ALLIANCE DEVELOP LTD v. DIRECTOR OF LANDS

LDLR 1/2020

[2023] HKLdT 12

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LAND RESUMPTION APPLICATION NO 1 OF 2020

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J U D G M E N T

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Background

1.  This is an application by the applicant for determination of compensation pursuant to section 10(2)(a) of the Lands Resumption Ordinance, Cap 124 (“the LRO”). The applicant was the former registered owner of a property known as Ground Floor, 17 Bailey Street (formerly known as No 3 Block A Bailey Street, Hung Hom, Kowloon, Hong Kong (“the Property”), then being 1/32^th equal and undivided shares of and in Sub-section 8 of Section C of Kowloon Marine Lot No 52 and Section J of Sub-section 1 of Section C of Kowloon Marine Lot No 52 (collectively referred to as “the Lot”) on which an 8-storey tenement building (“the Building”) was erected.

2.  The Building was situated near the middle of a parade of similar walk up tenement buildings the occupation permits of which were issued in October 1958. The parade lined the northern side of Bailey Street near its junction with Ma Tau Wai Road which is a main distributor running north-south in the Hung Hom/ To Kwa Wan districts. Developments in the locality were intermingled with old low to medium- rise tenement buildings similar to the Building and new high-rise composite buildings with ground floor shops devoted to shops of various trades that serve the daily necessities in the locality. An MTR entrance of the Tuen Ma Line (which was previously named as the Sha Tin Central Link) was opened on 27 June 2021 and is situated at the junction of Kowloon City Road and Chi Kiang Street within 5 minutes’ walking distance from the Property. I agree with the respondent that given the Property was some distance away from the MTR station, it could hardly benefit from the pedestrian flow in connection with the anticipated opening of the MTR station at or around the relevant date. I also fail to find any attraction along this section of Bailey Street, in the absence of the Resumption, that may draw any pedestrian flow from the MTR station.

3.  On 8 August 2019, the Government announced vide Gazette Notice 5615, inter alia, that the Lot including the Property was to be resumed by the Government for implementation of Development Project KC-009 (“the resumption scheme”) by the Urban Renewal Authority (“URA”). The resumption scheme covers a similar parade of tenement buildings along Wan Lok Street and Wing Kwong Street[1]. The latter runs in parallel to Bailey Street but extends up to Ma Tau Wai Road and therefore includes the premises at Nos 107 & 109 Ma Tau Wai Road. The ownership of the Property reverted to the Government at midnight of 6 December 2019 which is agreed to be the Valuation Date or the Resumption Date.

4.  Immediately prior to the Valuation Date, the Property was registered in the ownership of the applicant who was carrying out the business of a laundromat at the Property. It is undisputed that the applicant signed the Provisional Agreement for Sale and Purchase of the Property on 30 November 2012 in the sum of $14,000,000 subject to tenancy (which lasted until November 2017)[2]. Completion took place on 30 April 2013.

5.  The applicant and the respondent have no dispute that under section 10(2)(a) and section 12(d) of the LRO, the basis of compensation should be the market value of the Property as at the date of resumption, ie 6 December 2019. More particularly, section 12(d) of the LRO provides as follows:

“subject to the provisions of section 11 and to the provisions of paragraphs (aa), (b) and (c) of this section, the value of the land resumed shall be taken to be the amount which the land if sold by a willing seller in the open market might be expected to realize.”

6.  However, with respect, it was improper and not appropriate for Mr Lai Wah Chi (“Mr Lai”), the expert for the respondent, to refer to the additional definition of “Market Value” as found in the HKIS Valuation Standards on Properties (Edition 2017). Section 5.1.5 of the HKIS Valuation Standards 2017, for instance, reads as follows:

“For some valuation assignments, particularly in relation to specific jurisdictions within which there may be mandatory requirements, another basis of value may be specified (for example, in legislation) or appropriate ...”

7.  Here, whereas section 12(d) of the LRO has clearly defined “the value of the land and any buildings erected thereon” in section 10(2)(a), the introduction of any other definition or supplement would only add uncertainty on the basis of valuation or create confusion.

8.  I appreciate that in, for instance, Data Key Limited v Director of Lands, LDLR 6/2019 (unreported, dated 11 July 2011), Mr Lai and another expert agreed to adopt the definition of “open market value” from the Valuation Standards on Properties (1^st Ed. 2005) published by the Hong Kong Institute of Surveyors. The Tribunal however remarked at §3 of the judgment that the statutory provisions of the LRO applied in the resumption case.

9.  In Happy Enough Limited v Director of Lands, LDLR 5/2012 (unreported, dated 17 March 2016), the Tribunal referred, at §99, to the International Valuation Standards only for the purpose of illustrating the term “willing seller” under section 12(d) of the LRO rather than approving the adoption of an alternative valuation standards other than the statutory provision.

10.  Then in Siu Sau Kuen v Director of Lands [2012] 2 HKC 76 where Mr Lai happened to be one of the two valuation experts and again inappropriately cited the HKIS definition of “market value”[3]. As a result, the Tribunal commented that the two experts in that case seemed to have different interpretations on the basis of assessment for the compensation payable under Section 12(d) of the Ordinance. While the Tribunal emphasised once again that compensation under section 12(d) of the Ordinance should abide by the statutory definition, it remarked as follows at §14:

“… The wording in section 12(d) of the Ordinance is not quite the same as the definition used by the Hong Kong Institute of Surveyors mentioned above, but the concept is more or less the same. It still denotes an objective assessment based on the open market value.”

11.  The Tribunal went on at §16 to reject the concept of “value to the owner” or any implication to suggest that such a concept is embedded in section 12(d) of the Ordinance. In determining the compensation payable to the applicant, the basis of assessment should just be the open market value as stipulated in section 12(d) of the Ordinance.

12.  In any event, the applicant and the respondent cannot agree on the quantum of the market value of the Property as at the Resumption Date.

The Evidence

13.  Mr Wayne W K Lee (“Mr Lee”) for the applicant and Mr Lai gave their expert valuation opinion in the following reports:

	Mr Lee	Mr Lai
Valuation Report	12 Nov 2020	9 Sept 2020
Rebuttal/ Supplementary Report	17 Feb 2021	21 Dec 2020
Joint Statement	28 May 2021

14.  By the Joint Statement, the particulars of the Property have been agreed as follows[4]:

Saleable Area	:	34.90 sq m
Full Frontage	:	4.79 m
Depth	:	7.73
Full Headroom	:	4.09 m

Comparables for Direct Comparison Method

15.  Whereas both Mr Lee and Mr Lai were content to adopt the direct comparison method in arriving at their opinion, their final assessments before trial were far apart: Mr Lee arrived at $18,900,000 (plus interest and professional fees) while Mr Lai arrived at $7,649,000, a difference of more than 50%.

16.  As Ms Evelyn L C Cheng (“Ms Cheng”), counsel for the applicant, submitted in her opening, the core issues that led to the differences in valuation are:

(a)   The suitability of the comparables;

(b)   The adjustment for location;

(c)   The adjustment for headroom;

(d)   The adjustment for layout; and

(e)   Total adjustments.

17.  As can be seen from the Joint Statement, the final list of comparables adopted by Mr Lee and/or Mr Lai are as follows:[5]

Comp No	Address	Date of Transaction	Consideration	Saleable Area (sq m)	Effective Area (sq m)	Full Frontage (m)	Full Headroom (m)	Depth (m)
1	G/F, 123 Ma Tau Wai Road	30 Oct 19	$24,680,000	G/F: 73.04 + Yard: 11.60	74.97	3.86	3.71	18.29
2	Shop C, G/F incl portion of lavatory on M/F, Cheong Shing Court, 661-673 Gilles Avenue North	2 Oct 19	$20,800,000	G/F: 72.90 + Lav: 1.57	73.29	5.61	3.48	13.00
3	G/F, 13 To Kwa Wan Road	18 Mar 19	$33,300,000	G/F: 70.81 + Yard: 16.60	73.58	4.16	3.35	19.06
4	G/F, 3 Sze Chuen Street	31 Jul 18	$11,800,000	50.64	50.64	5.87 + Frontage to lane: 8.84	5.18	8.84
5	Shop C, G/F, Ming Wah Court, 20-30 Sung Chi Street	28 Jul 18	$9,000,000	40.48	40.48	3.90	2.92	11.04
6	Shop 11, G/F, Sung Kit Street	30 Apr 18	$13,980,000	64.45	64.45	7.12	3.51	10.39
7	Shop F, G/F, Greenland Court, 88 Ma Tau Wai Road	4 Jul 18	$9,780,000	10.20	10.20	3.30	4.85	3.6
8	Shop 4 & Cockloft, Loyal Mansion, 262-270 Ma Tau Wai Road	25 Apr 18	$29,000,000	57.50 + C/L 39.00	67.25	4.48	3.69 (weighted average)	12.8
9	G/F, 27 To Kwa Wan Road	5 Mar 18	$27,500,000	74.10 + WC at Yard: 1.2 + Yd: 13.7	77.58	4.1	3.51	19.06

18.  At this juncture, it is noted that Comparables 3, 4, 5, 8 and 9 above were considered and analyzed by the Tribunal in Success Active Limited v Harbourview International Holdings Limited & Others, LDCS 31000/2018 (unreported, dated 19 April 2021) where one of the valuation dates in issue was 1 November 2018 which was some 1 year prior to the Resumption Date. In that case, Mr Lai was also one of the two valuation experts giving expert opinion.

Adjustments of Comparables

19.  The two valuation experts have also set out the adjustment factors that they agreed to be relevant for the purpose of valuation as follows:[6]

Adjustment Factors	Mr Lee	Mr Lai
Time	Private Retail Price Index of Rating and Valuation Department (“RVD”)
Headroom	4% per 1m	2% per 1m
Frontage	4% for every 1m difference
Size	1% per 4 sq m
Total Adjustments	By Multiplication	By Summation

20.  The proposed adjustments by Mr Lee are shown in the table below (whereas those by Mr Lai are shown in parenthesis if they are different:[7]

Comp No	Unit Rate (/m2)	Adjustments							Adjusted Unit Rate (/m2)
		Time	Location	Size	Frontage	Headroom	Layout	Total
1	$329,198	1.2%	0.0% (-50.0%)	10.0%	3.7%	1.5% (0.8%)	15.8% (5.0%)	35.7% (-29.3%)	$446,722 ($232,743)
2	$283,804	1.2%	25.0% (-20.0%)	9.6%	-3.3%	2.4% (1.2%)	7.9% (0.0%)	48.1% (-11.3%)	$420,313 ($251,734)
3	$452,569	-9.5%	0.0% (-50.0%)	9.7%	2.5%	3.0% (1.5%)	20.0% (5.0%)	25.8% (-40.8%)	$569,332 ($267,921)
4	$233,017	-13.6%	70.0% (0.0%)	3.9%	-4.3% (-11.4%)	-4.4% (-2.2%)	1.7% (-5.0%)	42.0% (-28.3%)	$330,884 ($167,073)
5	$222,332	-13.6%	80.0% (0.0%)	1.4%	3.6%	4.7% (2.3%)	5.0% (0.0%)	79.6% (-28.3%)	$399,308 (208,325)
6	$216,912	-13.0%	80.0% (0.0%)	7.4%	-9.3%	2.3% (1.2%)	4.0% (0.0%)	62.3% (-13.7%)	$352,048 ($187,195)
7	$958,824	-13.6%	-15.0%[8] (-50.0%)[9]	-6.2%	6.0%	-3.0%	-6.2% (0.0%)	-33.6%	$636,659
8	$431,227	-13.0%	15.0%[10] (-50.0%)[11]	8.1%	1.2%	1.6%	7.6% (0.0%)	19.7%	$516,179
9	$354,473	-12.9%	0.0% (-50.0%)	10.7%	2.8%	2.3%	20.0% (0.0%)	21.7%	$431,394

Location

21.  Although all the comparables are situated within 10 minutes’ walking distance from the Property, it is noted that the adjustments for location constitute the largest and major adjustment factor. In Shapiro, Mackmin and Sams, Modern Methods of Valuation, 12^th edition, p 327, the location factor is explained as follows:

“Some of the most important points regarding retail location are: the class of the area; the type of street and the type of shopper; the position of the unit in the street; the proximity to any multiple stores or other “magnet” such as a department store; proximity to any breaks such as a town hall, bank or cinema; the relationship to the “prime” pitch – the location with the highest footfall; and proximity to car parks or public transport … Overall, consideration must be given to the catchment area and its spending power. ”

22.  In addition, by reference to the table (“the Table”) produced by the applicant as regards “Transactions of Shops at 3-21 Baily Street 7 1-19 Wan Lok Street from 1958 to 2019”[12], it appears that URA started acquiring premises in the resumption scheme in the 2^nd half of 2017, the latest.

23.  Indeed, by reference to a press release from URA dated 4 March 2016[13], it announced that URA started commencing the planning procedure of a Development Project at Bailey Street and Wing Kwong Street:

“Occupying a site area of about 8,000 square metres, the project involves a number of large building blocks of six to nine storeys without elevator, which were built between 1957 and 1961. These buildings cover 103 street numbers at Nos. 107 - 109 Ma Tau Wai Road (odd number), Nos. 2 - 50 Wing Kwong Street (even number), Nos. 1 - 13 Wan Tat Street (odd number), Nos. 1 - 19 Wan Fat Street, Nos. 1 - 20 Wan Hing Street, Nos. 1 - 20 Wan Lok Street and Nos. 3 - 21 Bailey Street (odd number).”

24.  The project was authorised on 9 December 2016 vide Government Notice No 6991. By reference to a press release issued by URA dated 3 July 2017[14], URA would issue acquisition offers to property owners affected by its three redevelopment projects in Kowloon City, namely Bailey Street/Wing Kwong Street Development Project (KC-009), Hung Fook Street/Kai Ming Street Development Project (KC-011) and Wing Kwong Street Development Project (KC-012) on 7 July 2017:

“The three projects were commenced in 2016 under the holistic and district-based urban renewal approach adopted by the URA with a view to rejuvenating the district with greater planning and community benefits while improving the living environment of residents. The three project sites altogether occupy a total area of about 11,900 square metres. Subject to further review, the URA's initial plan is to redevelop the three sites separately to provide a total of 82,600 square metres of residential floor area and 16,500 square metres of commercial/retail floor area. They are tentatively scheduled for completion by 2025/2026.”

25.  Having stated the above, I agree with Ms Cheng that I have to cast my mind back to the years before the Resumption Date and disregard the current blighted conditions of the construction site due to demolition of buildings being resumed. That is, the well-established Pointe Gourde principle requires any increase or reduction in value wholly due to the scheme to be disregarded - Pointe Gourde Quarrying and Transport Co Ltd v Sub-Intendent of Crown Lands [1947] AC 565. The affect of a resumption scheme on market value is at least liable to occur from the date of formal public notification. In many cases it may occur even earlier, particularly where the likelihood of a future resumption is well known. In the present case, the resumption scheme was announced in 1996 and is the first and largest of a total seven similar schemes in the area bounded to the west and to the south by Ma Tau Wai Road and Bailey Street respectively.

26.  Therefore, at the request of the Tribunal, the respondent produced the following table which shows the trades prior to the acquisition by the URA:[15]

Address	Trade Name	Business/Trade
3 Bailey Street	富運物業代理	Real Estate Agency
5 Bailey Street	檳城小屋	Restaurant
7 Bailey Street	榮利地產 + 潮車點[16]	Real Estate Agency + Car Accessories
9 & 11 Bailey Street	潮汕美食	Restaurant
13A Bailey Street	新港地產	Real Estate Agency
13B Bailey Street	天香茗茶	Tea House
15 Bailey Street	富寶國際貿易有限公司	Selling aluminum windows, household items, hardware accessories and associated building materials
17 Bailey Street	簡潔 (24小時自助洗衣店)[17]	laundromat
19 Bailey Street	地道美食	Restaurant
Shop A of 21 Bailey Street	榮利地產	Real Estate Agency

27.  By reference to the above, I agree with the respondent’s submission that the major customer sources of the Property would have been the occupiers living in buildings along the parade, ie within Bailey Street/Wing Kwong Street Development Project (KC-009). With respect to Mr Lee, I cannot agree with him that those shops in the parade relied heavily on pedestrian flow[18]. I am not persuaded that this portion of Bailey Street was a busy street anyway as at the relevant date.

28.  Furthermore, I note that opposite the Property across Bailey Street is a newly completed commercial/ residential composite development up to 29 storeys with a commercial plaza, The Vantage. Pre-sale of the more than 550 residential units there started in March 2019, ie some 9 months prior to the Resumption Date.

29.  Across Wan On Street to the east of the resumption scheme is a commercial/residential composite development completed in 1995, Bailey Garden, which comprises two residential towers surmounting a commercial podium on ground floor. Behind it is another new composite development called Upper East which abuts both Wan On Street and Sung On Street which runs in parallel to it or around the corner with Bailey Street at which there are pedestrian crossings across the opposite side of the streets. Upper East was completed in August 2018, ie some 16 months prior to the Resumption Date.

30.  Further away to the east is a vast piece of relatively newly reclaimed land completed with a range of new institutional buildings and industrial buildings. That is, pedestrian flow along this section of Bailey Street is broken.

31.  Discerning from the photograph contained in Mr Lai’s valuation report dated 29 September 2020[19], I note that at least one popular real estate agency was also occupying the ground floor unit further down Bailey Street on the ground floor of Bailey Garden. Mr Lai, in his valuation report dated 29 September 2020 also acknowledged “(t)here were a few shops mainly occupied by property agencies.”[20] Bus stops for numerous bus routes were concentrated in front of the ground floor of Bailey Garden.

32.  I trust the above paragraphs should have illustrated “the class of the area; the type of street and the type of shopper” along Bailey Street for the purpose of this valuation exercise.

33.  Comparable 1 is one of the two common comparables adopted by both valuation experts. It is situated towards the junction of Ma Tau Wai Road that meets To Kwa Wan Road both of which are main distributors in the locality. More importantly, it is situated between two pedestrian crossings, one outside 117 Ma Tau Wai Raod and another outside 237 To Kwa Wan Road. This section of the street appears to be one of the busiest sections in the vicinity where the McDonald’s, banks (at 33 To Kwa Wan Road and 237A To Kwa Wan Road respectively), a jewellery (at 29 To Kwa Wan Road) are located.

34.  Comparable 1 is occupied by a restaurant for roast meat “三寶燒臘小廚”. While Mr Lee applied no adjustment for location, Mr Lai allowed an adjustment for location as much as -50%. which, with respect, I consider excessive. I accept that pedestrian flow in front of this comparable has been very high but this section of Bailey Street on which the Property fronts is also an important local 6-lane arterial road plied along by franchised buses and mini-buses. Nevertheless, I could not accept that 0% adjustment is appropriate when I compare the trades near to the Property with those along this section of Ma Tau Wai Road. Indeed, I consider Mr Lee contradicting himself when he was content to apply -15%[21] adjustment to Comparable 7 which lies at a quieter section of Ma Tau Wai Road. I consider an adjustment for location at -30% more appropriate.

35.  Comparable 2 is the comparable adopted by Mr Lai only. While this comparable has an address at Gillies Avenue North, it in effect abuts a pedestrian precinct with a sitting area beside Ma Tau Wai Road opposite its junction with Bailey Street where a pedestrian crossing is also located (which we crossed during the site inspection). It is occupied as a convenience store with a clinic to its west and Bar Pacific to the east.

36.  During cross-examination, Mr Lee suggested that the signage or view of this comparable was blocked by the sitting area or the planters in front but as a matter of fact, they are situated at a distance from this comparable; the shop front can be viewed across the street on the other side of Ma Tau Wai Road. Indeed, I agree with Mr Joseph Wong, counsel for the respondent, that people attracted to the sitting area there would be potential customers of shops in the precinct.

37.  On the other hand, Mr Lee accepted that people from Bailey Street or further away would make use of this pedestrian crossing to reach this other side of Ma Tau Wai Road on their way along Sun Lau Street to Chatham Road North, another main distributor to the west in the vicinity where more bus routes traverse along. This concession defeats Mr Lee’s allegation that some people may avoid passing in front of this comparable because it has an elderly home and a sauna as neighbour. In fact, because of its prominent location, I cannot agree that this comparable is at a location inferior than the Property as suggested by Mr Lee. I agree with Mr Lai’s adjustment of -20%.

38.  Comparable 3 is situated at a section of Ma Tau Wai Road which extends and meets To Kwa Wan Road. Mr Lee conceded in the Joint Statement that it is a good comparable. It is occupied as an herbalist and chinese medicine clinic “百生堂”. I consider it having no difference in location with Comparable 1 and therefore I am content to apply a locational adjustment of -30%.

39.  Comparable 4 is situated at a side street - Sze Chuen Street but is in proximity to the To Kwa Wan Market and Government Offices Building. In Success Active, supra, this comparable was found previously to be occupied as a car-repairing workshop as opposed to the present sub-division into 3 units comprising an audio & video store and 2 fruit stores.[22] While there are other car-repairing workshops nearby, there are also other grocery stores or users related to the wet market. The purchaser in the acquisition of this comparable probably already had the intention of carrying out the present subdivision at the time of purchase. I disagree with Mr Lee or Ms Cheng that this comparable is situated in an area of industrial nature. However, I agree with Mr Lee that this comparable is inferior in location to the Property but I am prepared to allow only +30% de bene esse instead of Mr Lee’s +70% (which is too large to be a comparable at all) .[23]

40.  Comparable 5 is only adopted by Mr Lai as a comparable. It is occupied by a café which serves the residents of the locality; next to it is a grocery store “祥興食品超市”. Sung Chi Street is a side street, indeed a private street of narrow width; it even does not have a pedestrian way. The Vantage is situated close to this comparable around the corner of the street. It was more probable than not that three years ago the site now being occupied by The Vantage was just a construction site if it was not vacant. This is a location much inferior to that of the Property. As a fall-back, Mr Lee applied an adjustment for location as much as +80% but I prefer an adjustment of +50% for location de bene esse.

41.  Comparable 6 comprises a shop that has been subdivided into two units, one being occupied by a laundry and another by a water and electrical contractor “銘記冷氣水電”. Again, it is situated on a side street of narrow width but this Sung Kit Street is a popular “food street” with the presence of the famed Katiga Japanese Food Shop “加太賀” obliquely opposite this comparable at 37 Sung Kit Street. I do not agree with Mr Lee or Ms Cheng’s submission that the presence of “加太賀” did not bring extra benefit to neighbouring shops by generating pedestrian flow. In my opinion, outsiders of the neighbourhood would not have visited Sung Kit Street in the absence of any attraction like “加太賀”. As a result of the above, I would reasonably expect that pedestrians attracted to “加太賀” or the Kowloon City Government Offices (which was built around 10 years ago) to the further east would prefer to walk along this side of Bailey Street instead of the subject.[24] While again, Mr Lee applied an adjustment for location as much as +80%, I would only apply an adjustment of +50% for location de bene esse.

42.  Comparable 7 is situated on a quieter section of Ma Tau Wai Road though opposite Hung Hom Commercial Centre across the street. To its left is a real estate agency occupying the corner shop at the junction of Ma Tau Wai Road and Tsing Chau Street, a local road; to its right was a securities brokerage firm “信誠證劵”(which has now become the entrance to an elderly home upstairs) and then a finance company (which has now become a hair spa salon). I totally disagree that being situated on Ma Tau Wai Road, this comparable is situated in similar catchment area as the Property. I agree with Mr Lee’s original -20% adjustment for location. However, in view of its significantly small size (which is about 1/3^rd of that of the Property) when compared with the Property, I agree with Mr Lai that the marketability and nature of users would be different. I agree with him that it should be disregarded as a comparable.

43.  Comparable 8 is situated on another section of Ma Tau Wai Road which meets with Chatham Road North. It is occupied by a travel agency. Mr Lai did not regard this as a comparable, stating that “it was situated in an area with character very different from that around the Property. The comparable was situated on that section of Ma Tau Wai Road where there was a very large number of pedestrians coming from nearby areas.” In my opinion, this comparable is highly visible by the passing traffic or pedestrians on the opposite side of the street. An ATM of HSBC which is within stone throwing distance of this comparable should have demonstrated the higher patrons that might be expected along this section of the street.

44.  Ms Cheng’s suggestion that this comparable and the Property are both surrounded by buildings with ground floor shops and upper floor domestic units is neither here or there as all the comparables here have that characteristics. I agree with Mr Lai that again this comparable being situated on Ma Tau Wai Road has different trading potential with a more upscale trade mix. I am going to adopt -10% as opposed to +15% proposed by Mr Lee.

45.  Comparable 9 which was originally adopted by Mr Lee was discarded by him when preparing the Joint Statement. This comparable was not adopted by Mr Lai, stating once again that “it was situated in an area with character very different from that around the Property. This comparable was situated on that section of To Kwa Wan Road where there was a very large number of pedestrians coming from nearby areas.” However, in terms of location, I do not see any difference between Comparable 9 and Comparable 3. The only reason why Mr Lee discarded it as comparable was that it was dated. In my opinion, however, the result of analysis of this comparable tends to support that of Comparable 3. Therefore, I am content to apply a locational adjustment of -30%.

Frontage

46.  Although both Mr Lee and Mr Lai agreed that the adjustment for frontage was on the basis of 4% for every 1m difference, they had different view on the frontage for Comparable 4. Mr Lee did not take into account the return frontage of 8.84m to the side lane whereas Mr Lai took into account 1/5 of it, which was the practice adopted by him in Success Active, supra.[25]

47.  In Success Active, supra, the Tribunal had ruled that this return frontage was of marginal value only. I maintain the same view and would allow an additional value about 3% only which was now accepted by Mr Lee during cross-examination.

Headroom

48.  Both Mr Lee and Mr Lai agreed that the Property had a clear headroom of 4.09 metres. They also agreed that there was no cockloft inside the Property.

49.  In Chan Kai Yuen & Another v Director of Lands, LDLR 8/1999 (unreported, 1 September 2000) at §22, the Tribunal had the following observation:

“The Tribunal is of the view that even without the properly constructed cockloft, be it authorized or unauthorized, willing buyers in the market will derive additional benefit out of the headroom space, of 2.1m in this case, and hence are prepared to offer an extra bid for the subject premises when making comparison with other properties without such benefit of the unusual headroom. This extra bid will vary for different types of properties and uses.”

50.  However, in the present case, a high headroom of mere 4.09 metres was not high enough to accommodate a cockloft anyway and its value should be nominal. The latter is also true when the Property is not situated on a busy street occupied by branded names. The square–cube law alluded to by Mr Lee, ie when an object undergoes a proportional increase in size, its new surface area is proportional to the square of the multiplier and its new volume is proportional to the cube of the multiplier, does not have much effect on value of retail premises. I prefer to adopt Mr Lai’s adjustment of 2% per 1m.

Layout

51.  In his Rebuttal Report dated 16 February 2021, Mr Lee stated at §3.4 as follows:[26]

“A property’s shape or layout is an important attribute that has bearing in the case of shop properties on the efficiency and smooth operation of the business being carried out there and hence their value. The shapes and depths of Mr Lai’s comparables as well as the Property are varied so there is need to reconcile the difference between them. It is inappropriate for Mr Lai to omit making layout adjustment.”

52.  Mr Lai did not challenge Mr Lee’s opinion specifically in his Supplemental Report dated 21 December 2020 but stated that: “in the consideration of the factor of layout, the shape, frontage and depth of the property should be taken into account.”[27] In preparing the Joint Statement, he only made allowance for layout in respect of Comparables 1, 3 & 4 at 5%, 5% and -5% respectively.

53.  Although Mr Lee did not spell out specifically how he arrived at his adjustments for layout in his valuation reports, he, in preparing the Joint Statement, derived a formulaic adjustment rate of 1.5% per 1 metre difference in shop depth. I accept Mr Lee’s explanation that layout adjustment considers primarily the general configuration of a shop. If the shops under comparison are more or less similar, as he conceded in the present case, he would then compare their depths based on the common belief that the floor area at the rear part of a shop is less valuable than that at the shop front.

54.  Additionally, Mr Lee added a further adjustment of 3% for comparables 3 and 9 to reflect their awkwardly oblique shapes. Similarly, Mr Lee allowed an additional adjustment of 3% for comparable 2 to reflect the inconvenience of having the lavatory separately located.

55.  Having reviewed the shape, frontage and depth of the comparables vis-à-vis the Property, I am content to adopt Mr Lee’s revised adjustments for layout save that I prefer his original adjustment of -10% for Comparable 7.

Totaling Adjustment

56.  In Cheer Capital Limited v Unibase investment Limited & Another, LDCS 5000 & 6000/2013 (unreported, dated 12 June 2015) at §93, the Tribunal explained its preference in adopting the multiplication process in totalling adjustments:

“When percentage adjustments are applied, the result must be mathematically equal to dollar adjustment that is obtained separately from the market. However, adding and subtracting the percentage adjustments gives an answer that is different from that derived by the principle of adjusting using dollars; this adding the several percentage adjustments together and then applying the end result to adjust the comparables sales would be theoretically and mathematically incorrect because this does not result in moving from basis to basis though we appreciate that such summative percentage adjustments are most commonly used by the valuation profession in Hong Kong perhaps for the reason that this approach is simpler to apply and easy to be understood.”

57.  Mr Lai explained that the summation method is easiler to understand particularly by laymen. He further explained that the summation method avoids the sequential implication as explained in Hofei Estates Ltd v Secretary for City and New Territories Administration [1980-82] CPR 486 at §19. In that same paragraph, however, the Tribunal added: “usually it will not really matter which method is used, provided the adjustments are supported by analysis which adopts the same approach.”

58.  The reason why the Tribunal nowadays prefers the multiplication because, theoretically, every adjustment factor should be derived from a paired analysis with the other attributes which if not having the same effect, are for the time being held constant. Adjustments are then made from the comparable to the subject property one by one. To repeat the observation of the Tribunal in Penny’s Bay Investment Company Limited v Director of Lands, LDMR 1/2005 (unreported, dated 15 October 2014) at §208:

“The Tribunal considers it is more logical to use multiplication method. For an instance, there are two factors for adjustment, say, time and location. We need to adjust the time factor from the transaction date to the date of valuation. After the adjustment in time, we then make adjustment on locational difference. If the summation process is being adopted such a factor cannot be reflected in the end figure.”

59.  The multiplication approach accords with the analysis process.

60.  Thus, following my analysis above, I find the average of the adjusted unit price is about $317,000 per sq m as follows:

Comp No	Unit Rate (/m2)	Adjustments							Adjusted Unit Rate (/m2)
		Time	Location	Size	Frontage	Headroom	Layout	Total
1	$329,198	1.2%	-30.0%	10.0%	3.7%	0.8%	15.8%	-5.7%	$310,434
2	$283,804	1.2%	-20.0%	9.6%	-3.3%	1.2%	10.9%	-3.7%	$273,303
3	$452,569	-9.5%	-30.0%	9.7%	2.5%	1.5%	20.0%	-13.2%	$392,830
4	$233,017	-13.6%	30.0%	3.9%	-7.3%	-2.2%	1.7%	7.6%	$250,726
5	$222,332	-13.6%	50.0%	1.4%	3.6%	2.3%	5.0%	46.2%	$325,049
6	$216,912	-13.0%	50.0%	7.4%	-9.3%	1.2%	4.0%	33.8%	$290,228
7	$958,824	-13.6%	-20.0%	-6.2%	6.0%	-1.5%	-10.0%	-39.1%	$583,924
8	$431,227	-13.0%	-10.0%	8.1%	1.2%	0.8%	7.6%	-7.1%	$400,610
9	$354,473	-12.9%	-30.0%	10.7%	2.8%	1.2%	20.0%	-15.7%	$298,821
						Average (excluding Com 7):			$317,750
						Median (excluding Com 7):			$304,628

61.  In spite of the above, as a matter of valuation practice, comparables needing large adjustment should be avoided, especially when such an adjustment is based essentially on intuition, impression or more euphemistically called professional judgment. I agree with Mr Lee that adjustments for location as much as 30% or above, ie Comparables 4, 5 & 6 are suspect. On review, I agree with Mr Lee that they are not suitable as comparables because of their much inferior locations.

62.  Having said that, I note I have applied also as much as -30% as adjustment for Comparables 1, 3 & 9. Comparables 1 and 3 are however the only common comparables available and adopted by the two valuation experts. They were also the comparables that took place closest to the Valuation Date and occurred after the social unrest in Hong Kong which broke out in the end of June 2019. I am obliged to take them into account.

63.  Thus, relying only on Comparables 1, 2, 3, 8 & 9, I have arrived at an average of $335,200 per sq m instead with a median of $310,434 per sq m. Having reviewed the above, I assess the market value of the Property by Direct Comparison Method as follows:

34.90 sq m x $335,000 /sq m = $11,691,500

Say $11,700,000

Offers of Compensation by URA/Government

64.  At trial, Ms Cheng did refer to the applicant’s acquisition of the Property in the end of 2011 in the sum of $14,000,000 and the offer for compensation by URA on the basis of valuation prepared by Cushman & Wakefield Limited at $17,516,000 as at 30 April 2019. She submitted that by reference to the Private Retail Price Index of RVD below, the assessment of the market value of the Property could not be as low:

Purchase Price/ Offer for Compensation	$14,000,000	$17,516,000
RVD Index as at relevant date	479.6	575.7
RVD Index as at Resumption Date	511.3 (+6.6%)	511.3 (-11%)
Extrapolation	$14,925,354	$15,556,593

Indexing

65.  In Cheer Capital, supra, the Tribunal had this to say at §112:

“the preparation of an index is more or less an averaging exercise and there is no guarantee that the price trend for the subject location or property necessarily follows the index. This is particularly the case for shop premises where a slight variation in location would lead to significant difference in value. Therefore, the larger the extent of the adjustment, the higher probability of error would ensue.”

66.  In Tsang Chung Ki & Another v Director of Engineering Development, LDMT 2/1984 (unreported, dated 24 October 1984), the applicants’ valuer attempted to check his primary valuation based on the his comparables, by indexing a much earlier actual sale in 1979 of a flat within the subject property's building. The Tribunal remarked at §29 that the long time adjustment to relate that sale to the relevant date of 19 April 1982 must create substantial risk of inaccuracy:

“… because of the long period of time involved even the most detailed and specific index would be suspect. Further, this particular index covers all Category C domestic accommodation through the whole of Hong Kong. There could be a variety of local factors relevant to this area of North Point which would invalidate any conclusion reached on the basis of the much wider index. I am therefore unable to give any positive weight to this evidence.”

67.  Similarly, in Lingrade Development Limited v Secretary for the Environment, Transport and Works, LDRW 2/2005 (unreported, dated 3 September 2008), an expert made use of the “Index for Sale Price of Selected Popular Developments in the New Territories” published by the RVD to calculate reverse indexes to apply to the actual sale prices of flats in the “Revised Scheme”, bringing the price level back 14 months to arrive at the estimated price level of sales for the “Original Scheme” to account for the 14-month delay caused by the temporary occupation of land ordered by the Government. The Tribunal remarked at §49 as follows:

“… this method can only provide rough valuations and should only be used when there are no sales evidence of suitable comparable properties. Generally, whenever there are suitable and reliable comparables the Comparable Method is preferred. However, valuation by using an index can sometimes be used for making value adjustments for a time span which is not too long, the greater the time span the less reliable would be the valuation … Obviously, a more detailed valuation based on suitable comparables as opposed to the Applicant’s expert’s broad-brush approach is preferred.”

68.  Then in Aldridge v London Southend Airport Company Limited [2021] UKUT 008 (LC), an expert’s sole reliance on indexation, over periods up to 13 years, was criticised. The English Upper Tribunal (Lands Chamber) remarked at §124 that, without further commentary, even the fact that a property’s value maintains parity with a local index does not necessarily establish there has been no loss of value since this may mask “an improvement over time in the popularity of that location”. If the use of indexing was inevitable, the English Upper Tribunal (Lands Chamber) preferred a period no longer than 30 months[28].

69.  More recently, in Bennett v Birmingham Airport Limited [2022] UKUT 00228 (LC), the claimant’s expert applied an index between November 2001 and the valuation date of February 2015, a lapse of 14 years to arrive at his estimate. The English Upper Tribunal (Lands Chamber) was sceptical that applying indexation over such a long period was likely to result in an accurate figure[29].

70.  In the present case, Mr Lee gave evidence that there used to be a company at Bailey Garden that served escorted tours from Mainland China. That might have created spill-over benefits to the neighbouring shops. Mr Wong however rebutted that according to the statistics published by the Hong Kong Tourist Board, tourists arriving to Hong Kong had dropped from more than 6.7 million in January 2019 to just 3.19 million in the end of 2019, a percentage of more than 50%. By a press release dated 15 January 2020, the provisional total visitor arrivals in 2019 were as follows:[30]

Markets (‘000)	Dec (YoY %)	Jan-Jun (YoY %)	Jul-Dec (YoY %)	Jan-Dec (YoY %)
Mainland	2,390 (-53.2%)	27,570 (+16.4%)	16,190 (-40.8%	43,700 (-14.2%)

71.  Therefore, if Mr Lee’s evidence has anything to go by, there should be a significant drop in value for shops in the vicinity much more than 11%.

72.  Indeed, the applicant relied heavily on the valuation by Cushman & Wakefield Limited at $17,516,000 as at 30 April 2019, ie before the social unrest outbroke. However, I have no evidence on how Cushman & Wakefield Limited arrived at a valuation of $17,516,000 as at 30 April 2019.[31] I cannot assume that the offers of or the valuation commissioned by the URA must be representative of the market value as required under section 12(d) of the Ordinance. As evidenced by the valuations of Mr Lee and Mr Lai, both being qualified experts in property valuation, they had come to disparate views on the value of the Property.

73.  In Director of Lands and Survey v Chan Tai Land Investment Ltd [1978] HKLTLR, the Tribunal was reluctant to use resumption settlements as comparables. Generally, they provide inferior evidence to open market transactions between private parties.

Willing Seller

74.  Ms Cheng particularly emphasized the phrase “willing seller” in section 12(d) of the LRO to suggest that the legislative intent was to award the best price expectation to any applicant when it comes to the determination of the amount of compensation. Ms Cheng even suggested that the effect of “willing seller” but without any reference to “willing buyer” is to put more weight on those higher-priced comparables from a range of comparables of varying prices.

75.  With respect, I cannot find such an implication. The definition of “willing seller” as contained in statutory definitions has been considered in many decisions of the court. All the “willing seller” says is that the circumstances of the actual owner are not to be taken into account because the “willing seller” is a hypothetical owner. In Trocette Property Co Ltd v Greater London Council (1974) 28 P&CR 408, it was held that “the “willing seller” is a hypothetical character. There is no justification for attaching to him, so as to increase or decrease the assessment of compensation, any special characteristics. He is to be assumed to be willing to sell at the best price which he can reasonably get in the open market" (p 415-6).

76.  In Railtrack Plc (In Railway Administration) v Guinness Ltd [2003] EWCA Civ 188, [2003] 1 EGLR 124 , the appellant, like Ms Cheng, tried to point out that the words “willing buyer” was missing from the statutory definition for compulsory acquisition of land. Lord Justice Carnwath of the English Court of Appeal (as he then was) stated at §§32-33 as follows:

“32. In my view, the submission reads too much into the wording of rule (2). The rule requires the assumption of an "open market" sale. As Peter Gibson pointed out in Walton[32], the concept of an open market "automatically implies a willing seller and a willing buyer". The reason for the specific mention of the " willing seller” is apparent from Horn v Sunderland [1941] QB 26, where Scott LJ (as he had then become) explained the background to the 1919 Act:

"The main object of the Act of 1919 was undoubtedly to mitigate the evil of excessive compensation which had grown up out of the theory, evolved by the courts, that because the sale was compulsory the seller must be treated by the assessing tribunal sympathetically as an unwilling seller selling to a willing buyer…" (emphasis added)

Similarly, later in the same passage, he referred to rule (2) as designed to "check exaggerated prices", by reversing "the old sympathetic hypothesis of the unwilling seller and the willing buyer which underlay judicial interpretation of the Act of 1845."

Thus, the mention of the " willing seller” was to emphasise the departure from the previous law; the "willing buyer" was already implied. There was no hint in this judgment that Scott LJ himself thought that his recommendation had not been adopted in full.

33. I accept of course that the assumption of "willingness" has different implications for buyer and seller. This was succinctly explained by Lord Romer in the Privy Council (The "Indian" case [1939] AC 302, 312), where he said:

"The compensation must be determined by reference to the price which a willing vendor might reasonably expect to obtain from a willing purchaser. The disinclination of the vendor to part with his land and the urgent necessity of the purchaser to buy must alike be disregarded."

Thus in the present case the Tribunal must disregard any "urgent necessity" for Guinness to buy the land, and any "disinclination" by Railtrack to part with it. Both are assumed to be to be willing to deal at "the best price reasonably obtainable". (underline added)

77.  Similarly, in Yin Shuen Enterprises Ltd v Director of Lands [2002] 1 HKC 304, the Hong Kong Court of Appeal held that “section 12(d) lays down the primary basis for assessment as being the amount which a willing seller and a willing buyer could be expected to agree.”[33]

78.  Indeed, the Tribunal in Siu Sau Kuen v Director of Lands, supra, had refused to accept the concept of “value to the owner”. With respect to Ms Cheng, it is wrong for her to say that the Tribunal in Siu Sau Kuen, supra, did not turn to Yin Shuen for support of the contention. Nam Chun Investment Co Ltd v Director of Lands, CACV335 of 2003 to which the Tribunal referred at §44 was in fact §21 of Yin Shuen which was heard together with Nam Chun in the Court of Appeal; it was unfortunate that the Tribunal in Siu Sau Kuen, supra, cited the wrong case reference of CACV 335 of 2003 which should be CACV 1636/2001 instead[34]. I am surprised that Ms Cheng still tried to imply a treatment or assumption in favour of the applicant in the assessment of the open market value under section 12(d) of the Ordinance.

Reconciliation

79.  The necessity of making adjustments in most cases introduces a subjective factor into the valuation process. In the present case, perhaps one may argue that the apparent low valuation is derived from the substantial negative location adjustments applied to Comparables 1, 2, 3 and 9. However, Mr Lee disclosed in his Rebuttal Report dated 16 February 2021 at §2.3 that in Halesweet Limited v Director of Lands, LDLR 8/2015 which was settled before trial, “Mr Lai as valuation expert had made a location adjustment of downward 25% to the Property, then as a comparable, for the valuation as at December 2012 of the shop situated at 45J Ma Tau Wai Road.”[35]

80.  As a matter of fact, Block J of 45 Ma Tau Wai Road, a rundown five-storey residential building, collapsed on 29 January 2010, resulting in the deaths of four people. The URA later announced the redevelopment of the other blocks in the row save and except Bowie Mansion at 47-49 Ma Tau Wai Road next to 45J Ma Tau Wai Road. The ground floor of Bowie Mansion houses a branch of the Bank of China (Hong Kong) and the cockloft or mezzanine floor was used to be occupied by a fast food chain restaurant. Further away to the north was supposed to be the building which was demolished later to become The Vantage.

81.  According to the evidence of Mr Lee, which was put to Mr Lai by Ms Cheng during cross-examination of the latter, Mr Lai was then the expert appointed by the respondent and Mr Lee was also the expert acting on behalf of the applicant in determining the value of 45J Ma Tau Wai Road which included the assessment of the value of ground floor units on the basis of a hypothetical development model.

82.  While Ms Cheng emphasized that Mr Lai had adopted the transaction of the Property in the end of 2012 in the sum of $14,000,000 as a comparable and made a location adjustment of +25% (instead of +50% now proposed by Mr Lai in the present case) to the Property for the valuation as at December 2012 of the hypothetical shop situated at 45J Ma Tau Wai Road, it appears that Mr Lee had no objection to Mr Lai’s adjustment of +25% as at December 2012. Obviously the higher the adjustment, the higher value would accrue to the value of the hypothetical shop situated at 45J Ma Tau Wai Road to the benefit of Mr Lee’s client in LDLR 8/2015.

83.  I was given no information on how the settlement ended up but by common sense, the settlement figure would be at least equal to Mr Lai’s valuation or higher.

84.  This might explain why Mr Lee had initially adopted a location adjustment up to -20% for Comparable 7 at 88 Ma Tau Wai Road. Interestingly, as pointed out by me at trial, this -20% would balance out the +25% location adjustment applied by Mr Lai in LDLR 8/2015[36].

85.  In terms of location, 45J Ma Tau Wai Road appeared to be inferior to any of Comparable 1, Comparable 3 or Comparable 9. Remember the building standing thereon collapsed on 29 January 2010 and is now replaced by a new residential cum commercial development called Eresidence Towers 1 & 2 but behind which is a range of industrial buildings. Upon our joint inspection on 28 November 2022, I did not find its retail position is as good as any of Comparables 1, 3 or 9. Mr Lee’s allegation that 45J Ma Tau Wai Road was situated at a busier location is without support. Indeed, Mr Lee’s agreement or having no objection to Mr Lai’s application of +25% to the Property to the hypothetical shop at 45J Ma Tau Wai Road contradicted or defeated his now stated opinion that the location of the Property was as good as Comparables 1, 3 or 9 which are situated in the busiest sections of Ma Tau Wai Road or To Kwa Wan Road. I cannot find any reason to explain the significant change in location factor since December 2012 to December 2019.

86.  Having reviewed the above, I am prepared to round up my assessment of the market value of the Property as at 6 December 2019 to $12,000,000.

Orders

87.  Accordingly, I order that the respondent do pay the applicant compensation for the interest of Property in the sum of $12,000,000.

88.  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.

89.  Last but not least, the Tribunal thanks all Counsel for their helpful assistance.