FAIRTEX DEVELOPMENT LTD v. TSO PEE HONG AND OTHERS

LDCS 20000/2011

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LAND COMPULSORY SALE APPLICATION NO. 20000 OF 2011

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BETWEEN

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J U D G M E N T

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Background

1.  This is an application by the Applicant (“the Applicant”) for an order for sale of all the undivided shares in firstly Sub-Section 2 of Section A of Kowloon Inland Lot No. 1409 (“the 1st Lot”) and the building erected thereon known as No. 196 Ma Tau Wai Road, Kowloon (“the 1st Building”); and secondly the Remaining Portion of Sub-Section 1 of Section A of Kowloon Inland Lot No. 1409 (“the 2nd Lot”) and the building erected thereon known as No. 198 Ma Tau Wai Road, Kowloon (“the 2nd Building”); and thirdly Section A of Sub-Section 1 of Section A of Kowloon Inland Lot No. 1409 (“the 3rd Lot”) and the building erected thereon known as No. 200 Ma Tau Wai Road, Kowloon (“the 3rd Building”); and fourthly Sub-Section 3 of Section A of Kowloon Inland Lot No. 1409 (“the 4th Lot”)and the building erected thereon known as No. 202 Ma Tau Wai Road, Kowloon (“the 4th Building”), (the 1st Lot, the 2nd Lot, the 3rd Lot and the 4th Lot are collectively referred to as “the Lots”; and the 1st Building, the, 2nd Building, the 3rd Building and the 4th Building arc collectively referred to as “the Buildings”), for the purposes of the redevelopment of the Lots pursuant to Section 3(1) of the Land (Compulsory Sale for Redevelopment) Ordinance, Cap. 545 (“the Ordinance”).

2.  There are two pairs of 7-storey composite buildings, the 1st Building and the 2nd Building (“the 1st pair Buildings”) and the 3rd Building and the 4th Building (“the 2nd pair Buildings”) erected on the Lots.  Each pair is served by two common staircases of its own.  The 1st pair Buildings and the 2nd pair Buildings are not connected to each other.

3.  The 1st Building has 7 equal undivided shares with each floor from the Ground Floor to the 6th Floor allotted one of the undivided shares. Subsequently the 4th Floor has been carved out into 2 units and each carved out unit is allotted 1/2 of the one share belonging to the Floor. Altogether there are 8 units in the 1st Building.

4.  The 2nd Building has 7 equal undivided shares with each floor from the Ground Floor to the 6th Floor allotted one of the undivided shares. Altogether there are 7 units in the 2nd Building.

5.  The 3rd Building has 14 equal undivided shares with each floor from the Ground Floor to the 3rd Floor allotted two of the undivided shares; and each Front Portion and Rear Portion on each floor from the 4th Floor to the 6th Floor allotted one of the undivided shares. Subsequently the Front Portion and Rear Portion on the 6th Floor has been carved out into 2 units each and each carved out unit is allotted 1/2 of the one share belonging to the Portion.  Altogether there are 11 units in the 3rd Building.

6.  The 4th Building has 14 equal undivided shares with each floor on the Ground Floor, the 2nd Floor and the 3rd Floor allotted two of the undivided shares; and each Front Portion and Rear Portion on each floor on the 1st Floor, and from the 4th Floor to the 6th Floor allotted one of the undivided shares. Subsequently the Front Portion on the 1st Floor has been carved out into 2 units and each carved out unit is allotted 1/2 of the one share belonging to the Portion; and the Front Portion on the 5th Floor has been carved out into 3 units and each carved out unit is allotted 1/3 of the one share belonging to the Portion.  Altogether there are 13 units in the 4th Building.

7.  As at the date of application, the Applicant owns

(a)  all the undivided shares in the 1st Lot save and except the one share of the 6th Floor, which is owned by the 1st Respondent;

(b)  all the undivided shares in the 2nd Lot ;

(c)  all the undivided shares in the 3rd Lot save and except the one share of the Front Portion on the 6th Floor, which is owned by the 2nd Respondent; and

(d)  all the undivided shares in the 4th Lot save and except the half of the one share of the Front Portion on the 1st Floor, which is owned by the 3rd Respondent.

8.  Thus, the Applicant owns 6 out of the 7 shares (85.71%) in the 1st Lot; 7 out of the 7 shares (100%) in the 2nd Lot; 13 out of the 14 shares (92.86%) in the 3rd Lot; and 13.5 out of the 14 shares (96.43%) in the 4th Lot. The Applicant brings the present application by virtue of section 3(1) of the Ordinance.

9.  Since then, the Applicant has purchased the interest of the 2nd Respondent including its share in the 3rd Lot.  The proceedings against the 2nd Respondent are discontinued by the order of the Tribunal dated 7 May 2012.  And for the purpose of this judgment, in assessing the ownership of the Applicant in the Lots, we would treat the Applicant as having 100% ownership in the 3rd Lot.

10.  The 1^st and 3^rd Respondents could not be located and served with the proceedings.  Application has been made to the Lands Tribunal and by an order of His Honour Judge Wong given on 3 November 2011, service of the Notice of Application and all subsequent documents in respect of these proceedings on the 1^st and 3^rd Respondents are dispensed with.  A notice shall be published once in a Chinese newspaper and once in an English newspaper circulating in Hong Kong within 14 days of the said order calling upon the 1^st and 3^rd Respondents to establish their claims before this Tribunal within 21 days of the date of the publication of the said notice.  The Applicant has complied with the order of His Honour Judge Wong and affirmation of service has been filed.  We are satisfied that notice of these proceedings has been brought to the attention of the Respondents.

11.  The 1st and 3rd Respondents did not file any Notice of Opposition.  At the trial, the 1st and 3rd Respondents were not present.

12.  In view of the absence of the 1st and 3rd Respondents, Ms Nancy Ngai, counsel for the Applicant, simply called the Applicant’s witnesses to confirm their evidence. The Applicant contends that all the requirements of the Ordinance have been satisfied and asks for an order for sale in terms of the draft order submitted.  The Applicant also asks there be no order as to costs.

Applicant’s Argument

13.  At the commencement of the hearing, Ms Ngai submits that the Applicant is entitled to seek an order for sale of the Lots as a composite site.  As the first limb of her argument, Ms. Ngai submits that “the Applicant owns not less than 80% of the undivided shares in each of the 4 Lots in compliance with section 3(2)(a) of the Ordinance”. 

14.  And as the second limb, Ms. Ngai submits that “[the 1st Building] is connected with [the 2nd Building]by staircases for common use of the occupiers thereof.  The average of the percentage of the undivided shares owned by the Applicant in Lots 1 and 2 is 92.86% (more than 80%).  Likewise, [the 3rd and 4th Buildings] are connected with each other by staircases for common use of the occupiers thereof.  The average of the percentage of the undivided shares owned by the Applicant in Lots 3 and 4 is 98.22% (more than 80%).  Requirements of s. 3(2)(b) of the Ordinance are satisfied.” 

Section 3 of the Ordinance – Ownership of the Applicant

15.  Section 3(1) of the Ordinance requires the Applicant to have not less than 90% of the undivided shares in a lot before it can make an application.

16.  Section 3(5) of the Ordinance also states that the Chief Executive in Council may, by notice in the Gazette, specify a percentage lower than the percentage mentioned in subsection (1) in respect of a lot belonging to a class of lots specified in the notice.

17.  Pursuant to Section 3(5) of the Ordinance, the notice was gazetted on 22 January 2010 and tabled at the Legislative Council meeting on 27 January 2010.  It came into operation on 1 April 2010.  Section 3 of the notice lowered the threshold for compulsory sale from 90% to 80% in respect of a lot specified in section 4 of the notice.  Section 4(1)(b) of the notice specified one of the classes of lot when the threshold is lowered is “a lot with each of the building erected on the lot issued with an occupation permit at least 50 years before the relevant date (which is the date of the application)”.  The occupation permit of the 1st pair Buildings was issued on 24 August 1957, which is more than 53 years before the date of application.  The occupation permit of the 2nd pair Buildings was issued on 11 March 1958, which is also more than 53 years before the date of application. The Buildings therefore are covered by the notice and the applicable percentage is 80%.

18.  In her first limb of argument, Ms. Ngai refers us to section 3(2)(a) of the Ordinance which states that an application under section 3(1) may cover 2 or more lots where the Applicant owns not less than the percentage specified in section 3(1) of the undivided shares in each lot. 

19.  We refer to the judgment of the Hon Rogers VP (as he then was) given in Bond Star Development Limited v. Capital Well Limited CACV 458/2002.  The Court of Appeal rule that the Ordinance does not apply to any lot which is 100% owned by an applicant.  We raise with Ms. Ngai, that, following the decision of Bond Star, is the Applicant entitled to seek an order for sale covering the 2nd Lot and the 3rd Lot, as the Applicant now owns all the undivided shares in the 2nd and 3rd Lots? We believe this line of argument is abandoned by Ms. Ngai at the closing.

Application for sale for Lots covered by Section 3(2)(b)

20.  Section 3(2)(b) of the Ordinance stipulates that an application under Section 3(1) may cover “2 or more lots – (i) on which one building is connected to another building by a staircase intended for common use by the occupiers of the buildings; and (ii) where the average of - (A) the percentage of the undivided shares owned by the majority owner in the lot or lots on which one of the buildings stands; and (B) the percentage of the undivided shares owned by the majority owner in the lot or lots on which the other of the buildings stands, is not less than the percentage specified in subsection (1)”.  In the second limb of her argument, Ms. Ngai relies on this section to support the application to sell the Lots as one composite site.

21.  Ms. Ngai submits that Bond Star only rules that when an applicant owns 100% of the shareholding of a lot, the Tribunal should not make an order for sale covering the lot.  But section 3(2)(b) set out the exceptional cases when more than one lot may be included in the application, and she submits that this application is within the exceptions and the Applicant is entitled to ask for sale of the Lots as one composite site.  It is necessary to read the judgment of Bond Star in greater details. 

22.  In delivering his judgment, in a section entitled “Whether the Ordinance applies to land of which the applicant is already 100 percent owner?” (at pages 860-863, paragraphs 12-20)the HonRogers VP took the view that, at page 861, para. 14,

“….Nevertheless, there would be no purpose in permitting an applicant to join, in an application in respect of one lot, a number of other lots where no order for sale is needed.  It is clear from section 4(2) that the legislature envisaged there would be minority owners “of the lot the subject of the application”.  If one were to apply a purposive construction to the Ordinance it would be clear that such a course would not lead to a construction which would enable an applicant to so apply.  The only effect of such an application would be that, if it were granted, all the lots would be sold as the subject of one auction and that a minority owner would be faced with a reserve price reflecting the (larger) size of the subject of the auction. ….” 

and thereafter continued at page 862, para. 15:

“Moreover, applying a purposive construction to the Ordinance, it seems to me that the intent behind the Ordinance is that a developer can obtain the last portion of a lot which he does not already own. There is thus no purpose in an owner of a lot asking for an order to put up the lot for auction if he already owns all the shares in that lot. He could do so without an order. Furthermore, as already noted, the Ordinance specifically defines the word “lot”. The word “lot” is used throughout the Ordinance, but there is no place in the Ordinance where, as far as I can determine, that word has been used in a loose sense. Whereas, normally the use of a singular noun would include the plural, the drafting of section 3 makes it quite clear that applications in respect of 2 or more lots can only be made in accordance with subsection 3(2).” [our emphasis]

23.  The parties have not appealed against the above ruling of the Hon Rogers VP when the case went on appeal to the Court of Final Appeal.  Nevertheless, the Hon Ribeiro PJ, in delivering the judgment in Capital Well Limited v Bond Star Development Limited (2005) 8 HKCFAR 578, gave his opinion in a section entitled “Power to order sale of all the lots” (at paragraphs 37-43) and comment that :

“Plainly, the power coercively to order sale is confined to ordering the sale of a lot or lots in which a majority owner and a minority owner each hold a proprietary interest. However, in cases where a majority owner qualifies for the making of such a compulsory order and wishes to have that lot put up for auction together with adjacent redevelopment lots wholly owned by him, the question arises as to whether, on its true construction, the Ordinance precludes the Tribunal from making an order for sale in respect of the composite site. The matter was not in issue and was not argued before us. In the light of the policy concerns noted above, we wish expressly to leave that question open for possible future consideration.”

24.  In our view, until there is a ruling by another superior court, we are bound to follow the decision of the Court of Appeal in Bond Star.  However, we agree with Ms. Ngai what is determined in Bond Star is that section 3(1) application is only available to an owner with less than 100% and more than 90% shareholding in a lot.  And in coming to the conclusion, and as one of the reasons, the Court of Appeal ruled out the possible explanation of “lot” in section 3(1) as “lots”. 

25.  We also note that (as highlighted in paragraph 22 above) the Hon Rogers VP recognizes that an application under section 3(1) of the Ordinance may cover more than one lots, if the conditions set out in section 3(2) are satisfied.  And indeed, in the conclusion of the judgment of Bond Star, the Hon. Rogers VP remits the case to the Land Tribunal for it to decide, amount other matter, whether the applicant is entitled to make an application under section 3(2)(b) in respect of the lot that is connected to an adjacent building by a staircase for common use.

26.  Coming back to our case, the first issue is whether the Applicant is entitled to bring this Application which covers more than one lot.  The Applicant has to show that it comes under the exceptions set out in section 3(2). 

27.  The 1st pair Buildings are connected by 2 staircases intended for common use by the occupiers of the 1st pair Buildings, and the average percentage of the undivided shares owned by the Applicant as at the date of hearing in the 1st and 2nd Lots is 92.86% which is more than 90% as stipulated in Section 3(1).  Following the judgment of Bond Star, application for sale of the 1st pair Buildings are covered by section 3(2)(b) and the Applicant is  clearly entitled to make an application.  The 2nd pair Buildings are also connected by 2 staircases intended for common use by the occupiers of the 2nd pair Buildings, and the average percentage of the undivided shares owned by the Applicant as at the date of hearing in the 3rd and 4th Lots is 98.22% which is also more than 90% as stipulated in Section 3(1).  The Applicant is also entitled to bring an application in respect of the 2nd pair Buildings. 

28.  The second issue before us is, should the Applicant issues 2 separate applications, each covering one pair Buildings.  And if so, should we treat this application as 2 and give two sets of order and direction, and there be 2 separate auctions?

Order for sale of all the Lots as one Composite Site?

29.  Section 3(1) provides that a majority owner “may make an application” to the Tribunal for an order for sale in respect of “a lot”.  And section 3(2) provides that an applicant may take out “an application” for sale of more than one lot of land under section 3(1) if the lots go under one of the exception.  It is tempting to say that as the 1st pair Buildings only cover the 1st  and 2nd  Lots, only the 1st Lot and the 2nd Lot fall within section 3(2)(b) which may come under the same application.  And the 3rd and 4th Lots are not connected to the 1st pair Building and have to come under a separate application.

30.  To begin with, though section 3(1) refer to “an application”, we believe the whole phase means no more than the owner may make the application or has the right to make the application.  Section 3(2) provides that “an application under subsection (1) may cover 2 or more lots” when the conditions of sub-section (2)(a) or (b) is satisfied, which may seem to suggest that an application could include more than one lots only when the lots come under the exceptions in section 3(2).

31.  The issue determined by the Court of Appeal in Bond Star is not on the point. We only need to refer to issue one as set out in paragraph 4 of the judgment;

“Whether the Ordinance applies to land in respect of which the applicant is already the full owner? If so, how should the Tribunal approach an application in which the applicant asks for an order for sale to include land which the applicant already owns?” [our emphasis]

32.  In our view, the Court of Appeal has not been asked to and has not determined the procedure on how application under section 3(1) or 3(2) shall be made. 

33.  Subject to legislation, making one or two application must be a matter of procedural necessity.  This may not be an appropriate case to determine the issue, as the Application is uncontested and the main concern of Ms. Ngai is that the Lots should be put up for auction as one composite site. 

34.  Even if the Applicant is required to issue 2 applications for the 2 pair Buildings, once issued, we see no reason why in appropriate cases, this Tribunal cannot consolidate the 2 applications as one.  One of the considerations if 2 applications should be consolidated must be whether there are common issues. 

35.  If the Applicant concedes in the evidence that the Lots are to be developed as one composite site, there have to be common witnesses and it would be cost saving for the 2 applications be heard together.  And for the order for sale and direction to be given under section 4(1), we have to include provision for the manner of auction and the reserve price.  In setting the reserve price for each application, the potential redevelopment value of the composite site (when there is more than one site) should be taken into consideration.  We refer to Schedule 2 of the Ordinance.  Paragraph 2 of Schedule 2 provides that :

“The lot the subject of the auction shall be sold subject to a reserve price –

(a) Which takes into account the redevelopment potential of the lot on its own (or where 2 or more lots are the subject of the auction, on their own); and

(b) Approved by the Tribunal.”

36.  It is interesting to note that Schedule 2 refer to the subject lots of the auction.  As a comparison, section 4(1) of the Ordinance which provides for determination of the application, it refers to the “subject lots of the application”.  What are the subject lots of the auction? 

37.  We bear in mind the judgment given by Deputy Judge Kot and Mr. W.K. Lo in Top Sail International Limited v. Wong Lai Wei LDCS19000 of 2010.  This is a case when the minority owners argue that in assessing the reserve price, consideration should be given to the redevelopment potential of the lots in the application with the lots of the majority owners not included in the application.  The Tribunal found “it is beyond argument that only the subject lot of the application itself should be considered when deciding on the reserve price as well as making an order for sale.”

38.  The case of Top Sail is distinguishable on the ground that the other sites of the majority owners is neither covered by the application, nor covered by another parallel application.  And the Tribunal has also found that there is no evidence adduced by the minority owners that there is a much bigger redevelopment. 

39.  But in the case when a majority owner concedes the redevelopment plan include some other lots it owns, and these lots are the subject lots of another application before this Tribunal, there is strong reason for this Tribunal to consider redevelopment potential of the merged lots before setting the reserve price, in compliance with the said provision of Schedule 2 of the Ordinance.   

40.  Indeed, this does not happen often.  In most cases, the majority owner would not concede the lots are to be developed together.  And as in Top Sail, the minority owners have difficulty in persuading this Tribunal to take into account the merge lots effect in fixing the reserved price.  But if the majority owner concedes the joint development issue and there is evidence to that effect, we could not turn a blind eye in fixing the reserve price.  And when all the lots are subject of different applications, for good case management, the applications should be consolidated.  And the subject lots of the auction should be the subject lots of the consolidated application.   

41.  And we also refer to the comment of the Hon Ribeiro PJ in the appeal to the Court of Final Appeal in Bond Star, as set out above, when the issue whether the Ordinance precludes the Tribunal from making an order for sale in respect of composite site is left open.  This is not an opportunity to consider the point in details as we only have the argument from the Applicant.  But the comment supports our view that in appropriate cases, the Tribunal may consider giving appropriate direction for auction of more than one lot as a composite site.

42.  And once we so fix the reserve price by reference to redevelopment potential of the Lots as a composite site, we are of the view that there has to be one auction for the Lots.

43.  Accordingly, we come to the conclusion that the Application herein should be treated as 2 applications, one for each pair Buildings, but consolidated into one application.  For the order of sale, we would rule separately in respect of each pair Buildings.  And if the Applicant could satisfy this Tribunal that order for sale of each pair Buildings should be granted, and they are to be developed as a composite site, we would direct an auction of the Lots together with a reserved price reflecting the redevelopment potential of the Lots as one composite site.

Section 4(2) of the Ordinance - Justification and Reasonable Steps

44.  In determining the Applicant’s application, Section 4(2) of the Ordinance requires us not to make an order for sale unless, after hearing the objections, if any, of the 1st and 3rd Respondents, we are satisfied that:

(a)  the redevelopment of the Lots is justified due to the age or state of repair of the Buildings; and

(b)  the Applicant has taken reasonable steps to acquire all the undivided shares in the Lots (including negotiating for the purchase of the undivided shares owned by the 1st and 3rd Respondents on terms that are fair and reasonable).

45.  Ms Ngai submits that “age” and “state of repair” are two separate grounds but there may be considerations common to both.  However, as the Court of Appeal in Fineway Properties Ltd v. Sin Ho Yuen Victor [2010] 4 HKLRD 1 has expressed reservations on the correctness of the tests of “age or state of repair” formulated in Intelligent House Ltd v. Chan Tung Shing & Ors [2008] 4 HKC 421, which are based on the concept of “economic lifespan”, Ms. Ngai invites us to consider Gentway Ltd v. Li King Fong & Ors (LDCS 1000/2010, 15 December 2010, unreported) at para. 17，where the Tribunal held that it was unnecessary to apply the tests formulated in Intelligent House, (supra), as it was satisfied with the facts and expert opinion that redevelopment was justified due to the age and state of repair of the existing building.  Ms Ngai also submits that, in this application，it is appropriate to follow the approach adopted by the Tribunal in Top Sail International Ltd v. Cheng Kai Ming, executor of the estate of Chan Hue also known as Chan Sum Hiu, deceased (LDCS 18000/2010, 15 November 2011, unreported), Mass Ventures International Ltd v. All Lucky Development Ltd & Ors (LDCS 20000/2010, 10 January 2012, unreported), Dynamic Hero Limited v Leung Kam Sui, appointed by the Tribunal as Representative for the Estate of Leung Yiu Wah, Deceased and Glorytex Development Limited (LDCS 17000/2011, 27 February 2012, unreported) and Champion Success Limited and another v Somchit Sertthin and Somboon Sertthin and Others (LDCS 40000/2011, 29 June 2012, unreported) and to decide whether redevelopment of the Lots is justified due to the “age” and “state of repair” of the Buildings by reference to the expert evidence on these two aspects.  

46.  We agree that “age” and “state of repair” are two separate grounds and even though there may be considerations common to both, we should still consider them separately.  We agree that we do not have to formulate any general test for age and state of repair, and would consider if the expert evidence is sufficient to show that the age and state of repair is in such state that redevelopment of the relevant lot is justified.  Since Ms Ngai relies primarily on “state of repair”, we shall deal with this ground first.

Housekeeping Matters

47.  The Applicant seeks leave to file the 4th and 5th Affidavits of Chan Chi Hung.  Having hearing Ms. Ngai, we grant the leave accordingly and dispense with service on the Respondents.

State of Repair of the Buildings

48.  The Applicant’s expert, Mr. Dennis Wong of Prudential Surveyors International Limited, in his Condition Survey Report, gives his opinion, inter alia, that some of the defects commonly found in the Buildings are:

(a)  Spalling of Concrete:

This is where patches of concrete are either about to or already broken away from the surface revealing rusted steel reinforcement bars behind. This normally occurs when water have penetrated through concrete surface and have reached the steel reinforcement bars behind, which in turn causes the electro-chemical reaction and accelerate the oxidation to steel reinforcement bars inside, which means rusting. The volume of rusted steel section can be expanded greater from the original and in so doing slowly push off the concrete cover.

The concrete spallings at high levels are safety hazard to people as they have a risk of falling and causing injury to people and damage to surrounding facilities. The defective areas can be repaired and if the rusting is not too advanced. Spalling is considered serious if the steel reinforcing bars are severely corroded or it has affected large areas of the structural members such as columns, beams, and ceiling slabs, which will in turn affect the structural stability of the Buildings.

(b)  Render and Plaster Cracks:

These are surface cracks which are normally caused by shrinkage of the decorative materials or at the junction between two different building materials. Such cracks often lead to debonding or bulging of plaster over a period of time.

(c)  Loose Plaster:

This is usually caused by wear and tear or by the dehydration of plaster. The dehydration has weakened the bonding which is holding by water module between the aggregate, therefore the plaster slowly degrades and deteriorates over certain period.

(d)  Hair Cracks or Surface Crazing

The width of the hair cracks or the crazing is generally less than 1 mm and the causes are often due to natural deterioration and/or poor application of the decorative finishes.

(e)  Blistering and Raking of Paintwork

Often this is caused by dampness in the structure or in the atmosphere which may result in paint bubbles and eventually flaking off.

49.  Mr. Dennis Wong also opines that for the building facades, some of the original mild steel windows have been replaced by aluminum windows over the years and the windows are generally fixed with window type A/C units mounted on metal frames erected in a random manner. The remaining mild steel framed windows are generally in poor condition.  They are corroded and the integrity of sash to window frame has reduced increasing the risk of the window falling to the street.  Generally speaking, the condition of the building facades is poor. The rendered and painted surfaces appear to be stained and deteriorated due to weathering and lack of proper maintenance. Signs of deterioration including bulging, cracking and/or debonding of surface rendering are noted at the side and rear elevations of the Buildings. 

50.  As part of the condition survey, Stanger Asia Limited, a firm specialized in the field of Rapid Infrared Thermographic Survey (“RITS”) has been appointed to carry out a RITS to the external walls of the Buildings. The RITS has detected a number of spots of delamination on the external wall rendering.  In Mr Dennis Wong’s opinion, with time, these spots of delamination can deteriorate rapidly due to ingress of rainwater to the voids behind the rendering. Given that the delaminations are scattered throughout the external walls on the various building facades, rectification by carrying out hammer tapping work and patch repair will be both costly and time consuming and yet not very effective.  The RITS has also detected many other visible bulging, cracking and/or debonding rendered surfaces parochially scattered on the external walls to all elevations indicative that the debonding problem is not localized but extensive throughout the building facades.  There are many water seepage defects found inside the Buildings indicating that the external wall rendering is generally defective and not watertight.

51.  In addition to the RITS, a specialist asbestos consultant, Airspace Consultancy Ltd., has been appointed to carry out a visual inspection to identify asbestos containing materials (ACM) in the Buildings. The consultant has inspected all accessible areas and found ACM in the building components. The ACM found in the building components or parts can release asbestos fibres into the air posing serious health hazards to the occupants and need to be removed.

52.  Mr Dennis Wong also notes the following:

(a)  there are one projected unauthorized signage and two wall-mounted unauthorized signboards for advertisement erected on the front building elevation.  The unauthorized building structures (UBW) are not approved by the Buildings Department and as such are liable to enforcement action for removals by the Building Authority;

(b)  a number of unauthorized metal fixtures such as drying racks, window canopy, and rusty A/C frames which may not be structurally safe due to weathering and maintenance neglect; and

(c)  the large number of delamination found on the external wall rendering, unauthorized structures and signages and asbestos materials in the Buildings are potentially dangerous and hazardous to occupants and the general public alike.

53.  For the main roof, Mr Dennis Wong opines that:

(a)  The main roof of the 1st pair Buildings is applied with waterproofing coat on the cement/sand screeding, whilst the roof of the 2nd pair Buildings is finished with concrete tiles. The condition of the roofs is generally in a very poor condition.

(b)  Both roofs, constructed of reinforced concrete, have reinforced concrete parapet walls all around as edge protection and finished with cement/sand rendering and paintworks. Cracks are found at the wall surfaces.  From the water stains noted underneath the roof slabs in internal flats on 6/F, it is reasonable to conclude that the waterproof membranes are defective and not performing their intended function of keeping rainwater from entering into the Buildings.

(c)  The stair hoods and water tanks on the main roof are all finished in cement/sand rendering which show cracks and staining and appear to be in poor condition. 

54.  In Mr Dennis Wong's opinion, the staircase and corridors are generally in a poor state of repair as a result of water seepages, weathering, concrete spalling and minor damage by wear and tear. Defects noted in the staircases and corridors are as follows:

(a)  Spalling and cracking of concrete;

(b)  Damaged windows glaze; and

(c)  Broken step to the staircases.

55.  Mr Dennis Wong notes that some of the flats in the Buildings have been sub-divided internally into smaller units for separate occupancies.  Internal layouts of these flats have been re-arranged without approval from the Building Authority. The partition walls have been partially removed.  The extent and complexity of the internal subdivision works may adversely affect the safety and maintenance of the Buildings and more importantly the sub-divided units result in a number of contraventions of the Buildings Ordinance, related Regulations and Codes of Practice. The issues arising from the subdivisions inside the flats are as follows:

(a)  Majority of the subdivided smaller units have their own toilet or kitchen. To accommodate the drainpipes, many of these toilets are constructed on raised floors of 200mm to 300mm thick.  The raised floors induce additional loading on the floor slab and other supporting structural elements causing potential overloading. Moreover, possible water leakage from the embedded drainpipes in the raised floor will cause the reinforcement bars in the concrete structure to corrode and affect the structural integrity of the Buildings.

(b)  The internal partitions used to subdivide the units are mostly constructed of brickwork. This also induces additional loading on the floor slab and other supporting structural elements which may further aggravate the overloading situation. Other internal partitions used to subdivide the units are mostly constructed of timber and do not have the required minimum fire resistance rating of 1 hour as specified in Clause C7.1b of the Fire Safety Code.

(c)  The subdivided units at the front section of the Buildings on some floors cannot access directly to the rear staircase without passing through the rear subdivided units. Since the rear flat units have a lockable entrance door without automatic release to the lock during a fire, it contravenes the Fire Safety Code, Clause B8.2.  Also, referring to the same Clause in the Fire Safety Code, the means of escape should not pass through other person’s private premises. As the flats are subdivided and occupied with difference users, the existing layout is in breach of the Fire Safety Code.

(d)  Kitchens provided for these subdivided units are generally not enclosed with fire resisting walls and doors as required under the Fire Safety Code Clause C13.3 and have not provided any smoke detectors or sprinkler head to the kitchen under the Fire Safety Code Clause C13.

(e)  In general, there is no fire alarm system or smoke detection system provided to these subdivided units contravening paragraph 4.14 and 4.22 of the Code of Practice for Minimum Fire Service Installations and Equipment.

(f)   The illegally subdivided units found in the Buildings pose structural, fire safety and hygienic problems on the proper maintenance of the Buildings and safety of the occupants.

56.  Generally speaking, in Mr Dennis Wong's opinion, the condition of the internal decorations and finishes ranges from poor to very poor and suffer badly from moisture and natural wear. The most common defects in the flats noted are dampness from the floor above and cracking and spalling of concrete.  The defects commonly found in the flats are as follows:

(a)  Cracked and spalling concrete to structural members and walls;

(b)  Dampness to the ceilings and beams in many rooms (in particular the kitchens and bathrooms) around the pipe work from the flats above and on the external walls;

(c)  Surface crazing and blistering and other defects of the plaster and/or peeling of paintwork in various rooms.

57.  For plumbing and drainage, Mr Dennis Wong finds that some pipe brackets are found broken. The water piping connection to the water tanks are found disconnected. Flushing systems for the sanitary fitments in the domestic units have been modified. The fresh water supplies are directly connected to the sanitary fitments without water tanks in between the flushing water system and fresh water supplies. Such arrangement of plumbing connection may contaminate the fresh water system and contravenes the Water Works Ordinance (Chapter 102).

58.  Stanger Asia Limited is also engaged to carry out a close circuit television underground drainage survey (CCTV Survey) to investigate the conditions of underground drainage. 6 buried sewerage pipes within a total length of 22.9 m, are inspected by the CCTV Survey. Encrustation and debris are found in the CCTV Survey at a number of locations within the pipes. 

59.  In Mr Dennis Wong's opinion, the existing electrical installation is unsatisfactory and defects are listed as follows:

(a)  Circuits for socket outlets are not protected by residual current device (Earth leakage protection). 

(b)  There is no equipotential bonding to exposed metal parts.

(c)  There is concealed wiring inside the wall without conduit protection.

(d)  Loose wire installation.

60.  In Mr Dennis Wong's opinion, the estimated total cost of immediate repair work is $11,901,476,

61.  Another expert of the Applicant, Mr C M Wong of C M Wong & Associates Ltd., also gives his opinion in his Structural Assessment Report as follows:

(a)  Mr C M Wong has carried out different tests to the Buildings including covermeter survey, core compression test, depth of carbonation test, and chloride content test. 

(b)  Defects that are found during his visual inspection include cracks, spalling or severe water stains.  In Mr C M Wong’s opinion, most of the observed cracks are longitudinal cracks.  The cause of these cracks is due to the corrosion of the reinforcement.

(c)  At the location where cracks are formed, the steel reinforcement is more readily exposed to the agents of corrosion including moisture and oxygen. Mr. C M Wong expects that the corrosion of the reinforcement may continue and become more severe. The cracks may then propagate and eventually extensive spalling of the concrete may occur.  Corrosion of the steel bars would significantly reduce the flexural and shear strength of the structural elements and hence the effectiveness of the structural elements in the Buildings.  Most of the cored samples of the structural element have ‘considerable’ or ‘numerous’ voids. The air voids in the concrete will also provide an easier route for water and air to penetrate into the concrete, and thus initiate corrosion of the steel reinforcement bars.

(d)  Mr C M Wong notes that there are alteration work that have structural implications during the visual inspection.  Some additional partition walls for sub-division are observed during the site inspection. These additional partition walls induce additional vertical loading to the structural elements, which have not been accounted for in the original design. 

(e)  During the visual inspection, Mr. C M Wong also notes that some of the vacant flats have been modified to include additional toilets and kitchens. The leakage from these additional toilets and kitchens has accelerated the corrosion of the reinforcement.

(f)   According to the findings of the covermeter test, some of the spots checked within structural elements have concrete cover less than the design cover.

(g)  For members where the actual cover is smaller than the design cover, the protection to the steel reinforcement bars is less than that anticipated in the original design. Agents of corrosion, i.e. moisture and oxygen, will have faster access to the steel reinforcement. As such, the corrosion rate of the steel reinforcement will be higher than allowed for in the original design.

(h)  The core compression test results show that some of the core samples tested have estimated in-situ strengths lower than the specified cube strength.

(i)  A substantial number of voids is also observed on the core samples. A majority of the samples contains considerable extent of voids whilst some of the samples have numerous voids.  The extent of voids contributes to a higher rate of corrosion of the steel reinforcement by allowing the agents of corrosion to ingress into the concrete more readily.

(j)  All of the structural elements that are tested have a depth of carbonation exceeding the actual concrete cover. The protection of the passive layer of concrete cover in most of the areas tested has been already lost and the steel reinforcement is susceptible to corrosion. In Mr C M Wong’s opinion, some portions of the steel reinforcement are already undergoing corrosion.

(k)  According to the test results, the concrete cover for all of the tested structural elements in the Buildings has been carbonated.

(l)  Mr C M Wong also checks the chloride content of samples from the Buildings.  Some of the samples have moderate to high chloride content.  In Mr C M Wong’s opinion, the risk of the corrosion of steel reinforcement will increase when high chloride content co-exists with carbonation depths close to the reinforcement.  High chloride content presents a problem as it is very difficult, if not impossible, to be completely rectified. Unlike carbonation, chloride ions are free to move within the concrete. Even if replacement of the concrete cover is carried out, the existing chloride ions in the remaining contaminated concrete will diffuse into the new concrete over time and increase the rate of corrosion of the steel reinforcement.

(m)  The combined effect of severe carbonation and high chloride content creates a higher risk of corrosion. Corrosion of the steel reinforcement bars means that the concrete is likely to have already passed the initiation phase of deterioration and entered propagation phase. During the propagation phase the concrete is likely to suffer from more defects and the steel reinforcement bars will lose its strength as it becomes more corroded.

62.  In Mr C M Wong's opinion, the estimated total cost of current repair work of the Buildings is $445,840.

63.  The poor state of repair of the Buildings is also evidenced by a number of building orders registered against the Buildings, the latest one being dated 23 March 2006.

64.  Having examined the evidence of the Applicant, we are satisfied that based on the evidence of Mr Dennis Wong and Mr C M Wong, redevelopment of the Lots is justified due to the state of repair of the Buildings.  In our opinion, with the evidence before us, the Buildings are clearly in a very poor state of repair and indeed in dangerous condition.  There is no doubt that redevelopment is justified in the present case.

Age of the Buildings

65.  As to the age of the Buildings, there is no dispute that the Buildings are now more than 54 years old.  The occupation permit for the 1st pair of Buildings was issued on 24 August 1957, and the 2nd pair of Buildings, 11 March 1958.

66.  In Top Sail (supra),

“23.   ……when the requirement of “the age” of the building is considered， [the Tribunal] should not restrict [its] consideration to just the physical age of the building.  There are many factors related to the age of a building which should also be considered...... the Tribunal has discretion to determine at what stage a building should be redeveloped after considering all the relevant factors concerning the age of the building in question.

The physical age of a building is clearly one of the considerations， but it would not be the only consideration. The physical conditions of a building and the amount that would be required to maintain the building are other factors that the Tribunal should consider，as they would affect the decision on whether the life of a building should be ended or prolonged. The obsolete design of a building should also be considered as it has an important impact on whether it is too old to serve a modem society." [Emphasis added and parenthesis substituted]

67.  We shall examine the evidence of Mr Dennis Wong and Mr C M Wong vis-à-vis the decision of the Tribunal in Top Sail. 

68.  According to Mr Dennis Wong, most of buildings completed in Hong Kong before the ninety-seventies have less forethought regarding the safety measurements to occupancies, visitors and property service operators than modem buildings. The safety measurements are such as the fire safety protections to the buildings, means of escape for people and safe working space to property service operator. Furthermore, these buildings have less supporting facilities for the people’s daily life comparing with modem buildings. Most of them have not got any refuse stores, which affect the hygienic of buildings. The facilities are not as ergonomic as the modem ones as they are not designed for minorities, such as barrier free access facilities for wheelchair users are not up to the current standard. Also the after-built maintenance planning was not considered when the Buildings were built. The material uses and the building designs were the economical standard, which do not last long for numbers of decades. Having inspected the external facades, the internal common areas and the interior of the flats, Mr Dennis Wong points out the following deficiencies of the Buildings in benchmarking the health and safety issues when compared to modern composite buildings:

(a)  Safety to occupants / Safety working place to service management staff

(i)  There is no equipotential bonding system provided for metal fixtures such as windows and metal doors to prevent accidental electrical shocks to habitants as required under the Code of Practice for Electricity (Wiring) Regulations (“Electrical Code”) Item 1 IE. This is a fundamental breach of the Electrical Code rendering a real and serious threat to the safety of the occupants and all persons entering the Buildings.

(ii)  More importantly, design of the new buildings provide the occupants with a much better chance to escape to safety in case of fire with fire services installations such as hose reel, fire hydrant, fire alarm, sprinkler for shops, kitchens and common areas etc,. On the contrary, there are no fire services installations except portable fire extinguishers at common staircase provided to the upper flats in the Buildings. This deviates from the current requirements under the Code of Practice for Minimum Fire Service Installations and Equipment.

(iii)  The staircases and corridors do not meet the current requirement of the current Code of Practice for Fire Safety in Buildings (“Fire Safety Code 2011”) issued by the Buildings Department retrospectively in respect of the following:

Clause B5.5 - Every part of an exit route should be provided at all time with lighting of a horizontal luminance at floor level of not less than 30 lux. Lack of emergency lighting is found in the exit staircase or corridor.

Clause B5.10 - Directional and exit signs should be provided to indicate the location of protected exits and assist occupants with their path of travel along the exit route. Such signs should comply with the requirements in the Code of Practice for Minimum Fire Service Installations and Equipment. Lack of notice, signs and hand pointers indicating the way out within the Buildings.

Clause C9.3(d) - All required staircases and their protected lobby should not accommodate any services such as fire hydrants, sprinkler systems, emergency lights and exits signs unless such services area enclosed by fire barriers having an fire resistance rate of not less than that of the walls separating the protected exit from the rest of the building. Electrical installations are installed inside the fire escape staircases without fireproof enclosures creating a very real fire hazard to the occupants.

(iv)  Parts of the cables including the electricity, telephone, TV cables and meters etc., in the Buildings are installed with unprotected and exposed wirings running in the flats, staircases, corridors and roof, which increase the risk of electric shock to the occupant and do not comply with the Code of Practice for the Electricity (Wiring) Regulations 2009.

(v)  None of cat ladder and/or practical access is provided for carrying out inspection work to the upper roof areas. Under the Occupational Safety and Health Regulation, Cap 509A, Section 6, protective barrier should be provided for daily cleaning at the upper roofs to prevent people from falling over and safeguard their safety. In contrast, new buildings have proper access and protection facilities for such work to be carried out. In essence, due to outdated design and lack of proper repair and maintenance in the past, it is getting more difficult, risky and expensive to conduct inspection, repair and maintenance works to these areas.

(b)  Hygienic issues

(i)  The A/C units in the Buildings are of different types and sizes installed individually by the owners on unauthorized metal frames mounting at the windows. Also, there is no common A/C condensate drain pipes provided for the A/C units to discharge into the rain water pipes. Water discharging from A/C units down to the street and creating nuisance to the public is a summary offence enforceable by the Director of Food and Environmental Hygiene Department under the Public Health and Municipal Services Ordinance, Cap 132, Section 12 (1) (g). Nowadays, new buildings are customarily provided with common air conditioning drain pipes (or separate A/C units with remote controls and dehumidifying function) discharging properly into the rain water pipe system. A/C units are installed safely on properly designed and Buildings Department approved A/C platforms.

(ii)  There is no refuse chutes/rooms provided to the Buildings. The refuse disposal method is outdated and unhygienic. Household refuses are packed in plastic bags and then placed at the corridors for manual collection at night time. The refuses are transferred via the staircases to the yard at G/F and from there loaded onto carts for transporting to nearby public collection points. The bagged refuse placed in the corridors means the escape routes are constantly obstructed and represents a real hazard to the occupants.  Physically, there is no space on the typical floors for installing improvements such as refuse rooms/chutes meeting the reference stated in the Building (Refuse Storage and Material Recovery Chambers and Refuse Chutes) Regulations. Unlike old buildings, new buildings are required to provide hygienic and efficient refuse disposal systems such as the provisions of refuse storage rooms at G/F for storage and collection of refuse.

69.  In Mr Dennis Wong’s opinion, there is no significant maintenance or upgrading work carried out to the Buildings since they were first built. With an increasing standard of construction and statutory requirements, and with growing expectations of occupiers on the quality of accommodation, the Buildings have become substandard and much inferior to a new residential building in the following aspects:

(a)  Forethought design to the maintenance of building:

(i)  There are no architectural features and proper overhangs at roof level or on the facades of the Buildings making the Buildings more prone to wear and tear and deterioration of the external wall finishes. New buildings are commonly designed to have external architectural fins and overhangs for weather protection and aesthetical purposes.

(ii)  The external walls of the Buildings are finished with cement/sand rendering and paintwork instead of more durable or weatherproof materials such as mosaic tiles or panel cladding. They are in poor condition which have been affected by shrinkage of render and peeled off paintwork.  This leads to a frequent 5-year maintenance cycle that requires erecting scaffolding and repainting of the facade with high maintenance cost and inconvenience to the occupants. On the other hand, new buildings are often finished with self-cleaning (i.e. some smooth faced finishing materials which will not hold dust and/or with which rain, when washing down the face of external wall, also washes off the dust), durable and low maintenance materials such as tiles, granites, coatings, glass and metal panels.

(iii)  The windows to some of the flats in the Buildings are still fitted with mild steel frames and sashes (which are typical of buildings erected in the 50’s). New buildings commonly have standardized aluminum windows finished with protective coating like fluorocarbon or powder coating to the frames and accessories for durability. Glazing is also commonly tinted and coated for ultraviolet light and heat reflectance, thus providing better thermal comfort and energy saving for internal areas.

(iv)   The common corridors of the Buildings are poorly finished and look shabby.  Typical floor lobbies and corridors for new buildings are generally decorated with granite/homogenous tiles to floors, wall tiles/granite/marble/glass panels to walls, decorative lighting; and false ceilings for a more hygienic and tidy design.

(b)  Supporting facilities for the current standard expectations of living quality:

(i)  It is apparent that the Buildings are not managed or looked after by any property management company or any caretaker. The metal gates installed at the entrances of staircases are the only security measures to the Buildings. On the contrary, new buildings are invariably managed by property management companies or are at least provided with caretakers as well as controlled and secured access at all the entrances to the Buildings, also with CCTV surveillance system, panic alarm system to lifts and digital door lock/smart card/ video door phone system etc. to prevent and monitor any unauthorized entry.

(ii)  There is no building automation system with service connections to a control room for instant fault signaling and repairing. Building automation system is a building services control and monitoring system which for new buildings usually operates under a computer programme to control and monitor various building services installations such as the security, fire services, electricity supply, lighting, lifts, central air conditioning, plumbing and drainage etc. This system is particularly useful and important when it comes to early identification of faults for repair of essential components such as fire pumps and fire service lifts, etc. Absence of these automation systems is not only a safety issue but may also result in frequent breakdown of building services installations, high operation expense and maintenance cost. For this reason, new buildings are often equipped with a computerized building automation system for better management.

(iii)  There is no provision of common entertainment and communication facilities to the Buildings. The TV cables and antennas are not orderly laid at roof and there are exposed wirings. In contrast, for new buildings, Communal Antenna Broadcasting Distribution (CABD) System and Satellite Reception with concealed wirings are standard provisions.

(iv)  There is no provision of access facilities for telecommunications and broadcasting (TBE) services in the Buildings. These facilities are required in new buildings according to the Practice Note for Authorized Persons and Registered Structural Engineers.

70.  In Mr Dennis Wong’s opinion, the current expectations on the standard of living cannot be achieved without significant alteration work to the Buildings’ layout and structure in the following aspects:

(a)  The Buildings are designed and approved under the old Buildings Ordinance and related Regulations applicable in the late fifties.  The density of the Buildings was determined by the “Volume” calculation method, which was the permitted method applicable when the Buildings were built. The “Volume” calculation had since been replaced by new design parameters using Plot Ratio, Site Coverage, and Open Space etc. New buildings approved under the new parameters are less densely populated and provide more open space and a more spacious environment within the building site. Moreover, the new buildings also afford better natural lighting and ventilation for the occupants.

(b)  Car parking and loading/unloading bays are not provided in the Buildings. New residential buildings are normally provided with car parking spaces as guided by the Hong Kong Planning Standards and Guidelines.

(c)  Lift is not provided in the Buildings causing general inconvenience to the occupants, and more importantly, restricted access for the elderly and wheelchair users. On the other hand, all new buildings (except for certain exemptions) are fitted with lift services for the convenience of the occupants and visitors (including the elderly and wheelchair users) as well as a means of fire fighting and rescue in case of fire.

(d)  There is no ramp provided for wheelchair users to gain ingress and egress between the public street and the staircases at G/F.  Also, there is no lift provided from G/F to upper levels. No provision of such facilities is regarded as  non-compliance of the current requirements for barrier free access under Regulation 72 (1) of the Building (Planning) Regulations and the Design Manual for Barrier Free Access 2008.   

71.  In Mr C M Wong’s opinion, the average cement content of the Buildings does not meet the minimum amount stipulated in the current standard.  There are considerable voids in the structural elements which do not meet the current standard of workmanship.  The design cover of the slabs and beams is smaller than that required under the current code of practice for fire resistance.  Mr C M Wong believes that the corrosion of the reinforcement bars in the Buildings has already entered the propagation phase. Therefore, extensive maintenance and repair work would be required in the near future in order for the building structure to meet the current standards.

72.  In Mr C M Wong’s opinion, ductility is crucial to the safety of a structure and is considered to be at least as important as strength. In order to ensure the ductility of a structure, the modem code not only requests the minimum percentages of reinforcement, but also the proper detailing of the anchorages between beams and columns. No such requirement was imposed at the time of design of the Buildings.  A robust building will not cause disproportionate collapse when subjected to local damage due to accidental overload or impact. The modem code therefore requests to have a robust design by considering and checking a set of design loads for key structural elements. However, the codes at the time of design of the Buildings did not request for providing these structural redundancy.  Given that the ductility and robustness were not considered in the Buildings, therefore the structure of the Buildings cannot meet the current safety standards.

73.  In Mr Dennis Wong’s opinion, there are many fire safety deficiencies not meeting today’s standards/requirements. Under the Fire Safety (Buildings) Ordinance Cap. 572 enacted in 2007, the owners are required to improve the provisions of fire safety construction and fire services installations and equipment to the current standard. Failure on the part of the owners to do so, Buildings Department and Fire Services Department may issue Fire Safety Directions requiring improvement works to be done.  The major fire safety deficiencies to fire safety construction and means of escape noted are as follows:

(a)  The electricity meters and electrical wirings from the ground floor to the flats on upper floors are surface mounted on the walls in the staircase.  These unprotected electrical installations in the staircase are potential fire hazards (see 11.3(c) of the Code of Practice for Fire Resisting Construction (FRC Code 1996))

(b)  The placing of packed household refuses in the staircases and corridors are causing obstruction in the staircases and corridors (which serve as fire escape routes) and pose a real threat to the occupants in case of fire.

(c)  According to Paragraph 13,5(a) of Code of Practice for The Provision of Means of Escape in Case of Fire (MOE Code 1996), no door opening on to an internal common corridor should at any part of its swing reduce the minimum required width of such corridor. However, some main entrance gates of flats are found to be openable towards the means of escapes and reduce the width of means of escapes to less than the requirement according to Paragraph 11.1 of MOE Code 1996.

(d)  Fire rated flat entrance door has been removed and replaced with metal gate, which does not fulfill the requirement stated in the Paragraph 17.4(a) of FRC Code 1996.

(e)  The width of the front staircases is only about 990 mm wide, which is less than the minimum width of 1,050 mm as required for a fire escape staircase under the current Buildings Ordinance and allied Regulations.

(f)   There are no handrails but only plastered balustrade heads provided on one side of the staircase only. The balustrade heads are of a shape and thickness, difficult for people in particular, children to hold on. The current means of fire escape require handrails on both sides of fire escape staircase.

74.  Mr Dennis Wong also identifies some of the obsolete designs of the Buildings as follows:

(a)  The effective heights of the parapet walls are actually lower than the required minimum height of 1,100 mm required by Buildings (Construction) Regulation 8(2) (b) and thereby increasing the risk of objects falling over.

(b)  No lightning protection is installed at roof, which will cause a serious risk to the safety of the occupancies in case of lightning strike.

(c)  Most of the domestic flats are using PVC/PVC copper cables concealed laid inside wall/cement plastered. According to the Code of Practice for the Electricity (Wiring) Regulation 15E (f), cables concealed inside wall should have mechanical protection to avoid damages from nails, screws and the like

75.  Ms Ngai relies on the remarks of Mr Dennis Wong and Mr C M Wong that it would cost $12,124,200 and $445,840 respectively to properly repair the Buildings, and that it is more cost effective to demolish and rebuild the Buildings.  We consider that the figure of 8.12%, being the total repair cost of $12,347,316 over the EUV of the Buildings, which is $152,000,000 as assessed by the Applicant’s valuer (see the discussion below), is a substantial percentage.

76.  Having considered all the evidence as aforesaid, we are satisfied that the redevelopment of the Buildings is also justified on the ground of the age of the Buildings due to the following factors:

(a)  The Buildings are more than 54 years old.

(b)  The Buildings are in very poor physical conditions and the cost required to repair or maintain the Buildings is substantial; and

(c)  The obsolete design of the Buildings does not suit the present day requirements of a building.

Reasonable Steps to Acquire All the Undivided Shares in the Lots

77.  As required by Section 4(2) (b) of the Ordinance, the Applicant is under an obligation to negotiate for the purchase of the 1st and 3rd Respondent’s undivided share in the Lots on terms that are fair and reasonable. 

78.  The evidence of the Applicant’s factual witness, Ms Lui Wing Yan (“Ms Lui”), shows that the redevelopment value ("RDV") of the 1st Lot and the 2nd Lot as a composite site as at 31 May 2011 to be $89,489,244 and of the 3rd Lot and the 4th Lot as a composite site, $98,510,756. 

79.  The Applicant has commissioned DTZ Debenham Tie Leung Limited ("DTZ") to assess the value of the units in the Buildings on the existing use values basis ("EUV").  A valuation report for EUV was prepared by Mr. Henry Cheng (“Mr Cheng”) of DTZ.  The valuation date is 20 April 2011. 

80.  According to the DTZ EUV report, the EUV of the 1st pair Buildings as at 20 April 2011 is $71,210,000. The EUV of the 1^st Respondent’s premises is $2,540,000.  In terms of percentage, the share of the 1st Respondent's premises is 3.57%.  Based on the RDV of $89,489,244, the reasonable offers to be made to the 1st Respondent would be $3,194,766.

81.  According to the DTZ EUV report, the EUV of the 2nd pair Buildings as at 20 April 2011 is $75,060,000.  The EUV of the 3rd Respondent's premises is half of $2,310,000. In terms of percentage, the share of the 3rd Respondent's premises is 1.54%. Based on the RDV of $98,510,756, the reasonable offers to be made to the 3rd Respondent would be $1,517,066.

82.  According to Ms Lui:

(a)  Although the Applicant did not know the whereabouts of the 1st and 3rd Respondents and regardless of remoteness of the chance of success, on or about 17th May 2011 and before the Applicant filed its Notice of Application, the Applicant through Messrs Yung, Yu, Yuen & Co (“YYY”) made written offers of $3,504,000 and $1,577,000 respectively to the 1st Respondent and the 3rd Respondent to purchase their undivided shares in order to try its best to acquire all the undivided shares in the Lots without resort to litigation. The offer letters were sent by way of both ordinary post and registered post to their last known addresses (i.e. 6/F of No. 196 Ma Tau Wai Road and the Front Portion of 1/F of No.202 Ma Tau Wai Road). The Applicant and YYY did not receive any reply from the 1st and 3rd Respondents.

(b)  At the end of May 2011, DTZ provided the Applicant with their confirmed valuation of the EUVs of all the units in the Buildings as at 20th April 2011 and the Joint Redevelopment RDV. In the light that the EUVs assessed in the confirmed valuation were higher than the provisional valuation, to be fair to the Respondents and with the view to trying its best to acquire the Respondents’ undivided shares without resort to litigation, on or about 31st May 2011, YYY on behalf of the Applicant made the 2nd offers to the 1st and 3rd Respondents to purchase their interests at the prices of $3,512,000 and $1,668,000 respectively. The offer letters were sent to the 1st and 3rd Respondents by way of both ordinary and registered post to their last known addresses. The offer letters sent by registered post were returned by the Post Office and marked “Unclaimed”.

(c)  In the light of the recent opinion of Mr. Henry Cheng that the Joint Redevelopment RDV as at 13th June 2012 had increased to $239,000,000, on or about 18th June 2012, YYY on behalf of the Applicant made another offers to the 1st and 3rd Respondents to purchase their interests at the respective prices of $4,515,000 and $2,050,000. YYY delivered the offer letters to the last known addresses of the 1st and 3rd Respondents by hand and by post.  The Applicant has not received any reply from the 1st and 3rd Respondents.

83.  Ms Ngai submits that the Tribunal should consider whether “on the evidence available，the offers fall within the range of what may broadly be regarded as fair and reasonable compensation for the interests in question”, as said by Mr. Justice Ribeiro PJ in Capital Well (supra) at para. 33.

84.  Although we do not have detailed evidence of the RDV of the Lots when the Applicant offers to purchase the 1st and 3rd Respondents’ respective premises in May 2011, we are satisfied that, on the evidence available, these offers and the subsequent offers made by the Applicant fall within the fair and reasonable range.  Thus, we conclude that the Applicant has taken reasonable steps to acquire all the undivided shares in the Lots.

Order for Sale

85.  By reasons of the matters aforesaid, we are satisfied that an order for sale should be granted in favour of the Applicant.  The remaining question is how much we should fix for the reserve price.

Reserve Price

86.  In his EUV report dated 9 June 2011, Mr Cheng valued the EUV of the respective units of the Buildings as at 20 April 2011.  In his valuation of the EUV of the ground floor units of the Buildings, Mr Cheng adopted the following methodology:

(a)  He selected Ground Floor, 198 Ma Tau Wai Road as the reference unit for the purpose of valuing shops of the 1st pair Buildings.

(b)  He selected Ground Floor, 200 Ma Tau Wai Road as the reference unit for the purpose of valuing shops of the 2nd pair Buildings.

(c)  He converted the area of the components of the ground floor unit by using a conversion factor of 0.125 for yard. 

(d)  He took into account of 7 comparable transactions in different buildings nearby. After making what he regarded as the necessary adjustments (for location, size, building condition, sale status, layout/frontage, headroom and time) for all these comparable transactions, he took the average of the adjusted unit rate of the comparables to come to the unit price at $16,786 per sq. ft. and $17,441 per sq. ft. for the 1st pair Buildings and 2nd pair Buildings respectively.

(e)  He then used the unit prices to assess the ground floor units..

87.  In his valuation of the EUV of the domestic units of the Buildings, Mr Cheng adopted the following methodology:

(a)  He selected 3rd Floor, 198 Ma Tau Wai Road as the reference unit for the purpose of valuing the flats of the 1st pair Buildings.

(b)  He selected 3rd Floor, 200 Ma Tau Wai Road as the reference unit for the purpose of valuing the flats of the 2nd pair Buildings.

(c)  He took into account of 8 comparable transactions in different buildings nearby.  After making what he regarded as the necessary adjustments (for location, age, view, environment, orientation, size, floor level and time) for all these comparable transactions, he took the average of the adjusted unit rate of the comparables to come to the unit price at $4,146 per sq. ft. and $4,202 per sq. ft. for the 1st pair Buildings and 2nd pair Buildings respectively.

(d)  He further considered the floor difference and internal conditions of the reference units and the remaining domestic units within the Buildings to arrive at the EUV of all the domestic units.

88.  Subsequently in June 2012, Mr Cheng revised his valuation of the EUVs of all the units on account of availability of the confirmed property price indices for the relevant period published by the Rating and Valuation Department and availability of 4 more units in the Buildings for inspection.

89.  Mr Cheng’s revised valuation of the EUV of all the units in the Buildings are:

			196 Ma Tau Wai Road	198 Ma Tau Wai Road	200 Ma Tau Wai Road	202 Ma Tau Wai Road
Floor	Portion	Flat
6			2,610,000	3,500,000
	Front				2,070,000	1,960,000
	Rear					1,540,000
		A			610,000
		B			750,000
5			2,600,000	3,850,000
	Front				2,190,000
		A				810,000
		B				590,000
		C				670,000
	Rear				1,610,000	1,580,000
4				3,930,000
	Front		1,400,000		2,230,000	2,230,000
	Rear		930,000		1,640,000	1,610,000
3			2,980,000	4,010,000	3,870,000	3,870,000
2			3,040,000	4,090,000	4,080,000	4,080,000
1			3,090,000	4,170,000	3,960,000
	Front					2,370,000
	Rear					1,710,000
G			15,890,000	18,000,000	15,940,000	15,940,000

90.  We are satisfied that the revised EUV valuation of Mr Cheng is fair and reasonable.  Under section 10 of the Ordinance, the apportionment between the majority owners and the minority owner of the Lots shall be on the basis as specified in Part 3 of Schedule 1 of the Ordinance.  Under the said Schedule, the proceeds are to be apportioned on the basis of the EUV as determined by the Tribunal.  We hold that the proceeds are to be apportioned on the basis of the EUV as set out above.

91.  In his valuation report dated 15 June 2012, Mr Cheng states the RDV of the Lots as at 13 June 2012 to be $239,000,000. 

92.  Mr. Chan’s valuation method can be summarized as follows:

(a)  The valuation is conducted on the assumption that the existing Buildings are vacant and to be demolished and redeveloped into certain beneficial usages reasonably reflecting their redevelopment potential. 

(b)  Mr Cheng has assessed the RDV using the residual valuation method.  The residual method is the assessment of the land value by deducting the development costs from the potential sales revenue, i.e. the gross sale price, of the completed building.

(c)  After testing with different scenarios, Mr Cheng is of the opinion that the optimum development on the Lots comprises a 25-storey commercial / residential composite building with non-domestic units on Ground and 1st Floors and residential units on 2/F to 24/F.

(d)  He then identifies non-domestic and domestic comparables, applying relevant adjustments as appropriate.

(e)  Mr Cheng uses 4 Ground Floor shop transactions in 4 buildings nearby as his Ground Floor retail comparables.  He uses 2 transactions in 2 buildings nearby as his 1st Floor non-domestic comparables. For upper floor domestic comparables, he uses a total of 33 flat transactions in 4 developments nearby.

(f)  The following unit rates are adopted by Mr Cheng in assessing the gross development value:

Ground Floor Retail:  $23,045 per sq. ft.,

1st floor Unit:  $6,549 per sq. ft., and

Typical Domestic Unit:  $12,842 per sq. ft..

(g)  Mr Cheng then deducts the development costs from the gross development value.  Allowing for developer’s profit and discounting for the development period, Mr Cheng determines the land value of the Lots on redevelopment basis.

93.  We are satisfied that the RDV valuation of $239,000,000 made by Mr Cheng is fair and reasonable, reflecting the current redevelopment value of the Lots.  Thus, the reserve price of the Lots should be fixed at this value.

Conclusion

94.  We make the following ruling :

(a)  The existing use value of the premises now known as 6th Floor, No. 196 Ma Tau Wai Road, Kowloon owned by the 1st Respondent in the buildings now known as Nos.196 and 198 Ma Tau Wai Road, Kowloon (hereinafter collectively referred to as “Building A”) erected on Sub-section 2 of Section A of Kowloon Inland Lot No. 1409 and The Remaining Portion of Sub-section 1 of Section A of Kowloon Inland Lot No. 1409 (hereinafter collectively referred to as “Group A Lots”) as assessed in this Application is fair and reasonable and is fair and reasonable when compared with the existing use values of the Applicant’s units in Building A.

(b)  The existing use value of the 1/2 share of the premises now known as the Front Portion of 1st Floor, No.202 Ma Tau Wai Road, Kowloon owned by the 3rd Respondent in the buildings now known as Nos.200 and 202 Ma Tau Wai Road, Kowloon (hereinafter collectively referred to as “Building B”) erected on Section A of Sub-section 1 of Section A of Kowloon Inland Lot No. 1409 and Sub-section 3 of Section A of Kowloon Inland Lot No. 1409 (hereinafter collectively referred to as “Group B Lots”) as assessed in this Application is fair and reasonable and is fair and reasonable when compared with the existing use values of the Applicant’s units in Building B.

(c)  The Tribunal is satisfied that redevelopment of Group A Lots and Group B Lots is justified due to the age and state of repair of Building A and Building B and that the Applicant has taken reasonable steps to acquire all the undivided shares in both Group A Lots and Group B Lots, including the undivided share in Group A Lots held by the 1st Respondent and the undivided share in Group B Lots held by the 3rd Respondent.

And we make the following orders:

(A)  All the undivided shares in Group A Lots and Group B Lots be sold together by way of one public auction for the purposes of redevelopment of Group A Lots and Group B Lots under Section 4(l)(b) of the Land (Compulsory Sale for Redevelopment) Ordinance Cap. 545 (“the Ordinance”)

(B)   Proceeds of sale be apportioned first between the owners of Group A Lots and the owners of Group B Lots on a pro rata basis in accordance with the respective net site areas of Group A Lots and Group B Lots as stated immediately below:

(i)   net site area of Group A Lots: 2,235 sq. ft.,

(ii)  net site area of Group B Lots: 2,670 sq. ft.

(C)   Thereafter, that part of the proceeds of sale allocated to the owners of Group A Lots be apportioned between the Applicant and the 1st Respondent in accordance with Section 10 of the Ordinance.

(D)  That part of the proceeds of sale allocated to the owners of Group B Lots be apportioned between the Applicant and the 3rd Respondent in accordance with Section 10 of the Ordinance.

(E)   Mr. Ma Ho Fai (馬豪輝) and   Ms   Tsang    May Ping (曾美萍), nominated by the Applicant, be appointed trustees (“the Trustees”) to discharge the duties imposed on the trustees to be appointed under the Ordinance in relation to the sale of both Group A Lots and Group B Lots and the Trustees be authorized to charge such remuneration for their services in accordance with the terms set out in the letter of Messrs. Woo Kwan Lee & Lo dated 11th June 2012.

(F)  For the purposes of the sale of Group A Lots and Group B Lots together by one public auction:

(i) the sale of Group A Lots and Group B Lots be on particulars and conditions of sale substantially the same as those in the draft Particulars and Conditions of Sale to be initialed and approved by the Tribunal; and

(ii) the reserve price be set at $239,000,000.

(G)  Subject to further extensions which the Tribunal may subsequently allow, upon the application of the purchaser of Group A Lots and Group B Lots or its successor in title, the redevelopment of Group A Lots and Group B Lots shall be completed and made fit for occupation within a period of 6 years after the date on which the purchaser of Group A Lots and Group B Lots becomes the owner of the aforesaid lots.

(H)  Service of a copy of this Judgment on the 1st and 3rd Respondents be dispensed with.

(I)   Notices be inserted and published once within 21 days from the date hereof in Sing Dao Daily and the South China Morning Post on the same day:

(i)    informing the owners of Group A Lots and Group B Lots that orders for sale of Group A Lots and Group B Lots have been made by the Tribunal; and

(ii)  giving information as to the place where and times during which a copy of this Judgment may be obtained.

(J)  Liberty to the Applicant, the 1st and 3rd Respondents and the Trustees to apply to the Tribunal for further directions.

Costs

95.  The Applicant has indicated its position on costs. Thus, we make a costs order nisi that there be no order as to costs for the Application herein.  If the parties do not make any further application for costs within 14 days from today, the costs order nisi shall become absolute.