4 as comparables in the present valuation. We consider that proximity is an important factor to consider and they are therefore better comparables as opposed to ASC3, ASC4 and ASC5 which are located on the other side of Yen Chow Street featured with different business potential. We have considered the adverse effects on the value of RSC1 and RSC4 as suggested by Mr Ng. They are, in our opinion, immaterial, in the selection of shop comparables.

(3) Adjustments for the Shop Comparables

142. Both parties agreed that shop comparables have to be adjusted for time, location, frontage, quantum / size and headroom. There is no dispute between the parties that reference should be taken of Private Retail Index issued by Rating and Valuation Department for the adjustments for time; and that the adjustments for quantum / size be taken at the rate of 5% for every 20 sq m or 1% for every 4 sq m. Although there are disagreements on the adjustment for layout to ASC5 and calculation of effective floor area for RSC2, these would not be discussed in this judgment because we have already decided not to take ASC5 and RSC2 as comparables in the valuation (see paragraphs 135 – 136 and 139 - 140).

Adjustments for location

143. Both parties agreed that there was no adjustment for location to the common comparables ASC1 / RSC3 and ASC2 / RSC5 both on Hai Tan Street. Their disagreement on the adjustments for location to RSC1 and RSC4 are as follows:

144. As mentioned above, Mr Ng contended that the refuse collection point and the temple in Yee Kuk Street would adversely affect the value of these two comparables. Further while Yee Kuk Street is not served by buses, the bus stops positioned immediately in front of the Building is a great advantage. Mr Ng is however of the view that RSC4 is better than RSC1 because the former is closer to the junction with Pei Ho Street and is in an area with more diversified trades.

145. Mr Lai contended that the location of these two comparables on Yee Kuk Street is superior to that of the Ground Floor because they are closer to the MTR Sham Shui Po Station where trades of diversified nature are carried on. It is also said that car parking being available immediately outside the shops is an advantage.

146. We agree with Mr Ng that the location of RSC4, which is closer to the junction with Pei Ho Street and has more diversified trades, is more valuable than the location of RSC1, but the difference is only moderate. We consider that the refuse collection point would also have moderate adverse effect on RSC1. Further the effect of the temple on RSC4 and the effect of proximity to bus stops or availability of car parking spaces are minimal in such secondary location. Moreover, we agree with Mr Lai that the subject section of Yee Kuk Street which is one street closer to the MTR Sham Shui Po Station would generally attract higher value than the subject section of Hai Tan Street. We also notice that there were more business activities to the north of Hai Tan Street. Above all, we consider that, in terms of location, nil and -8% adjustments should be made to RSC1 and RSC4 respectively.

Adjustments for frontage

147. Mr Ng suggested 2% adjustment for every 0.5 meters while Mr Lai suggested 2% for every 1 meter. Mr Ng contended that the Ground Floor is situated in a busy street with good pedestrian flow and is therefore more frontage-sensitive; as a result it justifies a higher adjustment rate. Mr Lai contended that the adjustment rate for frontage adopted by Mr Ng was excessive in the sense that it did not match with the then location and types of trade of the comparables.

148. We agree with Mr Lai that the subject location with only moderate pedestrian flow should be less frontage-sensitive; as a result it justifies an adjustment rate for frontage at 2% for every 1 meter.

Adjustments for headroom

149. Other than the disagreement on the headroom measurements of ASC1 / RSC3 and ASC2 / RSC5 that has already been discussed in paragraphs 131 - 134 above, the parties have disagreement on the adjustments for headroom. Mr Ng suggested 5% for every 1 meter, whilst Mr Lai suggested 2% for every 1 meter. Mr Ng contended that the subject area is predominantly used for industrial oriented purposes and therefore high headroom is of definite advantage. Mr Lai disagreed with the adjustment rate for headroom adopted by Mr Ng, saying that it was too high.

150. We agree with Mr Ng that high headroom for shops in the subject area is of definite advantage and the adjustment rate of 5% for every 1 meter.

Valuation of the Ground Floor

151. By adopting the adjustments as suggested in the above discussions, the valuation of the Ground Floor is listed in Appendix I of this judgment. The average of the adjusted unit rate is $117,228 per sq m. Nevertheless, we consider that different weight should be attached to the comparables. The common comparables both on Hai Tan Street and opposite to the Ground Floor could weigh double of RSC1 and RSC4. The weighted average of the adjusted unit rates would then be $118,510 per sq m and the value of the Ground Floor on vacant possession basis is now assessed at $118,510 x 81.825 sq m = $9,697,081, say $9,700,000.

(4) Choice of Residential Comparables for Valuation of the 4^th Floor

152. Mr Ng proposed 7 residential comparables whilst Mr Lai proposed a total of 9, and 4 of these comparables, ARC1 / RRC9, ARC2 / RRC8, ARC3 / RRC7 and ACR5 / RRC6 are in common.

The applicant’s 3 residential comparables

153. Mr Lai rejected ARC4, ARC6 and ARC7 which were built in 1960s as comparables. He is of the opinion that building design and conditions are so different between buildings built 10 years apart from each other. Mr Lai preferred those comparables with building age closer to that of the Building in his valuation. Mr Ng disagreed with Mr Lai for his discarding these 3 comparables and contended that they are actually closer to the Properties than most of the common comparables.

154. Since there are at least 4 common comparables and we agree with Mr Lai to make adjustment for building age and that there are other suitable comparables with lesser adjustments as could be seen in the following paragraphs, we agree with Mr Lai that ARC4, ARC6 and ARC7 should be discarded in the valuation.

The respondent’s 5 residential comparables

155. Comparables RRC1, RRC2, RRC3 and RRC4 are situated on Yee Kuk Street. They were rejected by Mr Ng. It was contended that they are close to either a temple (for RRC2) or a refuse collection point (for RRC1, RRC3 and RRC4). Further Yee Kuk Street is not served by any buses. Mr Ng also rejected RRC5 because this is a corner premises with double frontage and plenty windows.

156. Mr Lai had no strong objection to the suggestion that RRC5 be discarded but contended that the adverse effect of said temple and refuse collection point if any would not have same effect on all four comparables because Yee Kuk Street is of considerable length and such adverse effect if any would be overridden by their better accessibility.

157. We agree with Mr Ng that RRC5 should be discarded as it has a different character with double frontage. We agree that RRC3 and RRC4 should be discarded also as they are close to the refuse collection point. We agree that the refuse collection point would have adverse effect on the nearby residential premises. Nevertheless, we accept the inclusion of RRC1 as a comparable in the valuation which is not as close to the refuse collection point. We accept RRC2 because we consider the effect of the temple to the nearby residential premises is not substantial.

(5) Adjustments for the Residential Comparables

158. Both parties agreed that residential comparables had to be adjusted for location, floor level, time and size. Nevertheless, Mr Ng suggested adjustments be made for repair condition with which Mr Lai could not agree. Further Mr Lai suggested adjustments be made for orientation / view and building age but these are disagreed by Mr Ng. In relation to the adjustments for floor level and size, both parties agreed the adjustment rates at -2% for each floor higher up and +1% for every 5 sq m smaller in area.

Adjustments for location

159. Mr Lai suggested nil adjustment for location to all comparables because they are all situated in the same neighbourhood while Mr Ng suggested an upward adjustment of 5% to ARC1 / RRC9, ARC2 / RRC8, ACR5 / RRC6, RRC1 and RRC2 and nil adjustment to ARC3 / RRC7. Mr Ng contended that the comparables ARC1 / RRC9, ARC2 / RRC8 and ACR5 / RRC6 are situated to the northwest of Yen Chow Street and were not served by buses. They should therefore be of lower value than that of the 4^th Floor. In respect of RRC1 and RRC2, Mr Ng contended that they were adversely affected by the refuse collection point and the temple.

160. We agree with Mr Lai that there be no adjustment for location regarding comparables chosen. We have already discarded RRC3 and RRC4 which are adversely affected by the refuse collection point. In respect of the residential comparables to the northwest of Yen Chow Street, we consider their being of residential nature, as opposed to the commercial characters in this particular location, are similar to those of the Properties. Moreover, we consider that there are both advantages (i.e. accessibility) and disadvantages (i.e. noise and dust) to residential properties with immediate services of buses. The distance to bus stops varies between the comparables and the Building but the difference is so slight that it is of no significance and does not justify an adjustment.

Adjustments for orientation / view

161. Mr Lai suggested -2% adjustment to the comparables with south facing aspect, whilst Mr Ng contended that such adjustments are unnecessary for low rise old buildings of this sort. We consider that buyers in Hong Kong, regardless of the age and height of the building, would generally favour residential flats with south facing aspect, because such flats can have the benefit of southerly wind in summer and avoid northerly wind in winter. We therefore agree with Mr Lai’s suggestion of -2% adjustments for orientation / view.

Adjustments for building age

162. Mr Lai suggested 0.5% adjustment for difference for each and every year in the building age whilst Mr Ng accorded no adjustment in this regard. Mr Ng contended that a difference in age by only several years did not have any appreciable effect on their value and even the banks would adopt a similar lending policy towards all properties over 50 years of age.

163. We consider that reasonable buyers would generally be concerned with the age of the property and we agree with Mr Lai’s suggestion of 0.5% adjustment for every year of difference in building age.

Adjustments for repair condition / external condition

164. Mr Ng contended that repair condition of the Building is better than that of all comparables and therefore he has made an upward adjustment of 5% to all comparables. Mr Ng further contended that the external mosaic tiles of the Building are indication of better state of repair. Mr Ng also confirmed he had inspected the interior of the Building and in his opinion repair condition of the Building was better than the average buildings completed in the 1950s.

165. Mr Lai pointed out that Mr Ng had not carried out any internal inspection to any of the comparables and therefore it was just a mere speculation by him that they were of inferior condition. Mr Lai contended that there is no relationship between the external mosaic tiles and the structure of the Building and Mr Ng had not carried out structural survey in any event.

166. While we agree with Mr Lai that we cannot confirm the internal condition of the comparables in this instance, we agree with Mr Ng that external condition of the Building appeared to be better than those of the comparables because of its external mosaic tiles. We agree to make an upward adjustment of 2% for the better external condition of the Building that was revealed in the external inspection. For avoidance of doubt, we say that this adjustment is for external condition and not for repair condition.

Adjustments for time

167. The parties’ differences in this respect arise from the use of different indices issued by the Rating and Valuation Department. While Mr Ng has adopted the Private Domestic Price Index (Class A, B & C) that covers properties of the size below 99.7 sq m, Mr Lai has adopted the Private Domestic Price Index for Class B (40 to 69.9 sq m). Mr Ng contended that the effective areas of the comparables fall into different classes in terms of size and therefore he adopted a general index for Class A, B & C. Mr Ng is also of the view that since it is the comparables that are adjusted in relation to time, not the 4^th Floor, his choice of index should be based on the sizes of the comparables. To the contrary, Mr Lai contended that the size of the 4^th Floor fall into Class B and such index should be adopted on the principle of “comparing like with like”.

168. We consider that both arguments are correct depending on whether a valuer makes an adjustment for time before adjustments for other factors or otherwise. Nevertheless, Mr Lai’s suggestion is preferred in the present valuation because his approach is relatively straight forward. If we adopt Mr Ng’s suggestion, we shall apply different indexes to different comparables (depending on their respective size) instead of a general index to all comparables.

Valuation of the 4^th Floor

169. By adopting the adjustments as suggested in the above discussions, the valuation of the 4^th Floor is listed in Appendix II of this judgment. The average of the adjusted unit rates is $48,911 per sq m. Nevertheless, if we exclude the extremes, i.e. the highest (ARC5 / RRC6) and the lowest (RRC2) adjusted unit rates in the assessment, the average adjusted unit rates would then be $50,061 per sq m and the value of the 4^th Floor would be assessed at $50,061 x 68.19 sq m = $3,413,660, say $3,410,000.

170. Mr Lai had considered the existence of a tenancy at the time of resumption and therefore adopted the investment approach to reflect the then tenancy whilst no similar adjustment was done by Mr Ng. In the present valuation, we consider the difference between the two approaches is minimal and the apportionment of rent for the Roof is arbitrary. We are of the view that the value of the 4^th Floor, whether it be subject to tenancy or on vacant possession basis, remains at $3,410,000.

Valuation of the Ground Floor as Residential Premises

171. If we were wrong in finding that the Ground Floor should be valued as a shop, this is our assessment on basis of it being residential. Parties agreed that its valuation is similar to that of the 4^th Floor. The adjustment rates for floor level and size are not disputed.

172. By applying the same reasons for the selection of residential comparables and adjustments for location, orientation / view, building age, external condition and time as discussed above (see paragraphs 152 - 168), the valuation of the Ground Floor as residential premises is listed in Appendix III hereof. With a view to reflecting the size of the Ground Floor, the Private Domestic Index for Class C (70 to 99.9 sq m) instead of that for Class B is adopted in this valuation. The average of the adjusted unit rates is $49,208 per sq m. Nevertheless, if we exclude the extremes, i.e. the highest (ARC5 / RRC5) and the lowest (RRC2) adjusted unit rates in the assessment, the average adjusted unit rates would then be $50,311 per sq m and the value of the Ground Floor as residential premises would be assessed at $50,311 x 81.825 sq m= $4,116,698, say $4,120,000.

CONCLUSION

173. We determine the value of the Ground Floor of the Properties should be, for the purpose of section 10(2)(a) of the LRO, in the sum of $9,700,000.

174. We determine the value of the 4th Floor of the Properties should be, for the purpose of section 10(2)(a) of the LRO, in the sum of $3,410,000.

ORDERS

175. Accordingly, we order that the respondent do pay the applicant compensation for the Ground Floor of the Properties in the sum of $9,700,000 and compensation for the 4^th Floor of the Properties in the sum of $3,410,000.

176. The matters of professional fees, interest, costs and any other ancillary and consequential matters shall be adjourned to a date to be fixed by parties in consultation with counsel’s diaries if it needs be.