PACIFIC BASE HOLDINGS LTD AND OTHERS v. LEE HOP BIU AND OTHERS

LDCS 14000/2017

[2024] HKLdT 48

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LAND COMPULSORY SALE MAIN APPLICATION NO. 14000 OF 2017

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REASONS FOR DECISION

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Background

1.  On 4 June 2020, the applicants obtained a judgment after trial (“the Judgment”) whereby an order for sale under section 4(1)(b) of the Land (Compulsory Sale for Redevelopment) Ordinance, Cap 545 (“the Ordinance”) was granted in respect of 5 lots, namely Kowloon Inland Lot Nos 9600, 9612, 8807, 9586 and 9549 (collectively “the Subject Lots”).

2.  The Subject Lots were ordered to be sold together with 2 adjourning lots, namely Kowloon Inland Lot Nos 9806 and 10101 (collectively “the Adjoining Lots”) by way of one single public auction.

3.  Under section 5(1)(a) of the Ordinance, where an order for sale is granted, “the lot shall be sold by public auction in accordance with the conditions specified in Schedule 2” of the Ordinance. One of the conditions stipulated in paragraph 2 of Schedule 2 is that the lot “shall be sold subject to a reserve price” approved by the Tribunal.

4.  Thus, in the Judgment, the Tribunal ordered that the reserve price of the Subject Lots and the Adjourning Lots was to be set at $1,926,200,000 and the applicants (as well as the respondents and the trustees) were given liberty to apply to the Tribunal for further directions under the Ordinance.

5.  On 28 August 2020, the court of appeal (in CAMP 108/2020) granted leave to the 4^th respondent to appeal against the Judgment and ordered a stay of the order for sale in respect of his lot pending determination of the appeal.

6.  In view of the 4^th respondent’s appeal, the parties agreed and consent orders were obtained on 4 occasions to have the validity of the order for sale extended. Each time the extension was for a period of 3 months (namely from 4 September 2020, 4 December 2020, 4 March 2021 and 4 June 2021 respectively). By the last agreement and consent order, the validity of the order for sale was extended to 3 September 2021.

7.  On 31 May 2021, the court of appeal dismissed the 4^th respondent’s appeal (in CACV 426/2020) and hence the stay of the order for sale was lifted.

8.  On 27 July 2021, a public auction was held but no one (including the applicants) placed any bid. The Subject Lots and the Adjourning Lots were therefore not sold.

9.  As there was a failed auction, the applicants were of the view that they could apply to the Tribunal “as of right” to have a new reserve price set.

10.  Thus, by summons dated 23 August 2021 (“the Summons”), the applicants applied to have the effect of the order for sale further extended for 3 months from 4 September 2021 and the application be set down for trial before a Member sitting alone for the purpose of re-fixing the reserve price. Other related directions such as filing and serving of updated reports on the redevelopment value of the Subject Lots and the Adjourning Lots were also sought.

11.  The Summons was heard by me on 30 August 2021. As the respondents were not given sufficient time to consider the Summons and raise full arguments, I adjourned the Summons to 3 September 2021 to hear the parties’ full arguments.

12.  After hearing the parties’ full arguments on 3 September 2021, I dismissed the Summons on the same day with costs to the respondents. I indicated at the hearing that I would give my written reasons for decision later on.

13.  I am now giving my full reasons for decision as mentioned below.

The applicants’ contentions

14.  The applicants contended that the failed auction was based on a reserve price with the valuation date of 12-13 August 2019 (ie more than 2 years ago), and as no one bid at the auction on 27 July 2021, the market price must have fallen below the reserve price, otherwise there should be developers bidding at the auction.

15.  However, the applicants did not produce any evidence that the market price had indeed fallen below the reserve price, but simply relied on the assumption that when there was no one bidding at the auction, the market price must have fallen below the reserve price. The applicants submitted that the failed auction was evidence by itself and they did not need to produce any further evidence.

16.  On the other hand, the applicants accepted that if the reserve price was to be reset, further expert reports should be allowed and the reserve price could be adjusted up or down depending on the updated expert evidence.

17.  The applicants submitted that the Ordinance envisages a situation where there was no successful sale after the granting of the order for sale. In Sin Ho Yuen v Fineway Properties Ltd (2011) 14 HKCFAR 497, at paragraph 15, the court of final appeal held that when a significant fall in property prices occurs after a reserve price has been set:

“The Lands Tribunal would then have to exercise its statutory power to set a new and lower reserve price for a fresh auction.”

18.  Thus, the applicants contended that they are entitled to ask the Tribunal to invoke such statutory power to give directions to re-fix the reserve price, and they relied on the following provisions of the Ordinance:

(1)  Section 4(6)(a)(i): The Tribunal may give such directions as it thinks fit relating to the sale and purchase of the lot;

(2)  Section 4(6)(c): The Tribunal may give such directions as it thinks fit which are not inconsistent with the other provisions of the Ordinance; and

(3)  Section 4(9): In any case of doubt or difficulty or in any matter not provided for under the Ordinance, the majority owner (as well as the trustees and any minority owner) may apply to the Tribunal for directions.

19.  Furthermore, the applicants relied on the “liberty to apply” provision in the Judgment to ask the Tribunal to reset the reserve price based on a change of circumstance (see Sin Ho Yuen v Fineway Properties Ltd, supra, at paragraph 17). However, the change of circumstance that the applicants relied on is just the failed auction.

The respondents’ contentions

20.  The 2^nd, 3^rd and 4^th respondents took a neutral stance to the applicants’ application. Only the 1^st respondent objected strenuously to the application.

21.  The 1^st respondent contended that the applicants are not entitled as of right to set a new reserve price. The proceedings came to an end after the Subject Lots and the Adjourning Lots could not be sold at the public auction. A second auction could not and should not be held and the reserve price should not be reset, as the statutory regime under the Ordinance only caters for one auction to be held as the finishing line of the litigation and no statutory mechanism was enacted by the legislature for the holding of successive auctions. There is nothing under the Ordinance which provides that the subject lot must be re-auctioned until it becomes sold and it would be ultra vires for the Tribunal to order a second auction.

22.  The 1^st respondent submitted that upon a proper reading of section 5(4) of the Ordinance, the order for sale should be “deemed to be of no effect as if cancelled” by the Tribunal upon the failure of the first auction, and hence the legislature intends that the default position should be to hold one auction only.

23.  The 1^st respondent further submitted that this approach was confirmed by the Tribunal in Perfect Horizon Limited v Co Sam and others, LDCS 23000/2018, where the Tribunal, noting the effect of section 5(4) of the Ordinance, held that after giving the judgment and making the costs order, the proceedings came to an end, and the outcome of the auction sale was only a post-litigation event which should be independent of and has no bearing on the position of costs. Thus, the 1^st respondent contended that as with the position of costs, the core issue of reserve price cannot be re-opened and the Tribunal is functus officio.

24.  The 1^st respondent was of the view that there are good reasons for holding one auction only instead of holding re-auctions as there should be finality of the proceedings and minority owners’ interests should be safeguarded from endless, protracted and expensive litigations. If not, it would easily lead to abuse by majority owners in a falling market to apply for auctions to be perpetually held until they were “pleased” with the reserve price as revised.

25.  According to the 1^st respondent, the court of final appeal’s ruling in Sin Ho Yuen v Fineway Properties Ltd, supra, as cited by the applicants, was just obiter dicta, and it should be distinguished and confined to the situation where an auction has not yet been held. When a significant fall in market price took place and in order to enable a successful auction to be held in due course, then by virtue of the “implied liberty to apply”, the majority owner could apply to have the reserve price reset in order to carry out the order for sale. However, in the present case, an auction had already been held and the proceedings came to an end. The effect of the order for sale became spent.

26.  As the applicants did not take out any summons to reset the reserve price before the auction took place, and by consenting and proceeding to hold the auction at the original reserve price as scheduled, the applicants had acknowledged that there was no material change in the market conditions as in July 2021 and the auction could go ahead.

27.  In the course of the 4^th respondent’s appeal, the applicants were given the chance to proceed to auction the other respondents’ lots first (as suggested by the court of appeal and the 1^st respondent when the first extension was sought on 31 August 2020), but the applicants refused to accept the suggestion. The applicants could not then manipulate the timing of the auction in the hope of fetching a lower market rate at a later time.

28.  Furthermore, the 1^st respondent contended that even if the Tribunal does have power (or discretion) to order the proposed second auction, the applicants did not adduce any valuation evidence to show (at least prima facie) that there was a “significant fall” to justify re-fixing of the reserve price.

29.  On top of that, if the proposed second auction was to be held, there would still be questions on whether and to what extent the issues on valuation could be “re-opened”. The 1^st respondent submitted that there were matters as ruled by the Tribunal in the Judgment which should not be affected by the alleged change of market circumstances (eg development parameters, hypothetical model etc). The proposed second auction should not be a venue for the applicants to have a second bite of the cherry on the decided issues by reason of the res judicata or issue estoppel principles.

The issues

30.  In view of the 1^st respondent’s contentions, there are two main issues for me to decide, namely: (1) whether the Tribunal has jurisdiction to re-fix the reserve price and order another auction based on the new reserve price; and (2) if the Tribunal has such jurisdiction, whether it should exercise the discretion to order the reserve price to be re-fixed and a fresh auction to be held.

31.  However, the 1^st respondent reformulated the issues and asked the Tribunal to determine the following questions:

(1)  Whether the Tribunal has any statutory power to extend the 3-month period under section 5(4)(b) of the Ordinance for a period (or periods) beyond 6 months after an order for sale had been made by the Tribunal (ie whether there should be just one extension only);

(2)  Whether the Tribunal has any power to order another auction to be carried out during the extended period after a failed auction;

(3)  If another auction is to be held in the extended time, whether the Tribunal has any jurisdiction to re-fix the reserve price which was determined previously; and

(4)  Assuming the Tribunal has jurisdiction in (1), (2) and (3) above, whether it should exercise such power to extend the order for sale and vary it by ordering another auction and re-fixing the reserve price.

Extension and new auction under section 5(4)(b)

32.  Section 5(4) of the Ordinance reads as follows:

“Where the lot the subject of an order for sale is not sold—

(a) subject to paragraph (b), within the 3 months immediately following the date on which the order is made; or

(b) within such further period of 3 months as the Tribunal may specify in directions given on application made to it by the trustees under the order or the majority owner or any minority owner of the lot,

then that order shall immediately be deemed to be of no effect as if it had been cancelled by the Tribunal.”

33.  First of all, it is wrong for the 1^st respondent to submit that upon a proper reading of section 5(4) of the Ordinance, the order for sale should be deemed to be of no effect as if cancelled by the Tribunal upon the failure of the “first” auction. The word “first” does not appear in section 5(4) at all. I do not find any other provision in the Ordinance that could give rise to such an interpretation as well.

34.  Secondly, the 1^st respondent relies on the wordings of the Judgment to say that the Tribunal had in mind that the auction should be held only once instead of having successive auctions if the first one failed. Such contention is based on the words “by way of one single public auction” in the Judgment. This is clearly a misinterpretation of the Judgment. From the context of the Judgment, it is clear to me that the words “by way of one single public auction” just mean that the Subject Lots and the Adjourning Lots should be sold together in a single auction.

35.  More importantly, in Intelligent House Ltd v China Superior Ltd [2008] 6 HKC 256, the court of appeal (in agreement with the Tribunal below) expressly held that under section 5(4) of the Ordinance, the court “may grant more than one period of extension and in doing so may make such consequential order including the revision of the reserve price, as it may deem fit.”

36.  As it is a court of appeal decision, I am not in a position to disagree with this ruling. In fact, the parties had also sought multiple extensions by consent. It seems that the parties were in agreement that the Tribunal does have jurisdiction to grant more than one period of extension under section 5(4) of the Ordinance. It is odd for the 1^st respondent to argue otherwise now.

37.  The court of appeal also held that the court may make consequential order to revise the reserve price. This confirms that the Tribunal does have jurisdiction to refix the reserve price.

38.  In Fineway, supra, the court of final appeal reinforced such a jurisdiction to refix the reserve price by saying that:-

(a)  “The Lands Tribunal would then have to exercise its statutory power to set a new and lower reserve price for a fresh auction”.

(b)  “If the Lands Tribunal is satisfied that an auction at the existing price would be unsuccessful, the proper course for it to take would be to set a new reserve price”.

39.  I agree with the applicants that from the above judgment, the court of final appeal made it very clear that the Tribunal does have jurisdiction to refix the reserve price. The 1^st respondent suggested that they were just obiter dicta, but even if they were so, they lend a great support to the court of appeal’s ruling in Intelligent House, supra.

40.  The 1^st respondent also suggested that the Summons should have been taken out before the auction because that was the situation in Fineway, supra. I think the court of final appeal’s decision applies generally and did not confine itself to pre-auction situation. There are no such wordings in the decision to give rise to this interpretation. The decision is simply on the statutory power of the Tribunal.

41.  Furthermore, section 5(4) of the Ordinance states that the Tribunal can extend the effect of the Sale Order where the subject lot is “not sold”. It has been decided that the word “sold” in section 5(4) refers to the completion of sale (not the auction itself) as section 5(1)(b) provides for non-auction means for sale and section 5(3) provides for purchaser’s default (see: Chancemore Ltd v Yee On Enterprises Ltd (LDCS 17000/2015)).

42.  Thus, “not sold” in section 5(4) is not qualified in any way that there could be just one auction, and must include other situations such as “not sold” as a result of the purchaser of the auction failing to complete. The 1^st respondent’s interpretation that once the lot is not sold in an auction, there cannot be another auction does not accord with this interpretation of “not sold”. If, for example, the purchaser of the auction failed to complete and hence the lot was not sold, it makes no sense that there could not be a second auction to resell the lot (whether the reserve price is revised or not).

43.  I agree with the applicants that section 5(4) must be construed in the light of the 2 objectives of the Ordinance: to “facilitate urban renewal... by assisting private developers to complete their acquisition” and to “ensure that the minority owner receives fair and reasonable compensation” (see: Capital Well Ltd v Bond Star Development Ltd (2005) 8 HKCFAR 578).

44.  A purposive construction does not permit the court to attribute to a statutory provision a meaning which the language of the statute, understood in the light of its context and the statutory purpose, is incapable of bearing (see: China Field Ltd v Appeal Tribunal (Buildings) (No 2) (2009) 12 HKCFAR 342).

45.  Thus, it is wrong for the 1^st respondent to contend that the statutory scheme only caters for one auction, as it would not facilitate the developer to complete the acquisition with a fair and reasonable price for the minority owners (bearing in mind that the price could be adjusted upward too). It also does not accord with the language of the statute as mentioned above.

46.  The 1^st respondent produced some legislative materials for me to consider, but I do not think that I need to consider those materials as the underlying objectives of the Ordinance and the wordings of the provisions in question are clear enough. The court of appeal and the court of final appeal have also made very clear binding decisions on the Tribunal. It is not open to the Tribunal to rule otherwise.

Res Judicata and functus officio

47.  It is also wrong for the 1^st respondent to say that the Tribunal needs to determine, at this stage, the “extent of the issues that may be re-opened by the valuers”.

48.  In my view, it is not necessary to confine the scope of the valuers’ dispute at this stage, but for the applicants to adduce some credible evidence that a new RDV valuation is required. A new set of comparables to determine the new reserve price can come at a later stage when the Tribunal is satisfied that the reserve price needs to be refixed. The extent of the work on the new RDV should be entirely up to what the valuers can find as new comparables and valuation evidence. There cannot be any issue on res judicata when the Tribunal is going to revise the reserve price (which is just a condition for the sale) based on new evidence.

49.  In any event, the respondents are free to raise res judicata or issue estoppel at the new trial on refixing RDV and the Tribunal can deal with it then.

50.  I also do not agree that the principle of functus officio applies here. The reserve price is in fact just a condition for the sale. The main determination in a compulsory sale case is whether a compulsory sale order should be granted. As a condition, it can be re-opened, especially when there is a provision for liberty to apply in the Judgment, but there must be change of circumstances for the condition to be revised.

Discretion

51.  The applicants contend that they can ask the Tribunal to revise the reserve price “as of right”. It seems that they are relying on the decision in Fineway, supra, as mentioned above, to say that the Tribunal “have to” revise the reserve price.

52.  However, there is simply no evidence before me that the market price had changed to the extent that the reserve price has to be revised. The only evident that the applicant relied on is their own failure to bid at the auction.

53.  Although the court of appeal has held that the extension referred to in section 5(4)(a) of the Ordinance is not confined to just one extension, it does not mean that the applicants can apply to extend the order for sale indefinitely. Section 5(4)(a) makes it clear that such extension should be “as the Tribunal may specify”. It means that the Tribunal does have discretion to grant such extension or not. In order to ask the Tribunal to exercise such discretion, there must be valid ground for the applicants to make the application for extension.

54.  In my view, the applicants’ own failure to bid per se does not amount to a valid ground for applying for extension, as such failure could be due to many reasons, not just decline of market price. For example, the applicants might have encountered financial difficulties in completing the purchase or going ahead with the redevelopment. Also, other developers did not bid because it might be that they were not interested in the subject site or were tied up with other projects. Thus, the applicants cannot simply allege that there had been material change of circumstances in that the market price had fallen without adducing any evidence save their own failure to bid.

55.  Likewise, the applicants cannot simply ask the Tribunal to revise the reserve price without any evidence to support that the RDV has changed. The applicants are asking the Tribunal to grant the extension first and then they, as well as the respondents, can adduce expert evidence on the market price. This approach is in effect putting a cart before the horse. What the applicants should do is that they should adduce some credible evidence to show that the market price has changed and hence the reserve price could not be achieved at the auction, before the Tribunal would consider whether to allow the extension and revise the reserve price.

56.  In fact, when the applicants refused to bid at the auction and if it was really due to the decline of market price, they should have some kind of evidence at that stage to support that decision. I do not see any reason why they would have no evidence to produce for my consideration. A mere allegation that the market price had dropped is clearly not enough for me to exercise my discretion.

Conclusion

57.  Thus, although it is my view that I do have the power to grant further extension of time for the auction and to revise the reserve price, I am not satisfied that the applicants have established any valid ground for me to exercise my discretion. The Summons was therefore dismissed on that basis.