WELLCITY DEVELOPMENT LTD AND OTHERS v. MAK CHUN FU AND OTHERS

LDCS 22000/2014

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LAND COMPULSORY SALE MAIN APPLICATION

NO 22000 OF 2014

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J U D G M E N T

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Background

1.  This is an application for compulsory sale of all the undivided shares of and in the Remaining Portion of Sub-section 3 of Section M of Kowloon Marine Lot No 28 (“the Lot”), together with the building erected thereon known as Hoi Hing Building, Nos 2-16, 2A-16A Kok Cheung Street, Nos 35-47 Li Tak Street and Nos 32-44 Fuk Chak Street, Kowloon (“the Building”) for the purposes of redevelopment under the Land (Compulsory Sale for Redevelopment) Ordinance, Cap 545 (“the Ordinance”).

2.  The 9-storey Building is served by 7 common staircases.  An occupation permit No K290/64 dated 22 June 1964 was issued for the Building granting permission for 20 shops on ground floor, and an aggregate of 238 domestic units comprising 30 domestic units for each of the 1^st floor to 7^th floor and 28 domestic units for the 8^th floor.  After the issue of the occupation permit, 4 of the 238 domestic units had been sub-divided into 2 or 3 sub-units[1]. At the time of the application to the Tribunal[2], the Building was 50 years old. It is now over 52 years of age.

3.  The Lot together with the Building was allocated 278 undivided shares. Each of the 20 shop units on the ground floor was given either 1 or 2 undivided share(s), making up a sub-total of 32 undivided shares.  Each of the 238 domestic units on the upper floors was assigned 1 undivided share, making up a sub-total of 238 undivided shares.  The then developer of the Building had disposed of all these 270 undivided shares together with the domestic units and shops of the Building. However, 8 undivided shares had been reserved and had remained undisposed of until its dissolution.  After the commencement of the proceedings herein and on 4 September 2015, the 1^st applicant acquired from the Government these 8 undivided shares which were vested in it as bona vacantia.

4.  The applicants filed the Notice of Application (“the NOA”) on 28 November 2014. It was subsequently amended on 3 November 2015 pursuant to the Tribunal’s order made on the day before.  At the time of filing of the NOA, the applicants owned 253⅔ out of the total of 278 undivided shares (i.e. 91.24%), i.e. more than the threshold of 80% undivided shares of the Lot required for building aged 50 years or older[3].

Respondents Remaining

5.  At the time of Application, there were 15 respondents. The applicants have subsequently discontinued the proceedings against the 1^st, 3^rd, 4^th, 6^th, 8^th, 9^th, 10^th, 11^th, 12^th, 13^th, 14^th and 15^th respondents following the acquisition of their respective units and undivided shares in the Building. An amended NOA was filed to reflect the situation. At the time of filing of the amended NOA, the applicants owned 275 out of the total 278 undivided shares (i.e. 98.92%) of the Lot. At the time of trial, there are only 3 respondents whose domestic units have not yet been acquired by the applicants.

6.  The following are the 3 remaining respondents whose respective units have not yet been acquired: -

	Respondent	Respondent’s Name	Premises
	R2	HO YUNG MAN	Flat A2 on 2nd Floor
	R5	The Personal Representatives of the estate of LEUNG MEI LIN	Flat C5 on 3rd Floor
	R7	LAM PANG FI alias LAM PANG (78.5%) (“R7(1)”) and the Personal Representatives of the estate of LAM MAN SANG otherwise spelt as LAM WUN SUN alias LAM YUK NG, deceased (21.5%)  (“R7(2)”)	Flat D5 on 3rd Floor

7.  Both R5 and R7(2) are missing owners. 

8.  The ownership of R7’s unit requires elaboration. According to the recital of the first assignment of the R7’s unit, originally, one Mr Lam Man Sang (“Lam MS, deceased”) purchased R7’s unit from the developer. A sale and purchase agreement was signed in 1962. However, Lam MS, deceased passed away in 1964 without fully paid up the purchase price[4]. He, however, left a will and one Madam Lam Woo Shui (“Widow, deceased”) and one Mr Lam Chak Chun (“Lam CC, deceased”) were appointed executors and trustees of his will.

9.  The R7’s unit was subsequently assigned by the developer upon full payment to the Widow, deceased (17,900/27,900) and the said 2 trustees and executors as a group (10,000/27,900) as tenant in common[5]. The Widow, deceased passed away on 26 October 1981. Probate of her will was granted to Lam CC, deceased. Pursuant to her will, all her properties were bequeathed to her son Lam Pang Fi, i.e. R7(1). An assent of the Widow’s interest in R7’s unit (i.e. 17,900/27,900) in favour of R7(1) was executed by Lam CC, deceased on 4 July 1984. The said Lam CC, deceased also assigned to R7(1) 2/5 of 10,000/27,900 (i.e. 4,000/27,900) of R7’s unit which he derived from the estate of Lam MS, deceased[6]. R7(1) therefore became the registered owner of 21,900/27,900 (i.e. 78.495%) of the entire interest of and in R7’s unit.

10.  Lam CC, deceased passed away on 19 December 1996[7]. The remaining 6,000/27,900 (21.505%) interest in R7’s unit which he held as executor and trustee for the estate of Lam MS, deceased had not yet been administered. R7(1) has instructed Zebra Kwan & Partners to apply for a fresh grant in respect of estate of Lam MS, deceased in his favour[8]. So far no probate has ever been granted. The undisposed undivided share in respect of R7’s unit remains the unadministered estate of Lam MS, deceased. The applicants therefore amended the title of R7 by substituting the estate of Lam CC, deceased with R7(2).

11.  Pursuant to the Tribunal’s Order made on 25 November 2015, substituted service of the amended application on R5 and R7(2) was effected by publication of the requisite notices on newspapers on 14 December 2015.  No one purporting to represent R5 and R7(2) had ever shown up within the 21-day period specified in the notices.  Neither was there any application made to appoint someone represent R7(2). By the same Order, service of the subsequent documents in these proceedings on R5 and R7(2) has been dispensed with.

12.  Only R2 and R7(1) entered appearance in the Application.

Issues for Determination by the Tribunal

13.  Despite orders granting leave to R7(1) to file Notice of Opposition and evidence out of time, he filed no Notice of Opposition to oppose the Application. He, however, attended some of the call-overs and the trial. He was allowed to make oral submission at trial. He also lodged a written closing submission.

14.  After hearing R7(1) and reading his submission, it is fair to say that he does not oppose an order for sale to be made under the Ordinance for redevelopment of the Lot and the Building. He only disagrees with the applicants’ offers made to him. So far as can be discerned from his oral submission and written submission dated 31 October 2016, he is willing to accept a sum of $7,043,439 for sale of his interest to the applicants, which he said should be based on gross floor area instead of saleable area. It appears that he would like to be paid for the entire unit. The applicants consider it too high for his 78.5% interest in R7’s unit.

15.  R2 is the only respondent who has filed a Notice of Opposition[9] and evidence in support[10]. He also appointed a surveyor Ms Sat Wei Ling (“Ms Sat”) of Memfus Wong Surveyors Limited to prepare expert opinion on valuation. At trial, he also testified in the witness box. It is his unchallenged evidence that since the start of the applicants’ purchase of units in the Building in or about 2012 for redevelopment purpose, he and his family had moved out of the R2’s unit, which has since been left vacant.

16.  R2’s appointed expert Ms Sat assessed the redevelopment value (“RDV”) of the Lot at $1,689 million[11] which was accepted by the applicants for the purpose of the proceedings (“agreed RDV”) at trial. Ms Sat did not do any valuation of each unit of the Building taking into no account of redevelopment as required under Schedule 1 Part 1 of the Ordinance (normally referred to as the existing use value “EUV”). However, she agreed to accept 0.31% as R2’s share in the RDV, based on the EUV initially prepared by the applicants’ expert Ms Dorothy Chow (“Ms Chow”) of Jones Lang LaSalle Limited. The said percentage was revised to 0.307% when Ms Chow updated her EUV assessment. At trial, R2 did not challenge the agreed RDV[12] and the adoption of the updated EUV ratio of 0.307% as his share arrived at by the valuation experts for the purpose of the Ordinance. Accordingly, his share of interest in the RDV is only $5,185,230. However, he refused to accept the same being his fair and entitled share because he considered the Ordinance unconstitutional. He rejected 2 of the applicants’ offers which exceeded the amounts based on his own valuations[13].

17.  R2’s challenges, so far as can be discerned from his witness statements and his various submissions, can be summarized into the following broad grounds: -

(i) the Ordinance is unconstitutional. It violates his constitutional right guaranteed by Articles 6  (“BL6”) and 105 (“BL105”) of the Basic Law. It is his case that the combined effect of these articles is no one, except the Government, has the right to compel an individual to dispose of his/her private property, and the acquisition should only be on good ground with sufficient compensation. Private property right is therefore, according to him, absolute, vis-à-vis a party other than the Government or authority[14];

(ii) alternatively, the Ordinance offends Articles 14 and 22 of the Hong Kong Bill of Rights (respectively “HKBOR14” and “HKBOR22”) which are basically the same as Article 14 of the European Convention on Human Rights[15] in that the compensation prescribed under the Ordinance is different from what would have been offered by the Government or the Urban Renewal Authority (“URA”) if the redevelopment were Government/URA initiated. His private property right is now being subjected to arbitrary and interference and unfair treatment by private developer who compulsorily acquires his property for substantial commercial gain. His such rights are protected under Article 39 of the Basic Law (“BL39”);

(iii) the applicants’ offers or the compensation assessed in accordance with the Ordinance is inadequate for him to acquire a property of similar size in the neighborhood;

(iv) the applicants’ offer did not cover his costs in engaging Ms Sat and lawyers for preliminary advice;

(v) the Building is structurally safe and could be maintained instead of to be pulled down so that it could provide a modest accommodation for those with limited means; and

(vi) the recent decision of the Court of Final Appeal in Hysan Development Co Ltd & Ors v Town Planning Board, FACV 21 & 22 of 2015, 26 September 2016, may affect the RDV of the Lot because the height restriction may be relaxed by the Town Planning Board (“TPB”) in light of the decision. 

18.  Apart from the above issues raised by R2, the Tribunal is also required to determine the following issues under the Ordinance: -

(i) Whether the applicants have acquired the minimum undivided shares in the Lot which entitles them to make the application under the Ordinance?

(ii) Whether the redevelopment of the Lot is justified due to “age” and/or “state of repair” of the Building in accordance with section 4(2)(a) of the Ordinance?

(iii) What are the respective EUV of all units in the Building as at 19 September 2014 as assessed in accordance with Part 1 of Schedule 1 of the Ordinance?

(iv) Whether the applicants have taken reasonable steps to acquire all the undivided shares in the Lot on terms that are fair and reasonable in accordance with section 4(2)(b) of the Ordinance?

a)  For R2, whether the applicants should have offered compensation sufficient for him to acquire a property of similar size in the neighbourhood and/or to cover his costs?

b)  For R7(1), whether the applicants should have offered compensation to be calculated based on gross floor area as opposed to saleable area and/or to be the value of the whole unit?

(v) If an order for sale should be granted, what should be the reserve price (i.e. RDV of the Lot for the purpose of auction sale) and whether the Hysancase had any impact on it?

Section 3 – Whether the Conditions for Making An Application Under S.3 of the Ordinance Are Satisfied by the Applicants

19.  Section 3(1) of the Ordinance requires an applicant to have not less than 90% of the undivided shares in a lot before it can make an application.  As said above the Building was 50 years’ old when the Application was taken out. The applicable application threshold is 80%[16]. We are satisfied that as at the date of application, the applicants had already owned more than 80% of the undivided shares in the Lot.  The Application was also accompanied by a valuation report prepared by Ms Chow assessing the EUV of each and every units of the Building on vacant possession basis without taking into account of the redevelopment potential of the Lot as at 19 September 2014, which was within 3 months of the Application on 28 November 2014.

20.  Further, this Tribunal accepts:

(i) a copy of the Amended Application was registered against the Lot[17] under the Land Registration Ordinance, Cap 128 on 4 November 2015 in satisfaction of s.3(3)(b) of the Ordinance;

(ii) copies of a notice in both Chinese and English as specified in Part 2 of Schedule 1 were affixed upon a conspicuous part of the main entrance and entrance of the staircase on ground floor of the Building on 5 November 2015[18] in satisfaction of s.3(3)(c)(i)(A) of the Ordinance;

(iii) copies of a notice in both Chinese and English as specified in Part 2 of Schedule 1 were published in respectively Sing Tao Daily and the South China Morning Post on 5 November 2015[19] in satisfaction of s.3(3)(c)(ii) of the Ordinance; and

(iv) notice of proceedings, both in English and Chinese, to R5 and R7(2) were published in respectively Sing Tao Daily and the South China Morning Post on 14 December 2015[20] pursuant to an order of the Tribunal dated 25 November 2015[21] made under s.3(4)(b) of the Ordinance.

21.  We agree that the applicants were entitled to make the application under section 3(1) of the Ordinance.

Whether the Ordinance Contravenes the Basic Law

22.  Articles 6 (“BL6”) and 105 (“BL105”) of the Basic Law stipulate:

Article 6

“The Hong Kong Special Administrative Region shall protect the right of private ownership of property in accordance with law.”

Article 105

“The Hong Kong Special Administrative Region shall, in accordance with law, protect the right of individuals and legal persons to the acquisition, use, disposal and inheritance of property and their right to compensation for lawful deprivation of their property.

(other parts irrelevant to the present discussion)”

23.  Whether the Ordinance is BL6 and BL105 compliant has been discussed, though briefly, at least twice by our higher courts, one by The Court of Final Appeal (“CFA”) in Sin Ho Yuen v Fineway Properties Ltd[22], and the other by the Court of Appeal (“CA”) in Good Faith Properties Ltd v Cibean Development Ltd[23]. In fact prior to Sin Ho Yuen there was the case of Capital Well Ltd v Bond Star Development Ltd[24] which was the first appeal relating to application under the Ordinance to be considered by the CFA. Although Capital Well is not directly on whether it was Basic Law compliant, the overview of the statutory scheme of the Ordinance by Hon Ribeiro PJ sheds light on whether the Ordinance would have offended the Basic Law.

24.  In Capital Well, the minority owner raised arguments which were unrelated to Basic Law. Ribeiro PJ dissected the statutory scheme of the Ordinance into 4 distinct phases, namely, (i) the application; (ii) the Tribunal’s determination; (iii) the sale; and (iv) the apportionment and application of the proceeds of sale[25]. His Lordship then set out the ingredients for each phrase and justified the same by reference to the objectives of the Ordinance. In [21] of Capital Well his Lordship has this to say:

“The objectives of the Ordinance underlying this four-stage process are clear.  On the one hand, the Ordinance aims to facilitate urban renewal in respect of old and dilapidated buildings by assisting private developers to complete their acquisition where they already own at least 90% of the lot in question and by preventing the indefinite obstruction of a redevelopment by any minority owners who may seek to extract a wholly unreasonable price or “ransom” for permitting the redevelopment to proceed.  On the other hand, it aims to ensure that the minority owner receives fair and reasonable compensation for his interest in the lot.  Such compensation may be that which the minority owner agrees to accept or that which represents his share of the market value of the lot (reflecting its redevelopment value) as determined at a public auction, subject to a reserve price approved by the Tribunal.” (Emphasis added)

25.  Implicit in the said decision is that the CFA did not consider private property rights absolute. His Lordship considered the Ordinance was doing a balancing exercise weighing private property right of a minority against that of the majority to redevelop his own property. A balance is struck when the minority was paid, in exchange for his land, a compensation that is fair and reasonable, subject to statutory criteria set out in the Ordinance being satisfied. Had the CFA considered the Ordinance Basic Law non-compliant, it would not have considered payment of fair and reasonable compensation a solution. It is therefore apparent from Capital Well that private property right not absolute. It may, for the purpose of facilitating urban renewal and upon payment of fair and reasonable compensation, be overridden in accordance with criteria set out in the Ordinance.

26.  Sin Ho Yuen concerned a case in which the majority owner, after having agreed with the only minority owner on the reserve price for the auction, succeeded before the Tribunal to have it re-opened after the property market was hard hit by the financial tsunami in or about 2008. The Tribunal subsequently adjusted the reserve price downward by over 40%. Further, the Tribunal ordered the minority owner to bear 90% of the majority owner’s costs. The lot was subsequently sold at the lower price before the CA considered the Tribunal’s decision to re-open the agreed reserve price wrong. However, the CA took the view it had no jurisdiction to order the majority owner to pay the shortfall and in this respect, granted the minority owner leave to appeal to the CFA. The matter was settled on the day fixed for hearing by the CFA. One issue which attracted the CFA’s attention was the adverse costs order made by the Tribunal against the minority. It was because if the said order was to be enforced, the compensation would be substantially eroded, leaving much less, if any, for the minority whose property had been compulsorily acquired.

27.  The learned Bokhary PJ shared the aforesaid view expressed by Ribeiro PJ in Capital Well, and considered that the objective of the Ordinance would be defeated if the compensation received by the minority owner under the Ordinance would be swallowed up or materially eroded by an adverse costs order against it.

28.  Hon Litton PJ stated in [25] of Sin Ho Yuen the following:

“As the title of the Ordinance states, it provides mechanism for the compulsory sale of land for redevelopment, by giving to the tribunal the power to order the sale of a property in multiple ownership, over the objections of a minority owner.^[26] In order that the entrenched right of private ownership of property in Articles 6 and 105 of the Basic Law be not infringed, the protection of minority interest under the Ordinance becomes therefore a key factor. In turn, it behoves the tribunal, in carrying out the scheme of the Ordinance, to ensure that such protection be not diminished, or be whittled down through inefficiency and delay. And there would be diminution if, for instance, the minority owner bore, at the end of the day, an inordinate burden of costs, so that what he got by way of his share of the proceeds of sale was largely taken away by the costs incurred in the legal process.” (Highlight added)

29.  Obviously, BL6 and BL105 were in the mind of His Lordship. It is apparent from the above that the Tribunal plays an important role in properly carrying out the statutory scheme of the Ordinance which contained provisions for protection of the entrenched private property rights under BL6 and BL105.

30.  Accordingly, the CFA does not consider the Ordinance unconstitutional. It is the Tribunal’s judgment that the CFA takes the view that the Ordinance, with its provisions properly carried out and resolute steps taken to ensure statutory requirements being satisfied, is able to afford sufficient protections to individual’s rights protected under BL6 and BL105.

31.  In Good Faith, the CA was dealing with whether or not the compensation approach should be adopted in awarding costs for applications under the Ordinance. Lam VP, after discussing the four phases of the Ordinance by Ribeiro PJ in Capital Well, went on to examine the statutory scheme of the Ordinance, and said at [11]:

“... the LCSRO [i.e. the Ordinance] is a statutory compromise balancing the competing interests of the co-owners: the majority owner’s interest in utilizing his property by releasing the land for redevelopment versus the minority owner’s proprietary interest in the disposal of his own property. The right of private ownership protected under art 6 of the Basic Law ... should not be overridden without justification. Even if the right of private ownership of the minority owner were to be overridden when there is proper justification, there must be fair and reasonable compensation.”

32.  The learned VP was of the view that the Ordinance provides a two-tier safeguards of the Basic Law guaranteed private property rights from being unreasonably interfered with. The first level is by imposing application threshold and justifications before the minority’s right of private ownership can be overridden. The second level is to ensure that the minority would be getting a fair share as determined by the Tribunal if the statutory criteria for overriding private property rights are met. His Lordship went on to discuss in details the statutory scheme in the Ordinance as regards the first level of protection[27]. Regarding the protection on the second level, His Lordship shared the views expressed by Bokhary PJ and Litton NPJ in Sin Ho Yuen in that the minority should be paid fair and reasonable compensation if the private ownership rights are to be overridden[28]. He concluded the compensation approach on costs part and parcel of the protection against interference of constitutional right of private ownership[29].

33.  In coming to his aforesaid conclusion on costs, it is apparent that His Lordship has BL6 and BL105 in mind: see [33] of Good Faith. His Lordship does not consider the Ordinance Basic Law non-compliant. Instead, His Lordship confirmed that the Ordinance provides a proportionate and workable compromise for interference of private right of ownership. In [42] the learned VP has this to say:

“... for reasons we have already canvassed, bearing in mind the whole statutory scheme in the context of a proportionate balance of competing interest and a justified interference with a constitutionally entrenched right of private ownership of property, we do not think what we decide [i.e. to adopt the compensation approach on costs under the Ordinance] represents a drastic change to the operation of the LCSRO [i.e. the Ordinance].” (Emphasis added)

34.  It is also noted that the learned VP has a brief analysis of the compensation payable under the Government resumption regime and the private sector scheme under the Ordinance. His Lordship came to the view that although the Government’s/authorities’ scheme may sometime result in lesser compensation, the learned VP considered basically the principle of equivalence is the proper yardstick for the fair and reasonable compensation under the Ordinance. In [24] and [33] of Good Faith, the learned VP stated:

“[24]... Hence, the fact that a higher return may be achieved in a sale under the LCSRO [i.e. the Ordinance] does not invalidate the proposition that the pro rata share of proceeds payable to a minority owner is a fair and reasonable compensation for him in respect of the compelled sale of his interest. He does not get something more than what he should have got under the principle of equivalence....

[33] ...Thus, ...we have no doubt that the principle of equivalence is as much engaged in LCSRO [i.e. the Ordinance] proceedings as in resumption cases notwithstanding the absence of specific provisions like ss.6(2A), 8(4) and 10(2)(e)(ii) of the Lands Resumption Ordinance.”  

35.  The above authorities are binding on this Tribunal. In so far as R2 contends that BL6 and BL105 are absolute, it is our decision that:

(i) the rights under BL6 and BL105, though constitutionally guaranteed, are not absolute;

(ii) the Ordinance is a well-balanced compromise between the competing rights of minority owner maintaining a status quo of his property and rights of the majority co-owner releasing his land for redevelopment to achieve the purpose of the Ordinance, i.e. for urban re-development, and is not unconstitutional. In other words, it is Basic Law compliant; and

(iii) the court in Hong Kong should not refuse to enforce the Ordinance.

36.  In the course of hearing it appears R2 derives support from Hysan to contend that the Ordinance offends BL6 and BL105.

37.  Hysan concerned challenges by developers against the decision of the TPB which imposed a series of planning restrictions including building height restrictions contained in 2 draft Outline Zoning Plans (“OZP”) after they have acquired their lands. The developers contended the restrictions represented a disproportionate and therefore unconstitutional infringement of their property rights in contravention of BL6 and BL105. Though the decisions of the TPB were quashed on various administrative law grounds, the developers appealed to the CFA for guidance as to the relevance and application of BL6 and BL105 when the TPB reconsidered its decision.

38.  The CFA ruled that constitutional rights such as those provided under BL6 and BL105 are engaged when the TPB imposed restrictions. Hon Ribeiro PJ stated that for those constitutionally guaranteed rights that are absolute, such as prohibition against torture and cruel, inhuman or degrading treatment, there would be no room for employing the proportionality test to determine whether the restrictions imposed are reasonable. His Lordship, however, considered private property rights not absolute, and the proportionality test should be applied to test whether the restrictions are reasonably necessary for the pursuit of a legitimate societal aim. This provides a short answer to R2’s contention, if he is really serious, that BL6 and BL105 are absolute. They are not.

39.  Hysan is the authority that if certain constitutionally protected rights are restricted (in the present case the private property rights limited by the Ordinance), the restrictions should be subject to a 4-stage proportionality inquiry. However, as stated in [22] to [35] above, the higher courts have on at least 3 occasions reviewed the Ordinance, and with BL6 and BL105 in mind on at least 2 occasions. They do not find the Ordinance Basic Law non-compliant. It will therefore be unnecessary for this Tribunal to subject the Ordinance to the proportionality analysis with a view to finding out whether it survives the test. In the Tribunal’s judgment, it does survive the test.

The Alleged Bill of Rights Issues

40.  Article 39 of the Basic Law (BL39”) provides:

“The provisions of The International Covenant on Civil and Political Rights, the International Covenant on Economic, Social and Cultural Rights, and international labour conventions as applied to Hong Kong shall remain in force and shall be implemented through the laws of Hong Kong Special Administrative Region.

The rights and freedoms enjoyed by Hong Kong residents shall not be restricted unless as prescribed by law. Such restrictions shall not contravene the provisions of the preceding paragraph of this Article.”

41.  Articles 14 and 22 (“HKBOR14” and “HKBOR22” respectively) of The Hong Kong Bill of Rights (“HKBOR”) under the Hong Kong Bill of Rights Ordinance, Cap 383 stipulate that:

“Article 14: Protection of privacy, family, home, correspondence, honour and reputation

(i) No one shall be subjected to arbitrary or unlawful interference with his privacy, family, home or correspondence, nor to unlawful attacks on his honour and reputation.

(ii) Everyone has the right to the protection of the law against such interference or attacks.

Articles 22: Equality before and equal protection of law

All persons are equal before the law and are entitled without any discrimination to the equal protection of the law. In this respect, the law shall prohibit any discrimination and guarantee to all persons equal and effective protection against discrimination on any ground such as race, colour, sex, language, religion, political or other opinion, national or social origin, property, birth or other status.”

42.  R2’s argument, so far as can be discerned from his evidence and submission[30], boils down to this. Article 14 of the European Convention on Human Rights (歐洲人權公約) are the same as our HKBOR22 and is guaranteed by BL39. His case is that an owner whose property is being compulsorily acquired, no matter by whom, should be paid the same level of compensation. His unit, if acquired by the Government or the URA, would fetch a compensation paid according to a 7-year-old unit of similar size in the same or similar district, plus removal allowance (“the 7-year formula”). According to his estimate, the URA would compensate him at the rate of about $16,000/sq ft[31]. However, he was only offered $10,896/sq ft[32] by the applicants. Even according to the Ordinance as calculated by his expert, it is only $11,023/sq ft[33], and is far less than that offered by the URA. He said he was subject to unfair treatment, which violates HKBOR22. Since the Ordinance facilitates developers, and in the present case the applicants, snatching minority’s property arbitrarily, the Ordinance offends HKBOR14.

43.  It is this Tribunal’s decision that private ownership rights guaranteed under the Basic Law is not absolute and can be overridden provided certain statutory requirements under the Ordinance can be satisfied.  If the applicants are able to satisfy all these requirements, which will be dealt with below, it cannot be said that the applicants’ application herein is arbitrary, or unlawful.

44.  As regards the 7-year formula, R2 has adduced no evidence to show how it comes about nor its rationale. Neither has he adduced evidence, expert or otherwise, on how he arrives at the figure of $16,000/sq ft.

45.  URA is a statutory body established pursuant to the Urban Renewal Authority Ordinance, Cap 563 (“URAO”) for urban renewal and connected purposes. This Tribunal believes it is not in dispute the 7-year formula is adopted by the URA when old and dilapidated properties are being resumed for urban renewal purpose. It comprises the market value of the property to be resumed plus an ex-gratia allowance the aggregate of which is generally good enough for the affected owner-occupier to acquire a property of about 7 years old of similar size in the same or nearby district. Removal allowance is also payable. For owners not living in the affected flat the ex-gratia payment will be less. It is generally considered that the compensation is more favorable than that payable under the statutory scheme under the Land Resumption Ordinance, Cap 124 (“LRO”) which prescribes that the compensation is only restricted to value of the land resumed. Since usually dilapidated properties are resumed, it is apparent that very often, even with redevelopment potential already factored into the statutory compensation, such compensation will be insufficient for the owner to acquire properties of comparable size in the same district. The formula therefore provides a very good incentive to owner-occupiers to sell their properties to the URA, thus facilitating the acquisition process. It is only when the URA is unsuccessful in its acquisition that it would request the Government to invoke the LRO to resume the land. Accordingly, the 7-year formula is not statutory compensation based on any principle but a policy.

46.  Although the schemes under the Ordinance and the LRO are two different statutory schemes, they share the same purpose, namely, to provide fair compensation for a party whose land has been compulsorily taken from him. This is called the principle of equivalence: see Director of Buildings and Lands v Shun Fung Ironworks Ltd[34]. In the CFA decision of Director of Lands v Yin Shuen Enterprises Ltd & Another[35], Lord Millett, NPJ, relied on the often-cited passage by Lord Nicholls in Shun Fung Ironworks as follows:

[36]“The purpose of these provisions [i.e. LRO provisions], in Hong Kong and England, is to provide fair compensation for a claimant whose land has been compulsorily taken from him.  This is sometimes described as the principle of equivalence.  No allowance is to be made because the resumption or acquisition was compulsory; and land is to be valued at the price it might be expected to realize if sold by a willing seller, not an unwilling seller.  But subject to these qualifications, a claimant is entitled to be compensated fairly and fully for his loss.  Conversely, and built into the concept of fair compensation, is the corollary that a claimant is not entitled to receive more than fair compensation: a person is entitled to compensation for losses fairly attributable to the taking of his land, but not to any greater amount.  It is ultimately by this touchstone, with its two facets, that all claims for compensation succeed or fail.”

47.  Implicit in R2’s submission is that the compensation provided under the Ordinance is unfair, e.g. it is less than what would have been offered under the 7-year formula and the compensation insufficient for him to buy a property of similar size. However, he has not elucidated the proper legal basis on which a minority should be compensated. As can be seen in [34] above, the Tribunal is of the view that as a matter of fairness, the principle of equivalence should be the compensation yardstick applicable to the Ordinance. Further, as will be elaborated below, it is what is now being protected under the Basic Law.

48.  R2 said that the compensation offered (or even calculated in accordance with the Ordinance) is insufficient for him to acquire a property of similar size in the same locality. According to him, the recently completed real estate development in the locality costs about $16,000 to $24,000/sq ft whereas that for those of about 10 years old was about $16,000/sq ft[37].

49.  BL105 provides that compensation, if private property is resumed by the Government, should be equivalent to the “real value (實際價值)”. What is meant by “real value” has been discussed in [56] of Yin Shuen. It was held by Lord Millett, NPJ that in general the “open market value” of a property is the “real value” of the property. There is no reason to suggest that BL6 provides a protection more than the “real value” when the property is acquired. The principle of equivalence is applicable. It is entirely a matter of valuation and in turn it depends on the redevelopment potential of the lots to be acquired. In the Tribunal’s judgment, there is simply no logical basis to suggest that a residential unit of 50 odd years old, such as R2’s Unit which is due for redevelopment, should be equivalent in value to a brand new or a 7-year or 10-year old unit of similar size in the same district. In the Tribunal’s judgment, the affected owner is asking for something which is over and above that provided by the principle of equivalence. This is outside the concept of fair compensation which means compensation for fair and full loss[38]. The fact that some other body (the URA as contended by R2) is willing to pay more in similar situation will not render the original compensation scheme under the Ordinance unfair or unconstitutional. It is akin to a situation when someone is prepared to pay a speculative premium, or an incentive ex-gratia exceeding the value of the property with a view to achieving an expedited purchase. The price without such premium or ex-gratia remains the true value of the property. So it may well be true that R2 will receive less under the Ordinance than had his unit be resumed by the URA using the 7-year formula. It is not unfair. He is simply not getting more.

50.  The Tribunal understands, and to a certain extent shares, the sentiment expressed by R2. It is because developers will be able, with the aid of the Ordinance, to turn dilapidated units and run-down buildings for which they only pay a relatively modest price, to luxurious and high class apartments for which they reap substantial profits. That, however, is not the same as implicating the scheme under the Ordinance being unfair and unconstitutional. One should not forget it takes years for one to accumulate sufficient percentage of undivided shares of a lot beyond the statutory threshold. Meantime, substantial capital needs be locked up and interest paid out, not to mention that the developer will be subject to the volatility of the property market over this long period of time. The developer then has to go through the statutory process prescribed under the Ordinance and satisfy all other criteria. Further capital needs be injected to materialize the redevelopment. The Tribunal believes that if there is real optimism in the real estate market, it will be reflected in the RDV and thus the reserve price for the auction, and the minorities will be able to enjoy his fair share in the end. As can be seen in  a recent case[39], developers other than the original applicants will be willing to compete for the land, thus bidding up the final price well beyond that fixed by the Tribunal. The statutory scheme therefore provides a safeguard that the purchase price ultimately paid for the property acquired is the “real value” constitutionally protected.

51.  In R2’s closing submission, R2 particularly relied on 2 cases decided by the European Court of Human Rights, namely

(i) Pine Valley Development Ltd v Ireland (1991) 14 EHRR 319; and

(ii) Hentrich v France (1994) 18 EHRR 440.

52.  Briefly, Pine Valley concerned an applicant who bought a piece of land relying on an outline planning permission for industrial warehouse and office development on the site granted prior to the purchase. The permission was recorded in a public register. Permissions similarly granted by the relevant authority were later found to be ultra vires. A piece of legislation was passed with a view to validating prior permissions. However, it was decided by the Supreme Court of Ireland that the retrospective effect of the statute did not cover the ultra vires permission already granted to applicants in Pine Valley. The European Court decided that since the remedial action taken by the Irish Government benefited all holders of permissions except the applicants, 2 of the 3 applicants[40] were victims of discrimination contrary to Article 14, taken in conjunction with Article 1 of Protocol No.1 (“P1-1”) of the Convention for the Protection of Human Rights and Fundamental Freedoms (“Convention”), which read as follows:

[41]Article 14: “The enjoyment of the rights and freedoms set forth in [the] Convention shall be secured without discrimination on any ground such as sex, race, colour, language, religion, political or other opinion, national or social origin, association with a national minority, property, birth or other status.”

[42]Article 1 of Protocol No.1: “Every natural or legal person is entitled to the peaceful enjoyment of his possession. No one shall be deprived of his possession except in the public interest and subject to the conditions provided for by law and by the general principles of international law.

The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties”

53.  The aforesaid Articles of the European Convention are similar in scope to our HKBOR14 and HKBOR22. Apparently, Pine Valley adds nothing more to our above analysis. The present case is not a case where R2 gets nothing under the statutory scheme of the Ordinance. Neither is it a case where he gets less under the Ordinance than under other statutory scheme. It may perhaps be a case where R2 gets no ex-gratia because the redevelopment is not URA initiated. We have already dealt with the argument above. We do not consider Pine Valley can help R2’s case.

54.  Hentrich concerned a case where the subject matter of a land purchase by the applicant was compulsorily acquired by the relevant local authority by its exercise of a right of pre-emption under the relevant French law. It was a right said to be exercised for regulating, and raising moral standards in the property market and preventing tax evasion when the French Government considered the transaction price under-value[43]. Pursuant to that right, the pre-emption price would be 10% more than the contractual price. It was the applicant’s case that the exercise of the pre-emption right amounted to, inter alia, an unjustified interference with her right of property, in breach of Article 1 of Protocol No.1 (i.e. P1-1) and discriminatory treatment, contrary to Article 14 of the Convention[44].

55.  The European Court considered, inter alia, that there has been a breach of Article 1 of Protocol No.1 (i.e. P1-1). It is considered that the domestic law of pre-emption operated arbitrarily and selectively and was scarcely foreseeable, and basic procedural safeguards were insufficient. It was also said that the pre-emption decision cannot be legitimate in the absence of adversarial proceedings that comply with the principle of equality of arms, enabling argument to be presented in response to the Revenue’s allegation of underestimation – all elements were lacking in Hentrich.

56.  Further, the French courts interpreted the said pre-emption law as allowing the French Government to avail itself of the said right without having to indicate the reasons of facts and law for its decision. The European Court also considered there were also other means to tackle tax evasion problems, such as taking proceedings to recover unpaid tax, and/or imposing tax fine. The proportionality test is not satisfied and the pre-emption law was considered arbitrary interference of one’s property right.

57.  In [45] of Hentrich, it was stated that:

“[i]n order to assess the proportionality of the interference, the Court looks at the degree of protection from arbitrariness that is afforded by the proceedings in this case.”

58.  Hentrich is no more than stating the same principles in Hysan concerning proportionality. As stated above, the higher courts have already on several occasions decided that the Ordinance does not offend the Basic Law, this Tribunal does not consider Hentrich adds anything further to the Tribunal’s discussion or affects our decision above.

The Applicant’s Offer Does Not Cover Costs, etc.

59.  In Good Faith, the CA has decided that the compensation approach on costs should be adopted for cases under the Ordinance. Accordingly, all costs reasonably incurred by the minority owners in opposing the application for a sale order of all undivided shares in the lot, even though the opposition is unsuccessful, should be borne by the applicants unless there are “special reasons” which are subject to stringent scrutiny by the Tribunal. R2’s costs in engaging Ms Sat and lawyers are, prima facie, reasonable costs in the proceedings. It will be up to the applicants to argue there exists “special reason” to justify a departure from the usual costs order.

60.  It is noted that in all the written offers of the applicants[45], nothing has been mentioned about the litigation costs herein. What have been said was that the stamp duty would be paid by A1, and each parties do bear its own costs of the conveyance. Accordingly, the costs incurred in the proceedings have not yet been discussed by the parties. This Tribunal is not sure whether there has been without prejudice letters exchanged on the conduct and costs of the proceedings once the applicants’ offer was accepted. On the face of the evidence it would be unfair to suggest the applicants have rejected to pay R2’s costs incurred in the proceedings.

The Costs of Acquiring a New Property

61.  In his closing submission, R2 appears to complain that apart from getting insufficient compensation from the applicants, he would also be forced to move to another place and thus incurring substantial expenses on, inter alia, removal and stamp duty if he re-purchases another landed property. It is true that other minority owner (but not R2 who moved out in or about 2012) might have such problem. However, as a matter of principle, what R2 was asserting did not appear to sit in well with the compensation principles. In the English Court of Appeal decision of Horn v Sunderland Corporation[46], the English CA then faced with a claim for business disturbance on the top of value for land compulsorily acquired. The land in question was a farm land for horse-breeding and was to be compulsorily acquired for housing purpose. Put very briefly, the question before the English CA was whether the claimant was entitled to both the value of land based on housing land user plus disturbance for his horse-breeding business. The gist of the decision is that (by a majority of 2:1 with Goddard LJ dissenting) since the value of the land as building land could only be realized by the removal of the business with the land sold on vacant possession basis, compensation for the disturbance could not be awarded if the claimant was to be compensated on the basis of housing land with its full potential unlocked. At p.486 Sir Wilfrid Greene MR had this to say:

“In the present case, the respondent was occupying for farming purposes land which had a value far higher than that of agricultural land. In other words, he was putting the land to a use which, economically speaking, was not its best use, a thing which he was, of course, perfectly entitled to do. The result of the compulsory purchase will be to give him a sum equal to the true economic value of the land as building land, and he thus will realise from the land a sum which never could have been realised on the basis of agricultural user. Now he is claiming that the land from which he is being expropriated is to be treated, for the purpose of valuation, as building land, and, for the purpose of disturbance, as agricultural land, and he says that the sum properly payable to him for the loss of his land is (i) its value as building land, plus (ii) a sum for disturbance of his farming business. It appears to me that, subject to a qualification which I will mention later, these claims are inconsistent with one another.

62.  In fact, Scott LJ expressed similarly on p.491:

“Ex hypothesi, the building value is realisable only if and when the land is offered in the market as building land, which necessarily postulates that the selling owner will have given up his farm and cleared the land of all its farm buildings, stock and implements, or at least is ready and willing to do so at his own expense. Conversely, in so far as he chooses to leave that task to be performed by the purchaser, he must submit to the deduction of the cost of it from his price.”

63.  Under the statutory regime of the Ordinance, if the Tribunal considers all the statutory criteria laid down in the Ordinance satisfied, it will direct a sale of all the undivided shares subject to a reserve price (if by auction) which will be fixed taking into account of the redevelopment potential of the lots. In other words, with a view to realizing the full redevelopment potential of the land so as to achieve the highest price obtainable in the market for benefit of all owners, the lot in question must be sold, and on vacant possession basis. All owners need be moving out and the building demolished for redevelopment in order that the full potential can be achieved. It is a price that an owner needs to pay in order to realize the redevelopment of the land. The costs as well as attributes for realizing that potential must have already been factored into the sale price. Once the value of the land with the redevelopment potential realized has been converted into a sum of money represented by the sale proceeds, the compensation process has completed. It will be up to minority owner whether to purchase another premises, or invest into other ventures. Anything on the top of the sale proceeds to take care of costs of any post-sale acquisition will be more than what should be required of under the principle of equivalence.

Whether Development of the Lot is Justified Due to “Age” and/or “State of Repair” of the Building

64.  In determining the application, section 4(2) of the Ordinance empowers the tribunal to make an order for sale if it is satisfied that: -

	(i)	the redevelopment is justified due to age or state of repair of the Building; and
	(ii)	the applicants had taken reasonable steps to acquire all the undivided shares in the Lot (including negotiating for the purchase of the undivided shares owned by the respondents on terms that are fair and reasonable).

65.  For the age and state of repair requirements, the applicants adduced expert evidence of Mr Wong Chi Ming (“Mr CM Wong”), a structural engineer and Mr Wong Wing Cheung Dennis (“Mr Dennis Wong”), a building surveyor.  None of the respondents had adduced any expert evidence in this connection.

66.  Mr CM Wong conducted a structural assessment and prepared one report dated 12 February 2016.  He had identified the following defects in the Building: -

(i) Cracks, spalling and severe water stains at 337 locations were observed during the visual inspection of the 116 flats and common area of the Building;

(ii) A total of 85% of the steel reinforcement bars specimens are suffering from mild to severe corrosion;

(iii) Carbonation has reached the concrete surrounding the steel reinforcement bars in 100%, i.e. all of the specimens of slab and beam elements tested and half of the specimens of the column elements tested;

(iv) 64% of the core samples have a chloride content exceeding 0.40% by mass of cement;

(v) All samples have an environment which poses a moderate or high risk of corrosion to the steel reinforcement bar; and

(vi) The average cement content for the Building was calculated to be 227kg/m³, which is lower than the current standard of 290kg/m³ as specified in the HK2013.

67.  Mr CM Wong concluded that the structural elements of the Building were in a poor condition. He considered that corrosion of the reinforcement bars has been initiated and is likely to have entered the propagation phase.  Given that cracks, spalling and corroded steel bars are indications that this process has already begun, he anticipated that more defects would develop and therefore extensive maintenance and repair works would be required in the near future. 

68.  In addition, since the conditions in respect of the durability of the structural elements are inferior to the requirements stipulated in the current standards, Mr CM Wong considered that the design life of the Building should be shorter than the design life of 50 years as stated in the code, and as the Building was 51 years old when he prepared the report, he was of the view that the Building had passed the end of its design life.  On the other hand, since ductility and robustness were not considered in those days when the Building was designed, he reckoned that the structure of the Building cannot meet the current safety standards too.

69.  Mr Dennis Wong prepared one condition survey report dated 11 February 2016.  In terms of age of the Building, he found the following deficiencies: -

(i) There was no equipotential bonding system provided for metal fixtures to prevent accidental electrical shocks as required under the Code of Practice for Electricity (Wiring) Regulations 2009;

(ii) There were no fire services installations as required under the Code of Practice for Minimum Fire Service Installations and Equipment;

(iii) The staircases and corridors did not meet the requirement of the current Code of Practice for Fire Safety in Building;

(iv) There was no refuse chute/room provided to the Building, and in any event there was no space on the typical floors for installing these improvements that could meet the reference stated in the Building (Refuse Storage and Material Recovery Chambers and Refuse Chutes) Regulations;

(v) The air-conditioning (“A/C”) units were of different types and sizes installed on unauthorized metal mounting frames, and there were no common A/C condensate drain pipes for discharge into the rain water pipe;

(vi) There were no architectural features and proper overhangs at roof level or on the facades of the Building making it more prone to wear and tear and deterioration of the external wall finishes, which were in fact in poor condition and have been affected by shrinkage of render and peeled off paintwork;

(vii) There was no building automation system with service connections to a control room for instant fault signaling and repairing;

(viii) There was no lift, and the metal gates at the entrance/exits were the only security/control against unauthorized entry to the Building; and

(ix) The Building had no car parking and loading/unloading bays, no ramp provided for wheelchair users, no recreational facilities, no main entrance lobby on ground floor, no provision of common entertainment and communication facilities, and no provision of access facilities for telecommunications and broadcasting services.

70.  In respect of the state of repair of the Building, Mr Dennis Wong made the following comments: -

(i) The Building Facades: spalled concrete was found at high level on rear facades overlooking the rear yard which have potential of falling and pose an imminent danger to the public and occupants; there was a hole on external wall with loosen brickwork in light-well; most windows were in very poor condition; Rapid Infrared Thermographic Survey detected a total of 130 spots of delamination on the accessible external wall rendering; asbestos containing materials were found in corrugated cement sheets and insulation material inside switch/fuse box at different areas that need to be removed; unauthorized signages, unauthorized building extensions and numerous unauthorized metal fixtures were found;

(ii) The Main Roof: unauthorized metal shelters were found all over the roof area, and their footing has damaged the roof finishes with water-proof membrane below; parapets were in poor condition with cracks and peeled off paint and unauthorized canopies and rusty A/C frames installed;

(iii) The Staircase, Corridors, Typical Floor Lobbies and other Common Area: there were new door openings to the means of escape in contravention of Code of Practice for the Provision of Means of Escape in Case of Fire 1996 (“MOE Code 1996”) and Code of Practice for Fire Resisting Construction 1996 (“FRC Code 1996”); unauthorized openings were found on wall of fire enclosure to the staircase; there was no handrail on one side of all staircases; there was no protected lobby in contravention of MOE Code 1996; entrance doors of flats along the means of escape appeared not to compile with fire proof rating and some doors were even found missing; doors at staircases were not in compliance with FRC Code 1996; staircases, corridors and other common areas were generally in a poor state of repair with water seepages, concrete spalling, loosen plaster on walls and cracks on floors at various locations; there were numerous unauthorized building works including extensions at rear yard, opening on wall to corridor, metal shelter on flat roof, decking at ceiling level of stairhood, entrance gates that swing beyond site boundary when opened and metal deckings over lightwells;

(iv) The Flats and Shops Internally: unauthorized internal flat sub-divisions presumably leased out for separate occupancies; no window provision at a number of toilets; kitchens were not enclosed with fire resisting walls and doors; unauthorized alterations with concrete raised floors embedding the drainpipes; there were toilets opened directly to the kitchens in contravention of the Building (Standards of Sanitary Fitments, Plumbing, Drainage Works and Latrines) Regulations; condition of internal decorations and finishes were very poor and suffered badly from moisture and heavy wear and tear, with cracking and spalling of concrete, mould growth and dampness on walls, ceilings and beams in many rooms and on external walls, peeled off wall finishes, dilapidated sanitary fitments, kitchen appliances, doors, ceiling and floor finishes; unauthorized building works were also found;

(v) Fresh/Flushing Water Supply: most of branch pipes and water meters were removed and only few domestic units had water connections which were in poor condition; no independent flushing water supply and fresh water supplies were directly connected to the sanitary fitments which may contaminate the fresh water system and contravened the Water Works Ordinance, Cap 102;

(vi) The Above-ground Drainage: the conditions for the soil and waste water systems were generally poor; many illegal drainage installations and connections made to toilets and kitchens in the sub-divided flats; waste water pipes from the domestic flats were not directly connected to the vertical stacks but discharged to hoppers which further discharged into stacks; rainwater pipes were in poor condition; no condensation drain pipe system for all A/C units;

(vii) The Underground Drainage: CCTV Survey showed that the underground drains were filled with water indicating that the drains were either blocked or damaged and not functioning as required;

(viii) Electricity Supply Installation: the surface mounted electricity meters and sections of cables installed in staircases of the Building were not enclosed with fireproof material pose serious fire hazards to the occupants; the existing power supply was insufficient for the Building’s occupancies; most of the cable has been removed and dismantled, and the remaining cable and wires were in poor condition; electrical cables in a number of units were found concealed in wall without mechanical protection; there was no equipotential bonding for safety protection in common parts and inspected units and no lightning protection system was provided to the Building; and

(ix) Fire Services Installation: fire services installation was not provided and the manual fire alarm in the corridor and fire hydrant system were not in working condition; there was no emergency lighting, exit/directional signs, fire alarm system or smoke detection system provided to staircases and corridors.

71.  Based on his aforesaid findings, Mr Dennis Wong concluded that the age and the state of repair of the Building, each on its own, justifies redevelopment of the Building: -

(i) The Building, which was 51 years old as at the date of his report, had suffered from many problems as a result of its age that impaired its appearance and function;

(ii) Due to changes in statutory requirements, advanced technology and higher expectations over the years, the Building had become sub-standard with many problems affecting the hygiene, safety, convenience and enjoyment of the Building;

(iii) The physical and functional hazards of the Building were a result of deficiencies in the planning, design, use of material, facilities and workmanship of the Building when it was first constructed;

(iv) The problems were further aggravated due to unauthorized building works, lack of maintenance and the absence of proper building management; all of which had rendered the Building to be well below a habitable standard and fall short of many basic requirements expected in new buildings;

(v) Some of the problems, e.g. overloading of the structure due to unauthorized sub-division of the flats and unprotected electrical installations in the fire escape staircases are of a nature hazardous and detrimental to the safety of users of the Building as well as the general public;

(vi) The Building was obviously below a tenantable standard with its structural frames in poor condition and most of its components, finishes and services deteriorated towards the end of their effective life spans;

(vii) The overall state of repair of the Building was poor with many of its components, finishes and services installations showing deterioration beyond reasonable repair;

(viii) The Building was in a state of disrepair and demolition of the Building would relieve the owners from heavy repair responsibilities;

(ix) The economic benefits brought about by the repair to the existing derelict building is far less than the option of redevelopment; and

(x) The carrying out of the essential repairs would cause considerable disturbance and would require a very long implementation period, which would be about 20 months, during which the occupation and enjoyment of the units would be affected intermittently.

72.  Mr Dennis Wong assessed the costs of essential repairs at $167,496,783 (i.e. about $12,472.99/m²; including the repair costs for the structural frames in the sum of $1,955,360 as estimated by Mr CM Wong), which was about 62.41% of the unit costs for the construction of a new building (around $19,985.16/m²) and was disproportionately high. Mr Dennis Wong also concluded that even after the essential repair works has been implemented, the Building would remain an old building with its design and construction outdated and below market expectations and constitute a continuing repair liability to the owners.

73.  The two experts called on this topic were not cross-examined by R7(1).  R2 had put questions to both experts and suggested that the Building was structurally safe and would remain in reasonable condition with proper repair work, and therefore there is no need for redevelopment.  In reply Mr CM Wong clarified that the structural condition of the Building was poor and but not structurally unsafe with immediate danger of collapse. Mr Dennis Wong also clarified that he had not recommended demolition of the Building because it was structurally unsafe.

74.  Ms Lan, counsel for the applicants, submitted that the objective of the Ordinance is to facilitate urban renewal in respect of old and dilapidated buildings. It does not apply only to buildings which pose danger and risk to public safety as contended by R2.  It is her submission that insofar as the condition of the development is concerned under the Ordinance, the focus is on the lack of repair. We agree.

75.  Having considered the evidence Mr CM Wong and Mr Dennis Wong, we are of the view their reports are reliable and acceptable. The reports also show an accurate description of the conditions and state of repair (or disrepair) of the Building. Neither R2 nor R7(1) have put in any expert evidence to challenge their opinions. Their evidence remained unshaken under cross-examination.  We are satisfied that redevelopment of the Building is justified due to its poor state of repair and the disproportionate costs of repair and maintenance.  Although regular repair could extend the life of the Building, such repair costs will increase with time. Further, we believe that such maintenance can only bring about a modest improvement to the existing condition, and the Building would remain a sub-standard one given the modern standards as expressed by the experts. We are also satisfied that redevelopment of the Building is justified due to the age of the Building.  This 52-year old building is in a poor condition and has in fact come to the end of its designed working life.  Its design has become obsolete over time in many aspects both physically and functionally and has failed to conform to modern standards and requirements in many material respects. 

Determination of the EUV of all Units in the Building

76.  As stated above, the NOA was accompanied by a valuation report dated 21 November 2014 (“Application Report”) prepared by Ms Chow containing assessments of EUV of all units of the Building as at 19 September 2014.  The report was prepared no earlier than 3 months before the filing of the NOA in accordance with section 3 of the Ordinance.

77.  Under section 4(1)(a)(i) of the Ordinance, if there is a dispute between the parties on the EUV of the units in the Building on the Lot, the Tribunal has to determine the values. Section 4(1)(a)(ii) further provides that, in the case of any minority owner of the Lot who cannot be found, the majority owner of the Lot is required to satisfy the tribunal that the value of the minority owner’s property as assessed in the application is: -

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

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

78.  R2 had filed valuation reports prepared by Ms Sat, but she did not include in any of her reports the EUV of individual unit and shops of the Building.  Ms Sat had just said that she had valued each unit of the Building by direct comparison method, but no details were provided.  She also commented that although she did not agree with some of the adjustments and selected comparables chosen by Ms Chow, she had no dispute on the pro-rata EUV for R2’s unit at 0.31% in the Application Report.  In the 1^st Joint Statement of Experts dated 8 April 2016, Ms Chow agreed with Ms Sat for settlement purposes the apportionment of EUV for R2’s unit at 0.31%.  However, Ms Chow had since then revised her EUV valuation in her supplemental valuation report dated 29 February 2016 (“Supplemental Report”) that the apportioned EUV percentage for R2’s unit is only 0.307%.

79.  We consider that the settlement agreement on the apportionment of EUV between the experts, which as a matter of fact will have an impact on interests of other respondents, does not bind the Tribunal, particularly in light of s.4(1)(a)(ii) of the Ordinance when there is missing owner.  Further, Ms Sat had never provided proper evidence of her EUV assessment for the Tribunal’s consideration. At trial, she did not dispute the applicants’ EUV assessments as contained in both the Application Report and the Supplemental Report.

80.  R7(1) had neither filed any expert evidence in this regard nor had suggested any EUV in opposition, although he claimed that the assessment of the R7’s unit should be based on gross floor area as opposed to saleable area.  He put in no evidence to dispute the EUV come up by the applicants.

81.  In any event, R5 and R7(2) are missing owners.  The Tribunal, before making any order for sale, should satisfy that the value of their respective units as assessed in the application is not less than fair and reasonable and not less than fair and reasonable when compared with the value of the majority owner’s property assessed in the application.

82.  In the Application Report, Ms Chow explained her valuation method and the assessment process to arrive at the EUV of each unit in the Building.  In undertaking the assessment, Ms Chow adopted the Direct Comparison Method.  She firstly identified the reference units for both shop and domestic portions of the Building and compared them with the actual transactions in the market.  The remaining shop units and domestic units in the Building were then compared with the respective reference units.

83.  Ms Chow updated her EUV assessments in the Supplemental Report.  She adopted 1 new domestic comparable, updated the property indices for time adjustment and revised the layout adjustments to 2 shop comparables.  Ms Chow finally revised the unit price of the reference domestic unit to $71,600/m² and the unit price of the reference shop unit to $219,600/m², and then updated the EUV of each unit in the Building.

84.  We accept the EUV assessed by Ms Chow in the Supplemental Report and are satisfied that the value of the units owned by the respondents are not less than fair and reasonable and not less than fair and reasonable when compared to the value of the applicants’ properties. The EUV of all units in the Building as at the relevant date of valuation, i.e. 19 September 2014, are reproduced below: -

Shop Portion on Ground Floor

Unit	EUV	Unit	EUV	Unit	EUV
A1	$15,600,000	B1	$22,420,000	C1	$15,640,000
A2	$13,710,000	B2	$21,470,000	C2	$13,410,000
A3	$17,510,000	B3	$23,980,000	C3	$17,120,000
A4	$15,070,000	B4	$21,860,000	C4	$15,120,000
A5	$14,330,000	B5	$23,150,000	C5	$13,320,000
A6	$25,920,000	B6	$22,690,000	C6	$26,580,000
		B7	$10,730,000
		B8	$11,000,000
Sub-total:					$360,630,000

Domestic Portion on Upper Floors

Unit	EUV
	1/F	2/F	3/F	4/F
A1	$3,900,000	$3,810,000	$3,610,000	$3,520,000
A2	$3,410,000	#$3,340,000	$3,260,000	$3,080,000
A3	$3,320,000	$3,340,000	$3,160,000	$3,080,000
A4	$3,410,000	$3,340,000	$3,260,000	$3,180,000
A5	$3,450,000	$3,370,000	$3,100,000	$3,210,000
A6	$3,110,000	$3,040,000	$2,880,000	$2,810,000
A7	$3,440,000	$3,450,000	$3,280,000	$3,210,000
B1	$2,920,000	$2,930,000	A: $1,100,000	$2,710,000
			B: $930,000
			C: $740,000
B2	$4,060,000	$3,970,000	$3,870,000	$3,550,000
B3	$3,930,000	$3,840,000	$3,740,000	$3,650,000
B4	$3,260,000	$3,090,000	$3,020,000	$3,030,000
B5	$3,260,000	$3,000,000	$3,020,000	$3,030,000
B6	$4,040,000	$3,720,000	$3,740,000	$3,650,000
B7	$4,060,000	$3,850,000	$3,760,000	$3,780,000
B8	$2,920,000	$2,930,000	$2,860,000	$2,790,000
C1	$3,730,000	$3,640,000	$3,560,000	$3,470,000
C2	$3,150,000	$3,080,000	$3,090,000	$2,930,000
C3	$3,150,000	$3,170,000	$3,090,000	$3,020,000
C4	$3,240,000	$3,170,000	$3,090,000	$3,020,000
C5	$3,280,000	$3,110,000	$3,130,000	$3,050,000
C6	$2,860,000	$2,790,000	$2,730,000	$2,740,000
C7	$3,320,000	$3,240,000	$3,170,000	$3,190,000
D1	$3,550,000	$3,470,000	$3,380,000	$3,300,000
D2	$3,750,000	$3,660,000	$3,570,000	$3,380,000
D3	$3,710,000	$3,630,000	$3,540,000	$3,450,000
D4	$3,510,000	$3,420,000	$3,540,000	$3,350,000
D5	$3,510,000	$3,420,000	*$3,540,000	$3,350,000
D6	$3,610,000	$3,420,000	$3,330,000	$3,450,000
D7	$3,640,000	$3,550,000	$3,570,000	$3,380,000
D8	$3,520,000	$3,430,000	$3,450,000	$3,270,000

Unit	EUV
	5/F	6/F	7/F	8/F
A1	$3,430,000	$3,240,000	$2,940,000	$2,470,000
A2	$3,100,000	$2,920,000	$2,530,000	$2,030,000
A3	$3,000,000	$2,920,000	$2,530,000	$2,180,000
A4	$3,100,000	$2,830,000	$2,530,000	$2,100,000
A5	$2,940,000	$2,940,000	$2,560,000	$2,130,000
A6	$2,740,000	$2,570,000	$2,270,000	$3,550,000
A7	$3,130,000	$2,940,000	$2,540,000	-
B1	$2,640,000	$2,570,000	$2,510,000	$2,380,000
B2	$3,570,000	$3,470,000	$3,490,000	A: $1,130,000
				B: $1,040,000
				C: $600,000
B3	$3,440,000	$3,570,000	$3,480,000	$2,850,000
B4	$2,870,000	$2,880,000	$2,630,000	$2,410,000
B5	$2,780,000	$2,800,000	$2,630,000	$2,410,000
B6	$3,440,000	$3,460,000	$3,480,000	$3,080,000
B7	$3,450,000	$3,470,000	$3,260,000	$2,980,000
B8	$2,640,000	$2,570,000	$2,510,000	A: $1,100,000
				B: $1,140,000
C1	$3,210,000	$2,810,000	$2,530,000	$2,130,000
C2	$2,940,000	$2,600,000	$2,310,000	$1,920,000
C3	$2,860,000	$2,520,000	$2,310,000	$1,860,000
C4	$2,940,000	$2,520,000	$2,310,000	$1,790,000
C5	$2,970,000	$2,550,000	$2,340,000	A: $420,000
				B: $530,000
				C: $610,000
C6	$2,590,000	$2,260,000	$2,040,000	$3,430,000
C7	$3,020,000	$2,660,000	$2,360,000	-
D1	$3,120,000	$2,950,000	$2,690,000	$2,290,000
D2	$3,400,000	$3,120,000	$2,770,000	$2,190,000
D3	$3,370,000	$2,990,000	$2,650,000	$2,340,000
D4	$3,260,000	$2,990,000	$2,740,000	$2,340,000
D5	$3,260,000	$3,090,000	$2,650,000	$2,420,000
D6	$3,370,000	$3,090,000	$2,650,000	$2,420,000
D7	$3,400,000	$3,120,000	$2,770,000	$2,360,000
D8	$3,190,000	$3,010,000	$2,740,000	$2,180,000
Sub-total:				$728,140,000

The total EUV of the Building is $1,088,770,000 ($360,630,000 + $728,140,000). The pro-rata EUV of R2’s Unit and R7’s Unit relative to the Building are therefore respectively 0.3068% and 0.3251%. Since R7(1) is only a tenant-in-common having a 78.5% interest in R7’s Unit, he will share according to the same proportion in the overall sale proceed of the Building and the Lot.

# R2’s Unit; *R7’s Unit

Whether the Applicants Have Taken Reasonable Steps

85.  The applicants are under an obligation to take reasonable steps to negotiate on terms that are fair and reasonable for the purchase of all the undivided shares of the Lot under section 4(2)(b) of the Ordinance.

86.  Before the commencement of the present proceedings, the applicants made the following offers to R2, R5 and R7 on 13 October 2014 as follows: -

R2 - $4,305,000

R5 - $4,040,000

R7 - $4,570,000

87.  Ms Lan submitted that the 1^st offers were based on the then valuation and were 5% over the respective proportionate share of the then RDV of the Lot (i.e. $1,321,000,000) as assessed by Ms Chow, but none of the respondents accepted them.  

88.  After the commencement of the present proceedings, the applicants made the following offers: -

	R2
	(i)	$4,510,000 on 6 March 2015
	(ii)	$4,992,000 on 31 March 2016
	(iii)	$5,786,000 on 1 September 2016
	R5
	(i)	$4,233,000 on 6 March 2015
	R7
	(i)	$4,788,000 on 6 March 2015
	(ii)	$4,154,000 on 31 March 2016 to R7(1) only
	(iii)	$5,126,700 on 1 September 2016 to R7(1) only

89.  Ms Lan submitted that the 2^nd offers on 6 March 2015 were 10% over the respective proportionate share of the then RDV of the Lot (i.e. $1,321,000,000) as assessed by Ms Chow.  Ms Lan further said that after the order dated 14 December 2015 for substituted service in respect of R5 and the R7(2), neither of them entered any appearance in the Tribunal, and therefore the applicants have subsequently made offers to R2 and R7(1) (i.e. 78.5% of the R7’s unit) only.

90.  Ms Lan submitted that the 3^rd offers on 31 March 2016 were 20% over the respective proportionate share of the then RDV of the Lot (i.e. $1,356,000,000) as assessed by Ms Chow, and were also higher than the respective shares of the then RDV of the Lot as assessed by Ms Sat at $1,556,000,000.  Ms Lan further said that the 4^th offers on 1 September 2016 were based on an earlier counter-offer from R7(1) in which he proposed to sell his share of interest in the R7’s unit at a consideration of $12,207/ft² based on an alleged saleable area of 535 ft², and they were higher than the respective share of the then RDV of the Lot as assessed by both Ms Chow at $1,416,000,000 and Ms Sat at $1,689,000,000.

91.  In assessing the reasonableness of the offers, there is the following guidance from Ribeiro PJ of CFA in Capital Well at [33] and [36]: -

“33. In making that assessment the Tribunal is not conducting a valuation exercise. It does not need to adjudicate upon any disputes about the correct valuation principles to be applied. It does not itself arrive at any conclusion as to what figure represents the correct valuation. It merely needs to be satisfied that, on the evidence available, the offer falls within the range of what may broadly be regarded as fair and reasonable compensation for the interest in question. It is obviously necessary to recognise that there will often be differences of opinion on that matter......”

“36. ......We are of course not suggesting that it is necessary for the offer to “beat” the valuation as if it were a payment into court. What the Tribunal must do is to consider whether, in the circumstances of each case, the offer falls within a band of what represents a fair and reasonable assessment of the value of the minority owner’s interest reflecting a proportionate share of the redevelopment value of the whole site......”

92.  There is no evidence before this Tribunal that Ms Chow’s assessments were faulted.  We consider that the applicants’ offers, which were based on professional valuation, do fall within a range of what may broadly be regarded as fair and reasonable. They are even higher than that based on the respondents’ own valuation. We are satisfied that the applicants have taken reasonable steps to acquire all the undivided shares of the Lot including those owned by R2, R5, R7(1) and R7(2). 

R7(1)’s Argument

93.  R7(1) argued that the applicants should have offered compensation based on gross floor area as opposed to saleable area. However, he stated no gross floor area of his unit at trial and only did so in his closing submissions. He said that based on his recollection, the gross floor area of his unit was 590 ft². He also alleged that the saleable area of his unit is 535 ft², but he did not state other than his memory how he arrived at his own figure as opposed to that of 48.25 m² (i.e. about 519 ft²) in Ms Chow’s report.  We consider R7(1)’s allegations not supported by proper grounds and evidence.  Further, we find no basis to adopt gross floor area in valuation when there is no standard definition of it in the market. It has been an established practice for practitioners using saleable area for comparison.

94.  Further, R7(1) is only a co-owner of R7’s unit, we find it reasonable in the circumstances for the applicants to make offers to him on a pro-rata basis, and the amounts offered are also reasonable in the circumstances.

Order for Sale

95.  We are satisfied that redevelopment of the Lot is justified in terms of age and state of repair of the Building. We are also satisfied that the applicants had taken reasonable steps to acquire all the undivided shares of the Lot and had negotiated for the purchase of the respondents’ shares in their respective units on terms that are fair and reasonable.  In the circumstances, we agree that an order for sale should be granted in favour of the applicants.

Reserve Price for the Auction

96.  Although the latest RDV assessed by Ms Chow was $1,416,000,000, the applicants asked to set the reserve price for auction of the Lot at $1,689,000,000, the RDV as at 12 September 2016 as assessed by Ms Sat and contained in the 2^nd Joint Statement of Experts dated 26 September 2016. At trial, Ms Chow confirmed that Ms Sat’s RDV assessment was considered to be within the reasonable range albeit on the upper end.  We consider that a higher reserve price for the auction in these proceedings is favourable to the respondents, and in any event appears not unfavourable to them.

97.  Mr Sat adopted residual method to assess the RDV of the Lot.  Residual method is the assessment of land value by deducting the development costs (including construction costs, professional fees, financial costs and profit, etc.) from the estimated gross development value (“GDV”) of the proposed development, as if completed, as at the date of valuation.

98.  Mr Sat opined that the optimum redevelopment on the Lot comprised a commercial/residential composite development with shops on ground and 1^st floors, E & M facilities on 2^nd floor, club house and recreational facilities on 3^rd floor, transfer plate on 4^th floor and domestic units on 5^th floor to 27^th floor (20 floors, without the 13^th, 14^th and 24^th floors).  Details of the hypothetical development with the proposed total gross floor area of 16,816 m² (i.e. excluding exempted balconies) and plot ratio of about 9, the GDV assessed (i.e. $359,000/m² saleable area for shops on ground floor, $108,000/m² saleable area for shops on 1st floor and $200,000/m² saleable area for domestic units on upper floors), the development costs adopted (i.e. average $31,617/m² gross floor area) and the residual valuation were set out in the revised residual valuation in the 2^nd Joint Statement of Experts. The residual land value was assessed at $1,689,000,000, which is equivalent to an accommodation value of about $100,400/m² gross floor area.

99.  Having gone through Ms Sat’s RDV valuation in the 2^nd Joint Statement of Experts, we accept that the market value of the Lot reflecting the redevelopment potential on its own, i.e. the RDV of the Lot, as at 12 September 2016 is $1,689,000,000, which should be the reserve price for auction of the Lot.

Whether Hysan Would Have an Impact on the RDV

100.  R2 contended that Hysanmay affect the RDV of the Lot because it was likely that the TPB, in light of Hysan, may relax certain restrictions such as the height restriction. At trial, Ms Sat confirmed that to the best of her knowledge, it was unlikely that Hysan might have any impact on her RDV assessment at $1,689,000,000.  R2 put in no further evidence to suggest how, and if so, to what extent Hysan would impact on the RDV valued by his appointed expert and agreed by the applicants. We cannot help come to the conclusion that it is a mere speculation on the part of R2. We do not consider Hysan having any bearing on the RDV.

Order

101.  By reason of the above, this Tribunal comes to the following decisions: -

	(i)		This Tribunal is satisfied that redevelopment of the Lot is justified due to the age and state of repair of the Building, and that the applicants have taken reasonable steps to acquire all the undivided shares in the Lot including those of the respondents;
	(ii)		All the undivided shares in the Lot, the subject of the application, be sold by way of public auction for the purposes of redevelopment of the Lot;
	(iii)		Mr Chow Wing Kin Anthony and Ms Chow Suk Han Anna, nominated by the applicants, be appointed the trustees (“the Trustees”) to discharge the duties imposed on them as trustees by the Ordinance in relation to the sale of the Lot; and the Trustees be authorized to charge such remuneration for their services in accordance with the terms set out in the letters of Messrs Guantao & Chow dated 6 September 2016;
	(iv)		For the purposes of the sale of the Lot by public auction:-
			(a)		The sale of the Lot be on the particulars and conditions of sale the same or substantially the same as those set out in the draft Particulars and Conditions of Sale to be approved and initialed by the Tribunal; and
			(b)		The reserve price be set at $1,689,000,000;
	(v)		Subject to further extensions that the Tribunal may subsequently allow upon the application of the purchaser of the Lot or its successor in title, the redevelopment of the Lot and the Building shall be completed and made fit for occupation within a period of 6 years after the date on which the purchaser of the Lot becomes the owner of the Lot;
	(vi)		Liberty to the applicants, the respondents and the Trustees to apply to the Tribunal for further directions.
	(vii)		The applicants do publish notices once in a Chinese language newspaper (and in Chinese language) and once in an English language newspaper (and in English language) circulating generally in Hong Kong within 21 days from the date of this order informing R5, R7(2) and all persons claiming to be owners of the Lot that: -
			(a)		The Tribunal has made an order for sale of the Lot; and
			(b)		Where and the times during which a copy of the order may be obtained.

Costs

102.  Following Good Faith, we make a costs order nisi that the applicants do pay costs of these proceedings to R2 and R7(1) on High Court scale, to be taxed if not agreed.  Unless any of the parties apply by summons to vary, the costs order nisi shall be made absolute upon expiry of 14 days from today.