MANDECLY LTD AND ANOTHER v. HAO WEI AND OTHERS

HCA 1216/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1216 OF 2002

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JUDGMENT NO.2

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1.  This is an assessment of damages in lieu of specific performance.  Before the assessment I have decided the following 3 issues, namely :

(1)  The issue of “illegality” of Blocks 3, 4 and 5 (“the 3 Blocks”) is not open to the defendants.  This issue should be raised at the main trial by way of a defence.  It is now too late to raise this issue after judgment on liability had been made against the defendants.

(2)  The amount of damages would be assessed as at the date of assessment. 

(3)  The defendants’ application for adjournment of the trial of assessment for the value of Blocks 3, 4 and 5 in order to adduce further evidence for the assessment should be dismissed.  The defendants took the aforesaid point of illegality and had not instructed their surveyor to give a report on the value of these 3 properties.  This is their own choice of action.  It is not fair to the plaintiffs to have a further adjournment when judgment was given long time ago, in August 2006.

2.  Further, by a consent order, the defendants had agreed to grant a licence in respect of the 89 Basement Rooms to the plaintiffs’ nominee. 

3.  Consequently in this assessment, the court is only concerned with the following properties in Greenlake Garden Phase 1, namely :

(1)  Flats 1283, 1414, 1737, 1831 and 1832 (“the 5 Flats”) and car parking space nos. 7 and 76 (“the 2 Car Parking Spaces”); and

(2)  the 3 Blocks.

4.  For the purpose of the present assessment of damages, the plaintiffs accepted the “market value” figures put forward by the defendants’ valuer in their reports, namely :

(1)  RMB9,916,000 for the 5 Flats; and

(2)  RMB254,000 for the 2 Car Parking Spaces, at RMB127,000 each.

5.  However, the aforesaid concession given by the plaintiffs shall not be taken as admission on their part in case future valuation has to be conducted for other similar properties.

The 3 Blocks

6.  Accordingly this assessment is only concerned with the value of the 3 Blocks.  The plaintiffs rely on the expert report of one Mr K.C. Wu of Savills on the valuation of the 3 Blocks.  Mr Wu has been a practicing valuer since 1984 and specializing in the PRC properties valuation since the 1990s.

7.  On the other hand, the defendants have adduced no valuation of the 3 Blocks.  They were allowed to call their valuer, one Mr Francis Yip, to comment on the valuation of the plaintiffs’ valuer on the 3 Blocks.

8.  There are, however, 4 matters which are not challenged by the defence, namely :

(1)  the size of the 3 Blocks;

(2)  the transaction figures of the plaintiffs’ comparables;

(3)  the location of the plaintiffs’ comparables; and

(4)  there should be discount for levels other than the street level, i.e. Level 1.

9.  There are, however, disputes by Mr Yip on Mr Wu’s valuation on the following 3 issues, namely :

(1)  the size of each individual unit of the plaintiffs’ comparables;

(2)  the type/nature of street frontage of the plaintiff’s comparables; and

(3)  the ceiling height of the “玫瑰” comparables.

10.  In respect of the comparables in “玫瑰”, it was pointed out by the defence that its high ceiling height of 6 metres would have enabled cocklofts to be erected.  The plaintiffs accepted, and as their expert Mr Wu apparently also did, that that would be a valid distinction.  Thus the plaintiffs in their final submission submitted that “玫瑰” comparables should be disregarded.  That would leave the 2 other comparables at “东岸” and “楓景” for comparison.

11.  There is one further preliminary issue raised by the defence.  The plaintiffs themselves, through Beijing Millennium, had brought proceedings in Beijing against Beijing Mandas to claim economic loss arising from the demolition of Blocks 4 and 5.  The amount claimed was only RMB3,849,990.32.  That was 2005.  They submitted that this court should take that into account in assessing the value of Blocks 4 and 5 and contended that there should be a “heavy discount” of 30% on the value of the 3 Blocks.

12.  However I accept the submissions of the plaintiffs that whatever figure Beijing Millennium might have used some time ago in some proceedings in Beijing, this could not form any part of the experts’ evidence in the assessment of damages before this court when both parties before me have called their experts.  The judgment of a Beijing court was not an assessment of damages on the value of Blocks 4 and 5 when this figure was, apparently, casually mentioned.  It is not open to the defendants to rely on such a figure when the defendants themselves have failed to put forward any evidence as to how this figure came about.  Thus I accept the plaintiffs’ submission that it is only speculative for the defendants to contend that such a figure “must have been arrived at after a process of valuation”.  The so-called “heavy discount” of 30% proposed by the defendants is also speculative.  Even the defendants’ valuer did not advocate for making such a discount in principle, not to mention such rate of discount, in his oral evidence. 

13.  There are 2 comparables, namely东岸and楓景as follows :

Property Particulars			Adjust-ments		Adjust-ments
Name of property	Blocks 4 & 5 (Level 1)	東岸		楓景
Date of transaction	Aug-08	Jan 08		May 08
Size	234 sqm	379.51 sqm/td>		745.25 sqm
Consideration		Y10,112,827		Y13,639,840
Unit Rate		Y26,647		Y18,302

14.  Mr Wu frankly accepted that he did not have the information about the individual shop or unit comprising those transactions.  东岸actually comprised 8 shops.  He did not have the size of each individual shop or unit.  However, undisputed oral evidence submitted by Mr Wu is that larger shops would generally have lower unit rate and vice versa, i.e. smaller shops (like Blocks 3 or 4 and 5) would have higher unit rate.

15.  Since Blocks 3, 4 and 5 and Block 3 themselves have a smaller size than the comparable at東岸，it is reasonable and indeed fair for Mr Wu to make only +5% adjustment to reflect the difference in size. 

16.  I also accept the submission of the plaintiffs that there is nothing to suggest the street level or Level 1 of Blocks 4 and 5 could not be sold by smaller units.  The defendants’ valuer Mr Yip has never sought to put forward any other appropriate adjustment on the difference in size.  In fact he did not put forward any valuation himself.  There is in my view no reason to adopt the defendant’s suggestion of downward adjustment of “–15%” on the size factor. 

17.  In respect of the type or nature and street frontage of the plaintiffs’ comparables, the defence has tried to cast doubt on the reliability of adopting the plaintiffs’ comparables on the basis that the subject 3 Blocks are individual small blocks of shop premises whereas the plaintiffs’ comparables are shops from shopping malls or street fronting shops “商業街”.  However Mr Wu did take into account such a difference between the comparables and the 3 Blocks.  He has made adjustment for location and pedestrian flow.  He accepted the transactions constituting the plaintiffs’ comparables might have included shops within a mall or street facing shops at street level of a mall.  Street facing shops are accepted generally to be more expensive than non-street facing shops.  In assuming that all comparables were “street shops”, they became similar to the street level or Level 1 shops of Blocks 4 and 5.  

18.  In short, Mr Wu had given the “benefit of the doubt” to the defendants in that he assumed that the figures obtained from the comparables would have represented the more expensive street facing shop premises.  Clearly the comparables might have shops with and without street frontage whereas for Blocks 3, 4 and 5, the street level or Level 1 shops, they all would have street frontages.  But still he made an adjustment of –10% for東岸and –5% for楓景. 

19.  Further Blocks 4 and 5 were situated right in front of and across the entrance to Chaoyang Park and therefore they would have high potential for pedestrian flow.  They therefore should be similar to arcade shops with street frontage.  Block 3 was close to Blocks 4 and 5 and it would have the same effect.  

20.  I therefore find that the downward adjustment of –15% as suggested by the defendants for the “frontage factor” is only speculative and has no basis at all.  Such a “–15%”, i.e. downward adjustment, was not even put by the defence to the plaintiffs’ valuer Mr Wu.  The defendants’ valuer on the other hand had made a thorough research and investigation on the comparables.  But still he did not give and indeed did not even attempt to give, evidence to advocate for such a “-15%” downward adjustment. 

Calculation

21.  For the aforesaid reasons I would conclude that the calculations of the average unit rate for Blocks 4 and 5 are as follows :

Adjustment Factors		東岸	Adjustment	楓景	Adjustment
Size			5%		15%
Date of transaction			–5%		–2%
Location/Pedestrian flow			–10%		–5%
Total Adjustment			–10%		8%
Adjusted unit rate		¥23,982		¥19,767
Average unit rate	(¥23,982+¥19,767)/2=¥21,874.50=say ¥22,000/sqm)

22.  It is also accepted that there should be –50%, –50% and –35% adjustments for below ground, Level 2 and Attic floors respectively and these were not challenged by the defendants.  For Blocks 4 and 5 the market value should be RMB10,754,260 calculated as follows :

Floor	GFA (sq m)	Unit Rate(RMB)	Market value
Below Ground	303	11,000	3,333,000
Level 1 (ground level)	234	22,000	5,148,000
Level 2	162	11,000	1,782,000
Attic	63.8	7,700	491,260
Total	762.8		10,754,260

23.  As for Block 3 there should be +15% adjustment for the unit rate (which was not challenged by the defendants).  The market value for Block 3 should therefore be RMB19,744,120 calculated as follows :

Floor	GFA (sq m)	Unit Rate(RMB)	Market value
Below Ground	235	12,650	2,977,810
Level 1 (ground level)	389	25,300 (22,000x115%)	9,852,832
Level 2	389	12,650	4,926,416
Attic	224	8,855	1,987,062
Total	1,238		19,744,120

Conclusion

24.  Accordingly the total assessed damages are as follows :

The 5 Flats	RMB9,916,000
The 2 Car Parking Spaces	RMB254,000
Block 3	RMB19,744,120
Blocks 4 & 5	RMB10,754,260
Total	RMB40,668,380

25.  There shall be an additional judgment for the plaintiffs in terms of damages in the amount of RMB40,668,380 with interest at 8% from the date of the writ to the date of judgment and thereafter at judgment rate until payment. 

26.  The plaintiffs have also confirmed that the plaintiffs’ nominees are still occupying Flats 1283 and 1414 and the 2 Car Parking Spaces.  The plaintiffs shall surrender pocession of the said 2 flats and the 2 Car Parking Spaces upon receiving from the defendants full payment of the damages assessed herein together with all interests thereon. 

27.  There shall also be an order for costs for the plaintiffs, to be taxed if not agreed on the assessment of damages with certificate for 2 counsel.