SUPREME HOST INVESTMENTS LTD AND ANOTHER v.THE PERSONAL REPRESENTATIVE OF THE ESTATE OF CHENG LAI CHIT, DECEASED AND OTHERS

LDCS 19000/2020

[2023] HKLdT 22

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LAND COMPULSORY SALE MAIN APPLICATION NO 19000 OF 2020

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JUDGMENT

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BACKGROUND

1.  This is the applicants’ application for an order for sale, for the purposes of redevelopment under the Land (Compulsory Sale for Redevelopment) Ordinance, Cap 545 (“the Ordinance”), of all the undivided shares of and in New Kowloon Inland Lot No 4779 (“the Lot”) together with the building erected thereon known as Dragon Court, No 6 Eastbourne Road, Kowloon (“the Building”).

2.  The Building is a 5-storey residential building, consisting of 11 connected blocks over a carport on ground floor. Every 2 blocks are served by 1 common staircase, except for Block D3 which is solely served by 1 common staircase. Two occupation permit Nos K185/67 and K23/68 were issued for the Building on 2 August 1967 and 14 February 1968, granting permission to occupy its ground floor as switch room and carpark for non-domestic use and 11 flats per floor from 1^st floor to 4^th floor for domestic use. According to the approved building plans of the Building, there are 44 car parking spaces planned on ground floor and 11 domestic units planned on each upper floor from 1^st floor to 4^th floor.

3.  The Lot together with the Building standing thereon is allocated 44 undivided shares. Each of the domestic units, which is assigned with a specific car parking space on ground floor, is given 1 undivided share, making up a total of 44 undivided shares. Each of the domestic units on 4^th Floor is also assigned with roof above.

SECTION 3 OF THE ORDINANCE – OWNERSHIP OF THE APPLICANTS

4.  At the time of filing of the Notice of Application (“NOA”) on 13 July 2020, there were 8 respondents and the applicants owned 81.82% (i.e. 36 out of the total 44) undivided shares in the Lot, more than the threshold of 80% required for building aged 50 years or above.

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

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

7.  The Land (Compulsory Sale for Redevelopment) (Specification of Lower Percentage) Notice, made under section 3(5) of the Ordinance (“the Notice”), was gazetted on 22 January 2010 and came into operation on 1 April 2010. Section 3 of the Notice lowered the threshold for compulsory sale of specified classes of lots from 90% to 80%. Those classes of lots include:

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

8.  Since the occupation permits of the Building were issued in 1967 and 1968, i.e. more than 50 years before the date of application (i.e. 13 July 2020; the relevant date under the Notice), the applicable percentage is therefore 80%.

9.  I am satisfied that as at the date of application, the applicants owned more than 80% of the undivided shares in the Lot. I am therefore satisfied the applicants are entitled to make the present application under section 3 of the Ordinance.

THE REMAINING RESPONDENTS

10.  After the filing of the NOA, the applicants amended the NOA on 16 September 2021 and re-amended the NOA on 29 September 2022 pursuant to the Orders of the tribunal.

11.  At trial, the applicants still owned 81.82% (i.e. 36 out of the total 44) undivided shares in the Lot. The following 8 respondents (“the respondents”) remain in the present action: -

Respondent		Premises
1st Respondent	(“R1”)	Apartment B-1 on 1st Floor of Block B-1 together with Car Parking Space No 21 (“R1’s Property”)
2nd Respondent	(“R2”)	Apartment B-2 on 1st Floor of Block B-2 together with Car Parking Space No 18 (“R2’s Property”)
3rd Respondent	(“R3”)	Apartment C-1 on 4th Floor of Block C-1 together with Roof of Block C-1 and Car Parking Space No 28 (“R3’s Property”)
4th Respondent	(“R4”)	Apartment C-2 on 1st Floor of Block C-2 together with Car Parking Space No 38 (“R4’s Property”)
5th Respondent	(“R5”)	Apartment D-1 on 3rd Floor of Block D-1 together with Car Parking Space No 4 (“R5’s Property”)
6th Respondent	(“R6”)	Apartment D-1 on 4th Floor of Block D-1 together with Roof of Block D-1 and Car Parking Space No 6 (“R6’s Property”)
7th Respondents	(“R7”)	Apartment D-2 on 1st Floor of Block D-2 together with Car Parking Space No 36 (“R7’s Property”)
8th Respondent	(“R8”)	Apartment D-2 on 4th Floor of Block D-2 together with Roof of Block D-2 and Car Parking Space No 5 (“R8’s Property”)

12.  R1 had been represented by Messrs Zhong Lun Law Firm LLP and had also filed her Notice of Opposition dated 29 September 2020, which took issue on valuation only. Nevertheless, R1 was subsequently found to be dead on 3 February 2022 without any grant of probate or letter of administration to execute / administer her estate. R1 was unrepresented and did not appear at trial.

13.  R2, R5 and R6 are represented by Mr Ross Yuen (“Mr Yuen”) and Ms Amy Chan. They take issue primary on “age and state of repair” of the Building and valuation including the exiting use value (“EUV”) and redevelopment value (“RDV”) as assessed in the application, and put the applicants to strict proof in respect of “reasonable steps” to acquire all the undivided shares in the Lot. R2, R5 and R6 have appointed Mr Raymond Lo Man Chiu (“Mr Raymond Lo”) of Leadtops Raymond Limited as their structural engineer, Mr Remus Wong Wai Kong (“Mr Remus Wong) of Amazing Group Limited as their building surveyor, and have also jointly appointed Mr Patrick W C Lai (“Mr Patrick Lai”) of AA Property Services Limited together with R3, R4, 2^nd named R7 and R8 as their valuation surveyor.

14.  R3, R4, 2^nd named R7 and R8 are represented by Ms Becky Wong (“Ms Wong”). They take issue primary on valuation including the assessments of both EUV and RDV, and “reasonable steps” to acquire all the undivided shares in the Lot. They have jointly appointed Mr Patrick Lai together with R2, R5 and R6 as their valuation expert. In addition, they also take issue on “age and state of repair” of the Building, though they have not adduced any building expert reports in these proceedings.

15.  1^st named R7 has come to act in person at trial. He does not oppose an order for sale of the Lot and takes issue on valuation only. Although he has not adduced any valuation reports, he has made representations and submissions at trial.

16.  The applicants are represented by Mr C Y Li SC (“Mr Li”), Ms Chantel Lin and Mr Chester Kwan. They have appointed Mr Arthur Yung Hun Tat (“Mr Arthur Yung”) of Arthur Yung and Associates Company Limited as their structural engineer, Mr Benson Wong Sai Ning (“Mr Benson Wong”) of Benson Wong & Associates Limited as their building surveyor and Mr Alnwick Chan Chi Hing (“Mr Alnwick Chan”) of Knight Frank Petty Limited (“Knight Frank”) as their valuation surveyor.

ISSUES FOR DETERMINATION BY THE TRIBUNAL

17.  The remaining issues to be decided in this case are as follows:

1)  What was the respective EUV of all units in the Building as at 29 April 2020, the valuation date adopted in the application valuation report dated 10 July 2020, as assessed in accordance with Part 1 of Schedule 1 of the Ordinance?

2)  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?

3)  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?

4)  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?

DETERMINATION OF THE EUV OF ALL UNITS IN THE BUILDING

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

19.  While R1 was absent at trial, all the respondents dispute on the valuation as assessed in the application.

20.  In the EUV assessment by direct comparison method, the 2 valuation experts agree on the valuation date of 29 April 2020 and the particulars of all units in the Building and the comparables, but they argue over selection of reference unit(s) and conversion rate for roof in the assessment. They also argue whether Unit D1 on 3^rd Floor and Unit D1 on 4^th Floor should be valued as two separate units or a duplex unit. Although they agree on selection of 2 common comparables (i.e. Comparables ED1 and ED2), Mr Alnwick Chan and Mr Patrick Lai have proposed another comparable (i.e. Comparable ED5) and 2 other comparables (i.e. Comparables ED3 and ED4) respectively.

Selection and EUV of the Reference Unit

21.  The 2 valuation experts agree to adopt the same domestic reference unit (i.e. Unit C4 on 1^st Floor), but they differ in the approach of the assessment. Mr Alnwick Chan have identified 2 other reference units (i.e. 1 covered car parking space and 1 open car parking space) for the car parking spaces and proposes to separate the assessment of each car parking space from the assessment of each domestic unit, whilst Mr Patrick Lai suggests to value each domestic unit together with its ancillary car parking space as one entity. Nevertheless, they agree on the attributes of each car parking space and their differences in value. There are 6 types of car parking space depending on their respective location (i.e. being cover or open) and manoeuvring space. There is also further downward adjustment at $50,000 for Car Parking Space Nos 22, 23, 24 and 25 to reflect their extraordinary narrow width.

22.  From valuation perspective, unless the flat comparable is similar to the domestic reference unit in size, I consider that the ancillary car parking space if any should better be assessed separately and then its value be deducted from the consideration of the flat comparable, otherwise size of the flat comparable would substantially affect its effective unit rate. A smaller domestic unit together with an ancillary car parking space would usually have a higher effective unit rate because value of the ancillary car parking space would be spread over lesser floor area.

23.  In the present case, since there are not many relevant flat comparables, and 2 of the flat comparables (i.e. Comparables ED2 and ED5) are relatively small in size, I prefer Mr Alnwick Chan’s approach to that of Mr Patrick Lai. Although Mr Alnwick Chan has proposed only 2 car parking space comparables and these 2 comparables have their respective limitations in the assessment (i.e. one was in fact a transaction together with a residential unit, and another is located in a development with provision of car parking space more than the number of residential unit), I am of view that in the absence of contrary evidence the assessed values of $820,000 (i.e. covered car parking space with narrower manoeuvring space) and $620,000 (i.e. open car parking space with narrower manoeuvring space) are reasonable and they can be applied in the subject valuation.

24.  Given that there are not many comparables, I am also of the view that the additional comparables adopted by the 2 valuation experts respectively should firstly be analysed, but their results would be reviewed. Although Comparables ED3 and ED4 were transacted during the COVID-19 pandemic period and 6 to 7 months after the valuation date, they can be adjusted by time indices. Although Comparable ED5 is relatively small in size and has no attachment of car parking space, its size in fact is similar to one of the common comparables, Comparable ED2.

25.  Regarding the conversion rate for roof, I prefer 1/6 as suggested by Mr Patrick Lai to 1/8 as proposed by Mr Alnwick Chan. I consider that the roofs, which can be physically separated with clear boundary in low-rise apartment buildings and in low-density residential areas, are more valuable and would justify a higher conversion rate.

26.  The valuation of the domestic reference unit is listed in Appendix I of the judgment. The 2 valuation experts agree on the adjustment for time with reference to private domestic (Classes A, B & C and territory-wide) price indices, adjustment for age at 0.5% for every 1-year difference, adjustment for floor at 2% for every 1-floor difference, and adjustment for headroom at 2% for every 1-meter difference.

27.  Regarding the adjustment for location, I agree with Mr Patrick Lai that the reference unit in the upper part of Kowloon Tong with better living environment is better than all 5 comparables in Yau Yat Tsuen with better accessibility, but the adjustment rate for Comparable ED1, in a relatively quiet environment, should be 1.5% only and the adjustment rate for the other 4 comparables should be 2.5% only, instead of all 10% as suggested by Mr Patrick Lai and all nil adjustment as proposed by Mr Alnwick Chan.

28.  Regarding the adjustment for size, I prefer the less sensitive rate at 1% per every 10-square meter difference (linear approach) as suggested by Mr Patrick Lai to 2% per every 10-square meter difference (threshold approach) as proposed by Mr Alnwick Chan. With the aid of computer, linear approach can be adopted conveniently, and it can also avoid the sharp change in adjustment. If Mr Alnwick Chan’s approach is adopted, it is odd to have a difference in adjustment of 2% between a comparable unit of say 80.54 square meters (i.e. 70.55 + 9.99) and another comparable unit of say 80.55 square meters (i.e. 70.55 + 10). I am also of the view that size is generally not so sensitive in the valuation of medium-sized residential unit.

29.  In terms of view, I consider that consideration should not be confined to the view of living room only as proposed by Mr Alnwick Chan. I consider that the view of other rooms in a unit is also relevant, and the reference unit with building view is similar to all comparables, except for Comparable ED2, which has close building view only, but Comparable ED2 should be adjusted at 2% instead of 4% as suggested by Mr Patrick Lai.

30.  In terms of lightning and ventilation, consideration should not be confined to that of the living room too, and the total number of aspect in a unit is also relevant. I am of the view that Comparable ED5, which has a single aspect only, should be adjusted at 1%.

31.  The average unit rate of the 5 comparables is about $168,643. I consider that the adopted unit rate for the reference unit (i.e. excluding value of car parking space) should be $173,000 per square meter, close to the adjusted unit rates of the 2 common comparables.

EUV of All Units in the Building

32.  In the comparison between the reference unit and the other units in the Building, the 2 valuation experts agree on the adjustment for floor at 2% per 1-floor difference and adjustment for age at 0.5% per 1-year difference (i.e. Units D1, D2 and D3 completed in 1968 are adjusted at 0.5%). They disagree on the adjustments for size, number of en-suite bathroom, internal condition, view, lighting and ventilation. They also argue whether or not adjustments should be made for duplex unit, orientation and roof view.

33.  Under the market reality approach, I consider that Units D1 on 3^rd Floor and 4^th Floor, which are owned by 2 different legal entities, and their connection by a staircase up to the roof, which is an unauthorized building work, should be valued as 2 separate residential units. Even if these 2 units have common ultimate beneficial owners, the plan of each beneficial owner on each unit may be different. Even if there was no enforcement action against the unauthorized building work in the past, the internal staircase particularly the section up to the roof, is subject to the risk of enforcement action. In any event, from valuation perspective, I consider that a duplex unit in an aged residential building without lift service has limited demand as at the valuation date and as compared with a typical flat has no enhancement in value. On the contrary, a larger unit in this instance would have downward adjustment for size.

34.  In terms of size, similar to the valuation of reference unit, I prefer the less sensitive rate at 1% per every 10-square meter difference (linear approach) as suggested by Mr Patrick Lai to 2% per every 10-square meter difference (threshold approach) as proposed by Mr Alnwick Chan.

35.  Regarding the adjustment for number of en-suite bathroom, I consider that the additional bathroom of Unit D2 on 1^st Floor should have some benefits, but the adjustment rate should be say 1% only instead of 3% as suggested by Mr Patrick Lai.

36.  In term of internal condition, the 2 valuation experts agree on the grading of each unit but they disagree on the adjustment rate for each grade. I prefer the less sensitive rate at 2% per grade as proposed by Mr Alnwick Chan to 3% per grade as suggested by Mr Patrick Lai. I am of the view that purchaser of residential unit in aged building is generally less sensitive to internal condition because most of such purchasers would have plan to spend on renovation upon acquisition.

37.  Regarding the adjustment for view, I consider that it can also comprise the adjustment for orientation and the adjustment for lighting and ventilation in this instance, which are all closely related to each other. In terms of grading, I prefer 5 classifications instead of 2 only proposed by Mr Alnwick Chan and 9 suggested by Mr Patrick Lai. I am of the view that Units D1 and D2 have the best open view towards the south and enjoying better lighting and ventilation, which should be adjusted at 12% as compared with the reference unit with building view only. The 2 bedrooms of Unit A1 can also enjoy the open view similar to Units D1 and D2, and it should be adjusted at 5%. Units B2 and C2 that are corner units should be adjusted at 2%. Unit D3 has building view similar to the reference unit. Units A2, B1, C1 and C3 have close building view only, and they should be adjusted at -2%.

38.  I disagree with Mr Patrick Lai to make further adjustment for roof view. The quality of ancillary roof including its view should be similar to the quality of its main unit. In the application of the same conversion rate at 1/6, the superiority or inferiority of each roof view should have already been reflected in the valuation.

39.  The valuation of each unit is listed in Appendix II. The EUV of all units in the Building as at the date of valuation, i.e. 29 April 2020, and adopted by this tribunal are appended below: -

Floor Unit CPS EUV 1 A1 10 $17,410,000 1 A2 20 $14,948,000 1 B1 21 $12,749,000 1 B2 18 $13,562,000 1 C1 23 $11,130,000 1 C2 38 $11,775,000 1 C3 29 $11,124,000 1 C4 42 $13,067,000 1 D1 14 $17,097,000 1 D2 36 $19,312,000 1 D3 12 $17,484,000 2 A1 8 $16,798,000 2 A2 26 $14,998,000 2 B1 44 $12,274,000 2 B2 31 $13,122,000 2 C1 24 $11,130,000 2 C2 16 $11,100,000 2 C3 34 $11,275,000 2 C4 33 $12,773,000 2 D1 1 $16,820,000 2 D2 2 $18,681,000 2 D3 30 $16,965,000

Floor Unit CPS EUV 3 A1 9 $16,432,000 3 A2 19 $14,165,000 3 B1 37 $12,043,000 3 B2 43 $13,110,000 3 C1 40 $11,016,000 3 C2 39 $11,132,000 3 C3 25 $10,411,000 3 C4 35 $12,529,000 3 D1 4 $17,005,000 3 D2 7 $18,714,000 3 D3 13 $16,430,000 4 A1 22 $17,918,000 4 A2 11 $15,893,000 4 B1 27 $12,743,000 4 B2 15 $13,335,000 4 C1 28 $12,257,000 4 C2 32 $11,677,000 4 C3 17 $11,427,000 4 C4 41 $13,496,000 4 D1 6 $18,761,000 4 D2 5 $20,537,000 4 D3 3 $18,768,000 Total $635,393,000

40.  I therefore accept that the total EUV of the Building is $635,393,000.

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

41.  Section 4(2) of the Ordinance provides as follows: -

“2. The Tribunal shall not make an order for sale unless, after hearing the objections, if any, of the minority owners of the lot the subject of the application under section 3(1) concerned, the Tribunal is satisfied that—

(a) the redevelopment of the lot is justified (and whether or not the majority owner proposes to or is capable of undertaking the redevelopment)—

(i) due to the age or state of repair of the existing development on the lot; or

(ii) on 1 or more grounds, if any, specified in regulations made under section 12; and

(b) the majority owner has taken reasonable steps to acquire all the undivided shares in the lot (including, in the case of a minority owner whose whereabouts are known, negotiating for the purchase of such of those shares as are owned by that minority owner on terms that are fair and reasonable).”

42.  The applicants must satisfy this tribunal the above statutory requirements are met; otherwise, an order for compulsory sale would not be granted.

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

43.  Mr Yuen submits that safety is obviously the most convincing factor in justifying redevelopment, but there is no imminent danger to the Building in the present case. Other than the reason of safety, the applicants would have a heavy burden to persuade the tribunal as to why anything less than safety would justify redevelopment, but the applicants do not have any concrete proof in these proceedings. It is particularly so under the Ordinance in that redevelopment is undertaken by a private entity which, unlike a public body, is not accountable to the public.

44.  Based on the findings and expert opinion of Mr Remus Wong and Mr Raymond Lo, Mr Yuen further submits that the applicants’ building experts have failed to show how age itself is a justification for redevelopment. The physical age of the Building per se is not determinative of whether the Building should be redeveloped or not. The physical and functional obsolescence as opined by Mr Benson Wong under the consideration of “age” of the Building are his highly subjective personal preference only and/or are trivial.

45.  The building and structural conditions of the Building do not justify redevelopment too. The Building has a good record of self-initiated major maintenance back in 2007-8 when the Building was only around 40 years old, and future deterioration of the Building could be effectively prevented by timely inspection and maintenance in accordance with the timeframe of Mandatory Building Inspection Scheme (“MBIS”), Mandatory Window Inspection Scheme (“MWIS”), Guideline for Periodic Inspection, Testing and Certification (“PITC”) Work and Annual Inspection of Building Fire Service Installation. In addition, the units owned by 6 out of the 8 respondents were in fact rated in good conditions by both valuation experts, and some of the defects in the Building were caused by the applicants’ irresponsible attitude towards the upkeep of the Building only. On the contrary, R2, R5 and R6 represented by him have always been willing to contribute towards the general upkeep of the Building.

46.  The applicants’ repair costs have been exaggerated. Mr Remus Wong disagrees with Mr Benson Wong’s description of “state of repair” to include the finishes resulted from normal wear and tear, particularly when some of the applicants’ units were unoccupied for a long period. In the opinion of Mr Remus Wong, “state of repair” should not include finishes except those posing danger to safety and hygiene. On the other hand, the comparison between repair cost and construction cost as advanced by Mr Benson Wong is inaccurate. This comparison is also irrelevant, because the economic worthiness to repair is a commercial decision without any objective standard and its result depends on the perspective that one may take only.

47.  The applicants replied and disagree with most of Mr Yuen’s submissions. Mr Li submits that Mr Arthur Yung and Mr Benson Wong have already proved that the redevelopment of the Lot is justified due to both “age” and “state of repair” of the Building.

48.  Although I may not agree with each and every finding, expert opinion and submission of the applicants, I accept that the redevelopment of the Lot is justified in terms of both “age” and “state of repair” of the Building. I prefer the conclusions and recommendations of the applicants’ experts to those of the respondents’ experts.

49.  The Building, being erected more than 55 years ago, is in poor condition and has come to the end of its design life. The design of the Building has become obsolete over time in many aspects, both physically and functionally, and fails to conform to modern safety standards and statutory requirements. I am also of the view that the Building is in poor state of repair and the cost of repair to bring the Building to tenantable condition is disproportionate to the cost for constructing a new similar superstructure. Even if repair works are carried out, such works will bring about a modest improvement only to the existing condition of the Building and the Building will continue remain a sub-standard one.

50.  The findings and arguments of Mr Raymond Lo and Mr Remus Wong in these proceedings are basically similar to those in Asia Rich Incorporation Limited and Others v Li Kam Wah, the Administrator of the Estate of Ma Kwai Fa, Deceased and Others [2023] HKLdT 9, which was heard in August 2022 and its judgement has just been handed down by the same panel of the tribunal on 1 February 2023. In Asia Rich, Mr Raymond Lo and Mr Remus Wong were the respondents’ building experts, while Mr Benson Wong was also the applicants’ building surveyor, and Mr K S So was the applicants’ structural engineer, and the tribunal finally preferred the conclusions and recommendations of Mr K S So and Mr Benson Wong to those of Mr Raymond Lo and Mr Remus Wong.

51.  I have decided in Asia Rich the following principles, which are relevant to and are also accepted by me in these proceedings: -

(i)  The starting point is that the existing building does not have to become dangerous before an order for sale can be made. (§58)

(ii)  In the assessment under the Ordinance, structural engineering expert should not rely on mainly the average value(s), but should also examine and review the weakest point(s) of the structural frame. Even if parts of the survey results are above standards these cannot assist to infer that the overall condition of the building should be acceptable. A few defects could lead to an unacceptable condition. (§60)

(iii)  The comparison with the 2013 Concrete Code, which had then newly addressed robustness and ductility, is relevant and should be one of the considerations because it can review to what extent the existing building falls short of modern-day standards. However, one should not put much reliance on such comparison in the assessment because all buildings built before the promulgation of this code would generally not be in compliance. The same principle also applies to the comparison with design working life because all buildings over 50 years would very likely have passed their design working life too. (§63)

(iv)  Although structural form and details of a building have already allowed some basic provisions of robustness and ductility, more stringent requirements of robustness and ductility are necessary, and the ETABS test, a computer model that shows the lateral deflection under codified wind load, cannot assess robustness and ductility effectively because this model can prove mainly the requirements of deformations due to wind load only. (§64)

(v)  The reliance of Mandatory Building Inspection Scheme (“MBIS”) is misplaced. Compliance with MBIS if any cannot be taken to mean that the building’s physical life would be automatically extended for 10 years after completing the relevant works as required under the scheme. Government control like MBIS may sometimes set the minimum requirements only, and these minimum requirements can never be assumed as a guarantee of the building condition before the next enforcement date. (§65)

(vi)  In terms of building conditions survey, similar to the adoption of the 2013 Concrete Code in the structural assessment, comparisons with modern-day standards are relevant but their importance in the assessment should not be over exaggerated as all old buildings would to a certain extent not be in compliance with the current codes. (§66)

(vii)  The “tenantable / habitable condition” or “tenantable condition” (as suggested by Mr Remus Wong in this case), which has no clear definition, is ambiguous, and the “habitable condition” would to a certain extent set the minimum standards only and cannot meet the general demand nowadays. Whilst, the “tenantable condition”, which is defined as “that the building should be fit for the use by its occupiers and visitors in the sense that it is safe and hygienic, and provides a standard of comfort and convenience which is reasonable in the present-day circumstances for the type of building in question”, has long been accepted by the tribunal. (§69)

(viii)  The tribunal has no objection to compare the repair costs with the EUV, which can be an indicator to estimate the willingness of the owners to spend costs on repair. (§74)

52.  Nevertheless, there are some new disputes and submissions in the present case, and the facts in Asia Rich are also different, which are discussed and determined in the following paragraphs: -

(i)  I am of the view that physical age of the Building is certainly one of the relevant factors under the Ordinance, and this should be considered together with other facts and findings in these proceedings before a decision is made. A relevant factor may not be a determinative factor, but the tribunal should consider all relevant factors in the determination.

(ii)  I accept that opinion on obsolescence is relatively subjective, but this is also one of the relevant factors under the Ordinance. In fact, I agree with Mr Benson Wong that the Building is of one continuous plain look block of flats with monotonous elevations, low-cost external building finishes and an overall untidy appearance. The design and construction of the structural frames of the Building had only compiled with the less stringent structural requirements applicable more than 50 years ago. Its fire escape arrangement is unsatisfactory and the fire resisting construction is outdated. It is also lack of fire service systems, barrier free access facilities, refuse storage and material recovery chamber, building features for weather protection, equipotential bonding for exposed metal fixtures, lightning protection system, common circulation areas, building management system, and management / recreational / access facilities.

(iii)  I accept that some of the above deficiencies can be fixed and are not so important in the comparison, but they are not trivial that can be ignored. Anyhow, I consider that much more important in the consideration of “age” under the Ordinance should be the prevailing condition of the Building commensurate with its age and type of building. The prevailing condition of the Building is also the main consideration of the “state of repair”.

(iv)  I agree with the applicants that the building and structural conditions of the Building is poor commensurate with its age and type of building, which can be reflected in the building condition survey and structural assessment survey. The Building has not been properly maintained in the past. On evidence, there were only 2 repairs carried out during the two periods in 2007-2008 and 2018-2020, but they cannot be termed as planned or regular maintenance. They were not preventive, or improvement, in nature too. The Building Orders and Notices issued in the past to the Incorporated Owners and some owners in the Building are also the objective reference that the Building to some extent had no proper and regular maintenance.

(v)  The repair works in 2018-2020 were minor and mainly ad hoc items to deal with the then immediate defects only. The repair works in 2007-2008 about 15 years ago covered more items, but other than repainting works and replacement of fresh water pipes and drainage system, they were only patch repairs and there was no major repair to the structural frames.

(vi)  In terms of structural assessment, Mr Arthur Yung and Mr Raymond Lo argues about mainly the interpretation of the test results. In these proceedings, Mr Raymond Lo accepts the test results of Mr Arthur Yung except for his cover-meter survey only, which was not performed by a HOKLAS accredited laboratory, and Mr Arthur Yung has not provided any survey sheet in this regard. Nonetheless, I accept Mr Arthur Yung’s cover-meter survey result for analyses, but this would be viewed with scrutiny. Before the analyses, there is no persuasive evidence to doubt his creditability.

(vii)  Having reviewed the structural test results, I have the following observations: -

1.  Compression Test: According to Mr Arthur Yung’s test results, 39% (19 out of 49) of the samples are below the design requirements (20.7 MPa and 31.0 MPa) on the approved structural plans, which are also adopted by Buildings Department, and 40% (6 out of 15) of Mr Raymond Lo’s samples (i.e. without samples of column) are also below these design requirements. Even if Mr Raymond Lo’s design requirements (15.5 MPa and 23.6 MPa) are adopted, about 20% of the samples fail.

2.  Cement Content Test: 66.7% (4 out of 6) of Mr Arthur Yung’s samples are below 14% cement content as specified in the approved plans. Even if Mr Raymond Lo’s standard (12% cement content) as required under the LCC By-laws is adopted, 33.3% (2 out of 6) of the samples fail. Further, if the standard is taken to be 14% cement content, 50% (5 out of 10) of Mr Raymond Lo’s samples fail. Even using the average value and the lower requirement of 12% as opined by Mr Raymond Lo, his beam samples fail by only averaging at 11.7% cement content.

3.  Cover-meter Survey: According to Mr Arthur Yung’s test results, although all column and wall samples fulfil the original design, 2011 Fire Code and 2013 Concrete Code for concrete cover, 25% (1 out of 4) of the slab samples and 60% (3 out of 5) of the beam samples do not meet the design requirements in the approved plans, all slab samples and all but one beam samples do not meet the 2011 Fire Code, and all slab and beam samples do not meet the 2013 Concrete Code. Whilst, Mr Raymond Lo presents the average value, and the average value of his slab samples do not meet the 2013 Concrete Code.

4.  Carbonation Depth Test: According to Mr Arthur Yung’s test results, the carbonation depths in all 6 slab samples, all 6 beam samples, 50% (3 out of 6) of the column samples and 40% (2 out of 5) of the wall samples exceed concrete cover in the approved plans, and the greatest carbonation reached 119.88mm, which translates to 2.18mm per year for a 55-year old building. Whilst, Mr Raymond Lo presents the average value and his test results are compared against actual thickness of finishing, and in any event the average value of his slab samples have reached the reinforcement.

5.  Chloride Content Test: Both structural engineers agree the chloride content as revealed by the test results are not serious.

6.  Open Up Inspection: Only Mr Raymond Lo has carried out open up inspection. 38% (44 out of 116) of the samples do not have corrosion, and the rest are under slight corrosion.

(viii)  In addition, the 2 structural engineers have carried out visual inspections, and they agree that their visual inspections do not reveal imminent or immediate structural danger. Nevertheless, Mr Arthur Yung finds 625 numbers of structural elements exhibiting defects of spalling or cracks in the areas inspected, and Mr Raymond Lo after considering Mr Arthur Yung’s identification of spalling or cracks opines that there are 184 defects only, an increase of 87 defects from his original identification.

(ix)  Mr Arthur Yung and Mr Raymond Lo have argued extensively about the design requirements of concrete strength and the thresholds for comparison of cement content. I agree with Mr Li that compression test and cement content test are closely related to show the concrete quality, and the objective results of both tests in these proceedings show that there are concerns with concrete quality irrespective of the design requirements and thresholds as opined by the 2 structural engineers. Nonetheless, I prefer the design requirements and thresholds as adopted by Mr Arthur Yung to those of Mr Raymond Lo, because the formers are specified in the approved plans and/or adopted by Buildings Department.

(x)  Both structural engineers have also argued extensively about the factor of safety, which is related to the design requirements. Mr Raymond Lo comments that even though some of Mr Arthur Yung’s samples were observed to be below the original design strength requirements, a factor of safety of more than 2, or even 4 as lately opined by him at trial, should be taken into consideration. I consider that the test results should better be compared with the original design requirements and/or the latest design codes. I agree with Mr Li that for the structural members which had less concrete strength than the original design requirements, they would also have less factor of safety than as designed.

(xi)  The difference in the expert’s estimated costs of structural repair is relatively small (Mr Arthur Yung: $502,848; Mr Raymond Lo: $310,000), and the difference is mainly attributable to the cost estimate for patch repairs at the interior flats. With the benefit of site inspection together with the parties, that both the external and internal conditions of many flats appeared to be dissatisfactory, I prefer Mr Arthur Yung’s estimation to Mr Raymond Lo’s estimation. I accept that some of the defects of the Building can be repaired at a reasonable cost, but the patch repair proposed by Mr Raymond Lo cannot rectify the concrete quality particularly the concrete strength of columns, and the corrosion in the Building is irreversible.

(xii)  In terms of building condition, the 2 building surveyors disagree on the amount of repair cost. They argue whether the proposed repairs should include the finishes resulted from normal wear and tear. Given that I accept the tenantable condition standard as adopted by Mr Benson Wong, I consider that the proposed repairs should include finishes other than those posing danger to safety and hygiene. In addition to safety and hygiene, the tenantable condition standard would take into consideration of comfort and convenience.

(xiii)  On the evidence before the tribunal and as compared with the applicants’ units, most of the respondent’s units are kept in a better condition. The better condition of the respondents’ units may be a reason why the respondents did not sell their properties to the applicants by private treaty, but this should not be the acceptable reason to exclude some of the repair costs to the interior of the units and/or the common areas in the analyses. Whether or not the applicants had deliberately let their flats unoccupied and had also caused some defects in the Building should be a separate issue. In any event, this point has never been pleaded by the respondents and the applicants has no chance to reply with evidence.

(xiv)  In addition, whether or not some of the respondents prefer repair to redevelopment and are willing to pay repair cost is not relevant in the assessment of the repair cost.

(xv)  Mr Benson Wong and Mr Remus Wong estimate the total repair cost at $23,163,245 and $7,548,877 respectively, and there are great differences in the costs for preliminary, building facades, roof, common area at ground floor carpark, and flats internally.

(xvi)  With the benefit of site inspection together with the parties and on acceptance of tenantable condition standard in the analyses, I prefer the repair costs as proposed by Mr Benson Wong to that of Mr Remus Wong, except for the cost in relation to the proposed re-lay of concrete slab in the carpark. I agree with Mr Remus Wong to apply patch repair to the ground floor carpark surface. The non-uniformity in level after patch repair as complained by Mr Benson Wong is to some extent a matter of workmanship. I am also of the view that a slight difference in level and colour on the carpark surface after patch repair would still be acceptable under the tenantable condition standard commensurate with the type of the Building.

(xvii)  In the estimation of defective areas on external facades, both building surveyors have made reference to their respective infrared thermographic surveys and visual inspections. While they acknowledge that the infrared thermographic survey would to a certain extent have limitations, they derive results divergently. With the benefit of site inspection and with reference to the photos in the Building Condition Inspection Bundle, I agree with Mr Benson Wong that the defective areas on external facades are much more than 4% as estimated by Mr Remus Wong. Some of the cracks as seen upon site inspection were not hairline cracks and minor cracks as opined by Mr Remus Wong, and there were more noticeable cracks on the external facades of 1^st floor and 4^th floor.

(xviii)  In any event, it is reasonable to replace all the external walls of the Building for over 55 years and in dissatisfactory condition, and it is also a good practice to add movement joint upon replacement of the external walls. I also agree to build covered walkway and scaffoldings including protective screens and catch fans as recommended by Mr Benson Wong, which can assist to the repairs of A/C external units, drying racks and external window canopies, and removal of asbestos and unauthorized structures too.

(xix)  Regarding the repair to the roof, I prefer complete replacement of waterproofing and roof coverings as proposed by Mr Benson Wong. I agree with Mr Benson Wong that there are signs of water seepage from the roof in some top floor units, and the useful lifespan of the existing waterproofing has lapsed too. Some of the defective waterproofing might have been repaired on an ad hoc basis in the past but such piecemeal repair on some selective areas only could not cure the root problem.

(xx)  On adoption of the tenantable condition standard as defined by Mr Benson Wong, it is reasonable to include the repair to the drainage system, plumbing and flats internally as proposed by Mr Benson Wong. Tenantable condition standard would cover not only the essential works only as suggested by Mr Remus Wong. Comfort and convenience for the type of building in question should also be taken into consideration.

(xxi)  The difference in the cost for preliminary is attributable to mainly the difference in the total cost as estimated by the 2 building surveyors. While I accept in these proceedings most of the repair works proposed by Mr Benson Wong, it is also reasonable to adopt Mr Benson Wong’s cost for preliminary with breakdown to Mr Remus Wong’s cost that is based on an average percentage only. I consider that the items in the cost for preliminary as proposed by Mr Benson Wong, including site management, site office and premium for contractor’s all risk insurance, are necessary and reasonable.

(xxii)  I also accept Mr Benson Wong’s cost, which is based on the expert advice of a quantity surveyor, Mr K C Tang. While there is no evidence in these proceedings that Mr K C Tang’s estimations are faulty, the Reference Unit Rate and Price Index as published by the Urban Renewal Authority and as relied by Mr Remus Wong would have its limitations in assessing the cost. These reference unit rates cover 25 typical work items only and some of their ranges are substantial.

(xxiii)  Lastly, I disagree with Mr Yuen that the comparison between the repair cost and the construction cost for a new similar superstructure is unnecessary. Mr Benson Wong’s cost is not based on good state of repair nor a fair condition as submitted by Mr Yuen. It is an estimation based on tenantable condition standard. Although I accept that such comparison to a certain extent has its limitation, it can show the extent of repair in a building and is relevant in the consideration.

53.  By reason of the matters set out above, I am satisfied the redevelopment is justified in terms of both “age” and “state of repair” of the Building.

Whether the applicants have taken reasonable steps

54.  In assessing the reasonableness of the offers, I have considered the case of Capital Well Ltd v Bond Star Development Ltd (2005) 8 HKCFAR 578. In particular, I have considered paragraphs 33 and 36 of the judgment in which Ribeiro PJ stated: -

“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……”

55.  The applicants have made 4 offers to the respondents respectively as follows: -

1-Jun-20

24-Jun-20

18-Dec-20

16-Aug-22

R1	$15,500,000	$15,965,000	$16,028,611	$16,953,339	$15,218,000
R2	$15,600,000	$16,068,000	$16,127,195	$17,057,610	$15,597,000
R3	$14,300,000	$14,729,000	$14,773,999	$15,626,345	$14,219,000
R4	$13,700,000	$14,111,000	$14,183,650	$15,001,938	$13,651,000
R5	$18,800,000	$19,364,000	$19,453,592	$20,575,915	$18,642,000
R6	$19,900,000	$20,497,000	$20,606,390	$21,795,221	$19,803,000
R7	$20,800,000	$21,424,000	$21,850,535	$22,825,565	$20,960,000
R8	$21,100,000	$21,733,000	$21,841,065	$23,101,126	$20,990,000

56.  The offers of 1 June 2020 and 24 June 2020 made before the application were based on the valuation of Knight Frank as at 29 April 2020, which had reflected the then pro-rata share of the RDV. The offers of 18 December 2020 were also based on the valuation of Knight Frank as at 29 April 2020, and comprised respective standalone offers and collective offers (i.e. on the condition that the applicants could acquire the whole Lot) of each unit. The last offers of 16 August 2022 were based on the updated EUV assessment as at 29 April 2020 and the RDV assessment as at 5 August 2022 of Knight Frank. Mr Li submits that all these offers fall within the range of fair and reasonable compensation for the respective interests owned by the respondents.

57.  On the evidence available, I accept that the offer prices have reflected the respective proportionate share of the RDV of the Lot and do fall within the range of what may broadly be regarded as fair and reasonable compensation for the interest in question. There is no persuasive evidence that Knight Frank’s valuation is basically faulty. My determination of the EUVs above are largely in mid of the respective valuations as submitted by the parties. My determination of the RDV below is also in mid of the respective valuations as submitted by the parties. Some arguments between Mr Alnwick Chan and Mr Patrick Lai including that over the assessment of land premium for lease modification are controversial without straightforward answer. It is also not surprise in the market that there are great variations in transaction price of luxurious residential property.

58.  Ms Wong submits that the applicants’ offer prices were below their average purchase price paid to the other flat owners of the same level they already acquired and hence it is not unreasonable that the respondents felt aggrieved and did not accept the applicants’ offers. Further, Mr Alnwick Chan changed and accepted Mr Patrick Lai’s hypothetical development model for RDV assessment in the last minute only and therefore the applicants’ offers, which were based on Mr Alnwick Chan’s former hypothetical development model, could not be regarded as safe and reasonable.

59.  Obviously, whether it is reasonable for the respondents not to accept the applicants’ offers and whether the applicants’ offers are reasonable are two different matters. It is not the requirement in the Ordinance that the applicants’ offer price should be equal to, or not less than, the previous offer prices and/or the purchase prices of other units in the same development. From valuation perspective, it is also not uncommon for valuer to adopt different hypothetical development model in residual valuation. Upon change of hypothetical development model, one cannot conclude that the former hypothetical development model must be unreasonable because each hypothetical development model would have its own merits and demerits.

60.  Further, individual circumstances or hardship of minority owner, if any, is irrelevant. The Ordinance does not require the applicants to take reasonable steps to satisfy the individual needs of the minority owners but requires the applicants to take reasonable steps to acquire all the undivided shares.

61.  I am satisfied that the applicants have taken reasonable steps to acquire all the undivided shares in the Lot.

RESERVE PRICE FOR THE AUCTION

62.  By reason of being satisfied that redevelopment of the Lot is justified and that the applicants have taken reasonable steps to acquire all the undivided shares in the Lot, I am satisfied an order for sale should be granted in favour of the applicants.

63.  In the assessment of RDV, the 2 valuation experts agree to adopt residual valuation method. In addition, Mr Patrick Lai has made reference to a nearby site transaction (i.e. No 79 Broadcast Drive). Although they agree to update their respective RDV assessments close to the trial, they cannot agree on the exact valuation date.

64.  I am of the view the government tender sale of No 79 Broadcast Drive as at 27 October 2021 in the consideration of $1,608,300,000 (i.e. accommodation value of about $241,800 per square meter) is relevant and should have reference value, but it cannot be compared with the Lot directly because its transaction date is far from the valuation date and the subject valuation should further consider the land premium for lease modification. I am also of the view the valuation date in the judgment can be fixed at say 3 August 2022, the midway between 1 and 5 August 2022 as adopted by the 2 valuation experts and this minor change would not affect the analyses in the assessment.

65.  In the 2^nd Joint Statement dated 1 September 2022 before the trial, Mr Alnwick Chan accepted the hypothetical development model suggested by Mr Patrick Lai, but the 2 valuation experts still argue over the number of duplex unit, the number of parking space, the calculation of gross floor area and the conversion factors for ancillary areas. In the assessment of gross development value (“GDV”), they agree on the value of parking spaces (i.e. each private car parking space at $3,850,000 and each motorcycle parking space at $385,000), but disagree on the selection of and some adjustments to the comparables of domestic units. Nevertheless, unlike the dispute in the EUV assessment, Mr Alnwick Chan agrees with Mr Patrick Lai to analyse each comparable, and value each domestic unit, together with an ancillary car parking space(s) as one entity. In the absence of contrary evidence, I accept this approach as agreed by the 2 valuation experts. Given that sizes of the flat reference unit and duplex reference unit are larger than all comparables, this approach would slightly inflate their adjusted unit rates. However, size of the house reference unit is smaller than all comparables, and the impact of this approach on the overall GDV is not significant.

66.  In the residual valuation, they agree on demolition cost at $8,073,635, demolition period of 0.63 year, lease medication period of 1.5 years, construction period of 2.5 years, marketing cost at 3%, professional fees at 6%, interest rate at 4% per annum and developer’s profit (i.e. without allowance for stamp duty and legal cost on residual land value) at 17.25%, but they disagree on construction cost and whether there would have an overlapping period of 0.25 year between lease modification period and construction period. Although they had agreed on the amount of land premium for lease medication, Mr Alnwick Chan has further revised it in his latest valuation at trial. They also dispute over the land premium for green features and whether the land premiums for both lease modification and green features should allow for interest and developer’s profit.

Hypothetical Development Scheme

67.  The 2 valuation experts agree to value the Lot as a site of 2,010.41 square meters, and under the existing lease conditions the Lot can be developed at the maximum plot ratio of 1.8 (i.e. maximum gross floor area of 3,618.74 square meters) only. Nevertheless, they also agree that under the current town planning control the Lot should better be developed at the maximum plot ratio of 3 (i.e. maximum gross floor area of 6,031.23 square meters) subject to payment of land premium for lease modification. They had once agreed on the amount of land premium, but have all along disagreed on how should it be derived. While Mr Alnwick Chan adopts a “Before” valuation and an “After” valuation respectively to assess the land premium, Mr Patrick Lai makes reference and comparison with the land premiums charged by the government for other residential developments.

68.  The 2 valuation experts had agreed on the amount of land premium for lease modification at $424,600,000 (i.e. about $176,000 per square meter for the increase in gross floor area) in the 2^nd Joint Statement dated 1 September 2022, but Mr Alnwick Chan after his revision of the valuation at trial revised it to $425,400,000. He also said at trial that the final figure on land premium will change depending on how the tribunal assesses the GDV. If a higher GDV is determined by the tribunal in the residual valuation, a higher land premium should also be adopted correspondingly.

69.  Although the government in theory will base on its market valuation to assess the land premium, I consider that from the developer’s perspective it is not simply a valuation exercise. It is in fact an estimation of what will be charged by the government. As rightly pointed out by Mr Alnwick Chan at trial, the government is acting like a private treaty when negotiating with a developer in setting the land premium and the government would also very often adopt some rigid factors in the assessment because of the need for consistence. Anyhow, I am of the view that these 2 different approaches of premium assessment are acceptable. In addition, I trust that the 2 valuation experts have already made their best estimations respectively in the 2^nd Joint Statement, and therefore the agreed land premium should also be adopted by the tribunal.

70.  The 2 valuation experts agree to develop the Lot into three 2-storey houses and a 12-storey residential block over ground floor lobby and clubhouse and 1-level of basement carport. They agree that there will have 2 units on each typical floor in the residential block, but they disagree on the number of duplex units on the higher floors. Mr Alnwick Chan proposes 2 duplex units only on the topmost 2 floors (i.e. 11^th and 12^th Floors), and Mr Patrick Lai suggests to build 2 more duplex units on 9^th and 10^th Floors. They also argue about whether private stair-hood would be exempted from gross floor area calculation.

71.  I agree with Mr Patrick Lai that private stair-hood should be counted in gross floor area calculation, and hence accept the saleable areas suggested by him. Although I have reservation to build 4 duplex units because of their limited demand and relatively long marketing period, I accept 4 duplex units for ease of assessment in this instance because such design would not affect much the residual land value and there is also no fall-back option for tribunal’s consideration. According to my determinations below, there is not much difference in value between typical unit of about 200 square meter and duplex unit of over 400 square meter. Accordingly, I also accept the reference units, number of parking spaces, construction cost and land premium for green features suggested by Mr Patrick Lai.

72.  Regarding the conversion of ancillary areas, I agree with Mr Patrick Lai that flat roof / terrace, roof and stair-hood are valuable in low-density residential development and accept his suggested rates at 1/4, 1/6 and 1/2 respectively instead of 1/6, 1/8 and 1/8 proposed by Mr Alnwick Chan. Nonetheless, the 2 valuation experts agree on the conversion rate for garden at 1/6, and I agree with Mr Alnwick Chan to convert bay windows of the comparables at 1/4.

GDV – Typical Residential Units

73.  There are 7 common comparables in Eden Gate and Mont Rouge for valuation of the flat reference unit (i.e. Unit A on 4^th Floor). In addition, Mr Patrick Lai has adopted 1 more comparable in Mont Rouge (i.e. Comparable RDT5), which is discarded by Mr Alnwick Chan, and Mr Alnwick Chan has proposed 5 other comparables in One Mayfair.

74.  Since there is no sufficient evidence to prove that Comparable RDT5 is not an arm’s-length transaction, I agree with Mr Patrick Lai to analyse it in the assessment. I also agree with Mr Alniwck Chan to analyse the comparables in One Mayfair, which was completed 11 years ago. Nevertheless, I accept Comparable RDT10 only in One Mayfair. The other comparables in One Mayfair are relatively small in size or are transactions without attachment of a car parking space.

75.  The 2 valuation experts agree on the adjustment for age at 1% for every 1-year difference, adjustment for floor at 0.5% for every 1-level difference and adjustment for headroom at 2% for every 1-meter difference. They also agree to adjust for privacy at 3% to the comparables on ground floor (i.e. Comparables RDT3, RDT4 and RDT6).

76.  Regarding the adjustment for time, I agree with Mr Patrick Lai to adopt Class E indices instead of Classes C, D and E indices as proposed by Mr Alnwick Chan. The flat reference unit is a Class E flat, and the selected comparables are Class E flats or close to the size of Class E flat.

77.  In terms of location, the 2 valuation experts agree on the adjustment rate for Eden Gate at 4%. Accordingly, I consider that One Mayfair in a relatively inferior location should be adjusted at 6% instead of 0% as suggested by Mr Alnwick Chan. Although One Mayfair has better accessibility, its surrounding environment is inferior than Eden Gate and the Lot. Further, I consider that Mont Rouge should be adjusted at -10% instead of -25% as proposed by Mr Alnwick Chan and 10% as suggested by Mr Patrick Lai. Mont Rouge enjoys a tranquil living environment together with higher level of privacy, which are essential for luxurious residential properties. I agree with Mr Alnwick Chan that purchasers of luxurious residential properties would generally prioritize environment and privacy over convenience or accessibility.

78.  Regarding the adjustment for size, I agree with Mr Alnwick Chan to adopt the rate of 1% for every 10-square meter difference, instead of the much less sensitive rate of 1% for every 100-square meter difference as suggested by Mr Patrick Lai, but I would prefer linear approach to threshold approach.

79.  In terms of view, I consider that Comparable RDT1 in Eden Gate and Comparable RDT10 in One Mayfair, which have some buildings close to and in front of them, should be adjusted at 5% and 3% respectively. For those comparables on ground floor with planter view in Mont Rouge (i.e. Comparables RDT3, RDT4 and RDT6), I agree with Mr Patrick Lai to make an adjustment at 10% instead of 2% only as proposed by Mr Alnwick Chan. I consider that view is an influential factor in the valuation of luxurious residential properties.

80.  Nevertheless, I consider that clubhouse facilities are not so important to the purchasers of luxurious residential properties particularly the houses and larger flats, and nil adjustment should be made in this instance.

81.  The valuation of the flat reference unit is listed in Appendix III of the judgment. The overall average unit rate of the 3 comparable developments is about $433,715. I am of the view that the flat reference unit should be assessed at $420,000 per square meter, closer to the adjusted unit rate of the common comparable in Eden Gate (i.e. Comparable RDT1) and the adjusted unit rates of the two recent comparables in Mont Rouge (i.e. Comparables RDT2 and RDT3), and following the adjustment for floor and the adjustment for view to those units on lower floors as suggested by Mr Patrick Lai, the average unit rate of the 16 typical flats would then be about $410,600 per square meter.

GDV – Duplex Residential Units

82.  The 2 valuation experts agree to analyse Comparables RDD1 and RDD2 in Eden Gate, but Mr Alnwick Chan discards Comparable RDD3 in Eden Gate, which was transacted more than 2 years before the valuation date, and Comparables RDD4 and RDD5 in No 128 Waterloo Road and Mont Rouge, which are simplex, as suggested by Mr Patrick Lai. Since there are 2 common comparables only, I agree to analyse the 3 additional comparables but the results should be further reviewed in the assessment.

83.  The 2 valuation experts agree on the adjustment for time with reference to the Class E time indices, adjustment for age at 1% for every 1-year difference, adjustment for floor at 0.5% for every 1-level difference and adjustment for headroom at 2% for every 1-meter difference. They also agree on the adjustments for location to Eden Gate at 4% and No 128 Waterloo Road at 5%.

84.  Similar to the valuation of the flat reference unit above, I prefer the adjustment for view to the comparables in Eden Gate at 5%, adjustment for location to the comparable in Mont Rouge at -10%, and nil adjustment for clubhouse facilities. I also agree with Mr Patrick Lai that nil adjustment should be made for view to the comparables in No 128 Waterloo Road and Mont Rouge, and the north facing aspect of the comparable in No 128 Waterloo Road should be adjusted at 2%. In the adjustment for size of very large duplex unit, I prefer a less sensitive rate at 1% for every 20-square meter difference.

85.  The valuation of the duplex reference unit (i.e. Flat A on 11^th and 12^th Floors) is listed in Appendix IV of the judgment. The overall average unit rate of the 3 comparable developments is about $561,784. I am of the view that the duplex reference unit should be assessed at $440,000 per square meter, close to the adjusted unit rates of the comparables in Eden Gate, which is close and similar to the hypothetical development in the Lot. The adjusted unit rates of Comparable RDD4 in No 128 Waterloo Road and Comparable RDD5 in Mont Rouge, which are much higher than the adjusted unit rate of residential houses, are out of tone.

86.  Accordingly, the 2 duplex units on 9^th and 10^th Floors are assessed at $430,000 per square meter, in mid of the unit rates of the flat reference unit and duplex reference unit.

GDV – Houses

87.  In addition to the 4 common comparables in Mont Rouge for valuation of the house reference unit (i.e. Unit H1), Mr Alnwick Chan has proposed 2 other comparables in Mont Rouge. Since all these comparables are similar and the 2 additional comparables proposed by Mr Alnwick Chan were transacted more than a year ago, I accept the common comparables only in the subject assessment.

88.  The 2 valuation experts agree on the adjustment for time with reference to the Class E time indices, adjustment for age at 1% for every 1-year difference, and nil adjustment for view, headroom and orientation in this instance. Similar to the valuation of the duplex reference unit, I prefer the adjustment for size at 1% for every 20-square meter difference, adjustment for location at -10%, and nil adjustment for clubhouse facilities. Further, I do not accept the adjustment for “convenience to car parking space” at -5% as suggested by Mr Patrick Lai, which had not been well explained at trial.

89.  The valuation of the house reference unit is listed in Appendix V of the judgment. The average unit rate of the 4 common comparables is $549,127. I consider that the house reference unit and the other 2 houses in the hypothetical development should be assessed at say $550,000 per square meter.

RDV of the Lot as at 3 August 2022

90.  I agree with Mr Alnwick Chan that lease modification period can be overlapped with construction period, and therefore the whole development period in the residual valuation should be 3.75 years including the overlapping period of 0.25 year, which can be supported by real example in the market. I also agree with Mr Alnwick Chan to allow for interest and developer’s profit to both land premiums, which are the costs of the developer and therefore should have risks and return similar to other costs.

91.  Although the 2 valuation experts have agreed on the interest rate at 4% per annum, the applicants invite the tribunal to adopt a higher interest rate at say 4.25% per annum, in the subject residual valuation, similar to that as determined by the same panel of the tribunal in Bremont Investments Limited v Au Shui Lin and Others [2022] HKLdT 48. I consider that the agreed interest rate should have been critically reviewed by the 2 valuation experts in view of the overall circumstances and particulars in this case, and therefore should not be lightly altered. The submissions of the applicants in this regard are not supported by expert opinion and therefore should not be accepted. In any event, the difference is small and an interest rate at 4% per annum is within an acceptable range.

92.  Based on the agreements of the 2 valuation experts and the above determinations, the residual valuation of the Lot is listed in Appendix VI of the judgment. The RDV of the Lot as at 3 August 2022 is assessed at $966,000,000. At the plot ratio of 1.8 under the existing lease conditions, the assessed value is equivalent to an accommodation value of about $266,944 per square meter (i.e. about $24,800 per square foot), which should have reflected the benefits of the potential for increase in plot ratio up to 3 and should be the reserved price for public auction.

93.  The assessed value is not far from the accommodation value of the site transaction at No 79 Broadcast Drive (i.e. $241,800 per square meter), which can be developed at the plot ratio 3 without lease modification, is inferior than the Lot in terms of location and was transacted about 9 months earlier in a better market condition.

ORDERS

94.  For reasons given in this judgment, I have set out reasons why I am satisfied an order for sale should be granted and I therefore make the following orders: -

1)  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;

2)  Mr Anthony WK Chow and Ms Anna SH Chow, 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;

3)  The Trustees be authorized to charge such remuneration for their services in accordance with the terms set out in the letter of Messrs Guantao & Chow dated 14 June 2022;

4)  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 $966,000,000;

5)  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; and

6)  Liberty to the applicants, the respondents, the Trustees and the purchaser of the Lot or its successor in title to apply to the tribunal for further directions.

COSTS

95.  Following Good Faith [1], I make a costs order nisi that the applicants do pay costs of these proceedings to the respondents, on High Court scale with certificate for two counsel for R2, R5 and R6 and one counsel for R3, R4, 2^nd named R7 and R8, including any reserved costs and to be taxed if not agreed. Unless any parties apply by summons to vary, the costs order nisi shall be made absolute upon expiry of 14 days from the date of this judgment.

96.  Although I have accepted mostly the building experts’ evidence and submissions of the applicants, those found and opined by Mr Remus Wong and Mr Raymond Lo and submitted by Mr Yuen are not all unacceptable. Anyhow, the judgment of Asia Rich, which sets down some of the principles, was handed down after the trial of the present case only.

97.  Whilst, there are numerous facts and figures containing in the trial bundles (i.e. about forty-five 8-cm box files) in these proceedings, which require comprehensive review, analysis and grouping by counsel before making the submissions, and this process is tedious and time consuming. At trial, Mr Li is assisted by 2 juniors, and Mr Yuen is assisted by 1 junior. In addition, since Mr Yuen is representing 2 independent groups of respondents with individual interests and they have separate firms of solicitors, I accept that it is reasonable and justified for R2, R5 and R6 to instruct an additional junior counsel in this instance.