SWIFT CHINA LTD v. HUI HON CHU

LDCS 6000/2017

[2018] HKLdT 60

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LAND COMPULSORY SALE MAIN APPLICATION NO 6000 OF 2017

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D E C I S I O N

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Background

1.  By the summons dated 4 April 2018 (“the Summons”), the applicant applies to strike out the specified paragraphs of the Notice of Opposition (“NOO”) filed by the respondent on 8 January 2018 as well as the specified answers given by the respondent in answer to the Request for Further and Better Particulars (“the Answer”) of the NOO.

2.  The specified paragraphs of the NOO are:

“4. Redevelopment justified and Valuation on existing use basis

(a) The Respondent disputes the Valuation Report which was assessed on basis of the site area of the Building only. The Respondent avers that the Applicant its subsidiaries and/or associates companies are the registered owners and/or beneficial owners of the properties known as 97-103A Connaught Road West and 99-101 Des Voeux Road West (“the adjacent Properties”) which were adjacent to the Building. The Applicant’s chairman Mr. Leung Siu Hung has openly and confirmed on the media on numerous occasions that the Applicant intends to develop the Building together with their adjacent Properties as a whole. Therefore, the merger or marriage value of the Premises should be taken into account for the valuation.

(b) Furthermore, the Applicant had made an application for the compulsory sale of the properties at Nos. 101-102 Connaught Road West on the 20^th April 2015 in LDCS 18000/2014 and obtained in order for sale by public auction for the purposes of redevelopment on the 8^th May 2015. This property is now an open site for temporary car park and pending redevelopment jointly with the present site on which the Premises now stands.

(c) The Applicant should have made a reasonable offer to the Respondent at the price valued on the merged site basis.

…

(e) It is the event that compulsory order for sale is granted by the Tribunal, the Respondent avers that “the lots of the adjacent Properties beneficially owned by the Applicant are to be sold together with the Building as a whole in one public auction.” (B/60-61)

3.  As for the Answer, the specified paragraphs are as follows:

“Answer to Request 2

The Respondent is entitled to receive a fair and reasonable compensation for the deprivation of her property right. Compensation should be based on a valuation on the merged site development and the Tribunal should set a reserve price for the adjourning lots reflecting the RDV of all lots jointly developed as on a merged site basis.

Answer to Request 4

The Respondent is entitled to receive a fair and reasonable compensation for the deprivation of her property right. Compensation should be based on a valuation on the merged site development and the Tribunal should set a reserve price for the adjourning lots reflecting the RDV of all lots jointly developed as on a merged site basis.” (B/69)

4.  In short, it is the contention of the applicant that all these specified paragraphs in the NOO and the Answer raised the defence to the effect that the reserved price and the offers should be assessed on the basis of a joint development of the subject lot in this application together with some adjacent lots (“Merged Site Defence”) and such a defence should be struck out on the grounds that:

a.   they disclose no reasonable cause of defence; and/or

b.   they are scandalous or frivolous or vexatious; and/or

c.   they may prejudice, embarrass or delay the fair trial of the action.

Legal Principle

5.  Parties had no quarrel on the legal principle on striking out and both quoted Para 18/19/4 of the Hong Kong Civil Procedure 2018 in support:

“It is only in plain and obvious cases that the court should exercise its summary powers to strike out…any pleading under this rule… The claim must be obviously unsustainable, the pleadings unarguably bad and it must be impossible, not just improbable, for the claim to succeed before the court will strike it out.

…

Plain is not the same as simple and obvious is not the same as short…if on a careful reading of the Statement of Claim however complicated, it can be seen that there is no cause of action, a court can, and probably will, order it to be struck out.

…

The court is loath to strike out a case that involves an area of the law which is in the process of developing --- summary dismissal would deprive the court of hearing full argument on the subject…”.

Applicant’s Argument

6.  Mr Mok for the applicant submitted that the Merged Site Defence involved a valuation of the reserve price for, not only the subject lot, but all adjoining lots which are owned by the majority owner but not the subject of the compulsory sale application.  Such an approach has been clearly rejected by, and are clearly inconsistent with the following authorities in which it is the findings of different Tribunal that the reserve price of a lot should be assessed “on its own” and not on a joint development basis and the Tribunal has no jurisdiction or power to compel the majority owner to combine lots which it owns or to order the adjoining lots to be sold together with the subject lot:

•   First Mate Development Ltd v Gee Wing Chung & others [2018] 1 HKLRD 668

•   Super Fortune Investment Ltd v Key-note Enterprises Ltd [2014] 2 HKC 7

•   Fortress Jet & others v Tang Hoi Ying and Cheung Sau Chan Property Limited & others, unreported, LDCS 3000/2015, 15 March 2017

•   Day Bright Development Ltd & others v Choi Pak Ling & others [2014] 4 HKC 364

•   First Kind Ltd & others v Liu Keng Chor & others
[2016] 4 HKC 90

So the Merged Site Defence is bound to fail and discloses no reasonable cause of defence.

7.  To allow the specified paragraphs in the NOO and the Answer to remain, expert valuation evidence on the assessment of the reserve price and each of the offers made by the applicant should be formulated on the joint development basis.  This will unnecessarily prolong and complicate the proceedings and the trial.  The specified paragraphs in the NOO and the Answer are scandalous, frivolous or vexatious and/or may prejudice, embarrass and delay the fair trial of the action and should be struck out.

Respondent’s Reply

8.  Mr Cheng for the respondent submitted that it is certainly not plain and obvious that the issue of Merged Site Defence, be it on the basis of Clay Factor or joint development, is unarguable or bound to fail.  The fact that there are conflicting decisions in the Lands Tribunal speaks for itself. And such a defence has never been argued before the Court of Appeal as well and the law relating to this particular area remains unsettled.  Since this area of law is still in the process of developing and leave to appeal had been granted in both First Mate and First Kind which involved similar argument, a summary dismissal is not justified.

9.  The respondent is relying on the following authorities in support:

•   Capital Well Ltd v Bond Star Development Ltd
(2005) 8 HKCFAR 578

•   Fairtex Development Ltd v Tso Pee Hong & others
[2012] 6 HKC 167

•   Day Bright (supra)

•   Supergoal Investment Limited v Five F Ming House Limited & Others, unreported, LDCS 46000/2011, 26 November 2013

•   Many Gain Investment Limited v Chan Fai Ho & Others, unreported, LDCS 28000/2012, 29 November 2013

Discussion

10.  There is a suggestion by Mr Cheng that the Merged Site Defence raised in the NOO and in the Answer involved a defence of marriage value and the applicant should be aware that when dealing with marriage value, argument on clay factor will certainly come into play even though it is not specifically pleaded.  I do not agree.  Whilst marriage value involves a merged site valuation of the subject lot and adjoining lots, clay factor is just a valuation exercise to factor in the enhancement value of the subject lot itself.  I agree with Mr Mok that the defence of clay factor had not been pleaded in the NOO and in this ruling, the Merged Site Defence is referring to the marriage value of the subject lot and the adjoining lots.

11.  Having considered the submissions and the authorities relied upon by the parties, I agree with the applicant that the issue on Merged Site Defence is “obviously unsustainable … unarguably bad and it must be impossible, not just improbable … to succeed”.

12.  I shall adopt my own findings in First Mate, in which the Tribunal dismissed an application by one of the respondents for an extension of time to file and serve a supplemental report on marriage value of the subject lot and adjoining lots in the determination of the reserve price for the auction since there is evidence that the lots would be redeveloped as one merged site.  It is the findings of the Tribunal, after indicating its agreement with the analysis in First Kind, that the wordings of para. 2 Sch. 2, ss.4(1)(b)(i) and 5(1) of the Land (Compulsory Sale for Redevelopment) Ordinance (Cap. 545) (“the Ordinance”) are plain and left no room for arguing that in attached rows of lots, the redevelopment of other lots not the subject of the application should also be considered.  The suggestion regarding marriage value was inconsistent with the requirement under para. 2 Sch. 2 which requires the Tribunal to take into account the open market value of only the lot the subject of the application “on its own”.

13.  The wordings in para. 2 Sch. 2 of the Ordinance had specifically confined the order for sale to the subject of the application and the Court of Final Appeal in Capital Well Ltd also said that “the power coercively to order sale is confined to ordering the sale of a lot or lots in which a majority owner and a minority owner each hold a proprietary interest” (§41).  To consider a merged site value of the subject of the application together with adjoining lots which are not included in the subject of the application is against the requirement under para. 2 Sch. 2 of the Ordinance and obviously unsustainable and impossible to succeed. 

14.  Such a conclusion is also consistent with the intention of the legislation to amend the Bill by adding the “on its own” formula into para. 2 Sch. 2 as reflected in the records of the Provisional Legislative Council, a full summary of the same is being quoted in Day Bright (§§53-55).  The reason for such an amendment can be seen from the minutes of the Bills Committee meeting held on 28 February 1998 that “it would be difficult to assess the reserve price if other factors such as the potential of adjacent sites acquired by the majority owners were taken into account…The Administration agreed to introduce CSAs [Committee Stage Amendment] to Schedule 2 to specify that the reserve price should take into account the redevelopment potential of the lot ‘on its own’ (or, where two or more lots were the subject of the auction, on their own)”.

15.  The Court of Final Appeal had also expressed concern that if the Ordinance is to be construed as not allowing an application to be made in respect of a number of lots where the applicant already was the full owner of one or more of those lots, “there is a danger that if the power is so confined the policy objectives of the Ordinance may be undermined” (§39).  So the Court of Final Appeal had left open the question, “in cases where a majority owner qualifies for the making of such a compulsory order and wishes to have that lot put up for auction together with adjacent redevelopment lots wholly owned by him, the question arises as to whether, on its true construction, the Ordinance precludes the Tribunal from making an order for sale in respect of the composite site” (emphasis added) (§41) or “whether the Tribunal has a discretion to give suitable directions … concerning conduct of the sale designed to secure that the sale of the single lot, the subject of its order, can take place together with the sale of the other redevelopment lots” (§42).

16.  The authorities relied upon by the respondent in support are all cases where the majority owner "wishes to have the subject lot put up for auction together with adjacent redevelopment lots wholly owned by him” and with the subject lot and the adjoining lots all before the Tribunal.  And I agree with the findings in Day Bright that there is nothing in the Ordinance which “empowers the tribunal to compel combination of lots not already before the Tribunal to form the subject matter of the application” (§50).

17.  In Supergoal, the majority owner asked for an order under the Ordinance for the sale of 2 groups of buildings, each group connected by common lift and common staircases but no common staircase between the 2 groups.  The Tribunal is being asked to make 2 orders for sale, 1 for each group and with directions that the 2 groups of buildings be sold in one public auction.  The Tribunal found the ruling of the Court of Appeal in Bond Star is not binding in view of the concern raised by the Court of Final Appeal in Capital Well and “an applicant contemplating composite site redevelopment may either: (i) ask for an order for sale covering the adjourning lots that he already owns; or (ii) confine the order for sale to the lots with minority interests and then ask for directions for those lots to be sold together with adjourning lots that he already owns in one public auction” (§65).

18.  Fairtex concerned a similar situation involving 4 adjoining lots on which 2 pairs of composite buildings were erected.  The buildings in each pair were served by common staircases but the 2 pairs were otherwise not connected.  The Tribunal found that “in the case when a majority owner concedes that redevelopment plan include some other lots it owns, and these lots are the subject lots of another application before this Tribunal, there is strong reason for the Tribunal to consider redevelopment potential of the merged lots before setting the reserve price, in compliance with the said provision of Schedule 2 of the Ordinance” (§39).

19.  In Many Gain, the majority owner asked the Tribunal to take into consideration the redevelopment potential of the subject lot together with the adjoining lots, which are not before the Tribunal, in setting the reserve price.  The Tribunal allowed an adjournment of the trial so that “the applicant will need to bring all the lots before the same tribunal to enable the tribunal to give directions for them to be sold together in one public auction and to set a reserve price that would reflect their full redevelopment potential” (§48).

20.  It is clear from the judgments quoted above that the redevelopment potential of the subject lot together with the adjoining lots can only be considered if, and only if, such adjoining lots are also subject of an application before the Tribunal.  This factual requirement is distinguishable from the present case which involved a single lot in the application and where the applicant had no intention in bringing the adjoining lots into the picture.  I failed to see how the judgments quoted by the respondent can assist its case.

21.  And on such close analysis, the contention by the respondent that the Merged Site Defence raised before different Tribunals resulting in two lines of decision, from those cases ruling against it (quoted by the applicant) to those cases in favour of a joint site valuation (relied upon by the respondent) and such a fact tends to show that the issue is arguable, sustainable and probable to succeed must fail since the requirement that all the lots, ie the subject lot as well as the adjoining lots must be subject of the application before the Tribunal is a common thread in both lines of cases.  To say that there are conflicting decisions in the Tribunal is apparently misconceived.  In any event, all these decisions are first instance cases which are not binding on differently constituted panels of the Lands Tribunal.

22.  As for the argument that this area of law is in the process of developing and summary dismissal is not justified, this must be considered in the context of the merits of the argument.  The fact that leave to appeal was granted by the Tribunal in First Kind is not relevant in view of the different factual background in that all the lots are before the Tribunal.  And even though the Court of Appeal had granted leave to appeal in First Mate, I have not had the benefit of reading the reasons for such a decision but as rightly pointed out by Mr Mok, the grounds of appeal should be confined solely to clay factor (which is the position of the respondent in the leave to appeal application before the Tribunal) and not Merged Site Defence, hence irrelevant to the point before me. 

23.  Judging from the findings above, the Merged Site Defence is not sustainable or probable to succeed.  Under such circumstances, summary dismissal is well justified to avoid extra time and costs being incurred, lengthening the trial and resulting in unnecessary delay.

Conclusion

24.  Having considered the above, the specified paragraphs of the NOO and the specified answers in the Answer should be struck out on the ground that the Merged Site Defence raised in these specified paragraphs are obviously unsustainable, unarguably bad and impossible to succeed.

25.  I shall make an order in terms of paragraph 1 of the Summons.  Costs of the Summons be to the applicant, with certificate for counsel, to be taxed if not agreed at High Court scale to be paid forthwith. This is a costs order nisi to be made absolute upon expiry of 14 days unless any of the parties applies by summons to vary it.