MANY GAIN INVESTMENT LTD v. CHAN FAI HO AND OTHERS

LDCS28000/2012

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LAND COMPULSORY SALE APPLICATION NO. 28000 OF 2012

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BETWEEN
	Many Gain Investment Limited (多發投資有限公司)	Applicant
	and
	Chan Fai Ho	1st Respondent (discontinued)
	Chan Ka Lai and Chan Ka Bo	2nd Respondents (discontinued)
	Tsui Hing Yin	3rd Respondent (discontinued)
	All Lucky Development Limited	4th Respondent

______________

Coram: Mr Lawrence PANG, Member of Lands Tribunal

Dates of Hearing: 2 June 2014

Date of Judgment: 18 June2014

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J U D G M E N T

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Background

1.  This is an application for compulsory sale of all the undivided shares in Kowloon Inland Lot No. 10005 and Kowloon Inland Lot No. 9987 (hereinafter collectively referred to as “the Lots”), with a building erected thereon known as Nos. 16-16A Ka Shin Street and Nos. 18-18A Ka Shin Street, Tai Kok Tsui, Kowloon (“the Building”), for the purposes of redevelopment pursuant to Section 3(1) of the Land (Compulsory Sale for Redevelopment) Ordinance, Cap. 545 (“the Ordinance”).

2.  The Building consists of a pair of 6-storey commercial/residential buildings with four units on each floor, being served by a single common staircase. This is indeed one of the parades of similar tenement buildings located at 8-8A, 10-10A, 12-12A, 14-14A, 20-20A, 22-22A, 24-24A, 26-26A, 28-28A, 30-30A Ka Shin Street (which together with the Lots are collectively referred to as “the Composite Site”). On 29 May 2014, this Tribunal handed down its decision clarifying, inter alia, that the “subject of application” made under the Ordinance should be confined to the Lots on their own only.

3.  According to an occupation permit issued on 21 August 1958 for the parade of 6-storey tenement buildings standing on Nos. 8-8A, 10-10A, 12-12A, 14-14A, 16-16A and 18-18A Ka Shin Street, the Building comprises 2 shops in the front on Ground Floor, 2 domestic units in the rear on Ground Floor and four units for domestic use on each upper floor.  Whereas the front units, as they are called, are facing Ka Shin Street, the rear units are in fact facing Fuk Chak Street which is of comparable width to Ka Shin Street.  The 24 units are each assigned one equal and undivided share of the corresponding lot by their respective Deeds of Covenant.

THE APPLICATION

4.  The applicant commenced the present proceedings on 11 April 2012 (“the Application”).  At that time, it owned 9 undivided 12^th parts or shares (ie 75.00%) of Kowloon Inland Lot No. 9987 and 11 undivided 12^th parts or shares (ie 91.667%) of Kowloon Inland Lot No. 10005.  This is equivalent to 83.333% of the undivided shares in the Lots on average.  The remaining interests were held by the following respondents:

(i) 1^st Respondent – 2^nd Floor (Front Portion), 16 Ka Shin Street;

(ii) 2^nd Respondents – 3^rd Floor (Front Portion), 18 Ka Shin Street;

(iii) 3^rd Respondent – 4^th Floor (Front Portion), 18 Ka Shin Street; and

(iv) 4^th Respondent – Ground Floor (Rear Portion), 18A Ka Shin Street.

The applicant contends that it was entitled to make the Application by virtue of the Land (Compulsory Sale for Redevelopment (Specification of Lower Percentage) Notice under section 3(5) of the Ordinance (“the Notice”).

5.  Since then, the applicant has acquired the interests of the 1^st respondent, the 2^nd respondents and the 3^rd respondent and has discontinued the Application against them.  As at the commencement of the trial, only the 4^th respondent remained.  Thus the average percentage of undivided shares now owned by the applicant is 95.833%.

6.  According to the Notice of Opposition filed on 7 May 2012, the 4^th respondent opposed the Application as it found the compensation offered by the applicant too low.  There had been certain negotiations going on but no binding agreement had been reached one way or the other.  Notwithstanding its opposition, the 4^th respondent filed no evidence and has all along informed the Tribunal and the applicant that it would not send any representative to appear at any of the hearings.

7.  In view of this, Ms Nancy Ngai, counsel for the applicant, just called the witnesses to prove the applicant’s case.   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. 

Section 3 of the Ordinance – Ownership of the Applicant

8.  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.

9.  Section 3(2) of the Ordinance also states that an application under subsection (1) may cover-

(a) 2 or more lots where the majority owner owns not less than the percentage specified in subsection (1) of the undivided shares in each lot; or

(b) 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).

10.  Section 3(5) of the Ordinance 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.

11.  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, insofar as it is applicable, from 90% to 80%.   Section 4(1)(b) of the Notice specified one of the classes for the purposes of Section 3 as “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 in respect of the Building was issued on 21 August 1958, which is more than 50 years as at the date of Application.   The Building is therefore covered by the Notice and the applicable percentage is 80%.

12.  When the applicant commenced the present proceedings on 11 April 2012, it owned on average 83.333% of the undivided shares in the Lots which share a common staircase.  The applicant was therefore entitled to make the Application under section 3(2)(b) of the Ordinance.

Determination of the existing use values (“EUV”) of all units in theBuilding

13.  The Application was accompanied by a valuation report dated 5 April 2012 (“Application Report”) prepared by Mr James Ng Yiu Wah of James Ng Surveyors Limited (“Mr Ng”), the applicant’s valuation expert witness, containing the assessments of the values of all units (which are conveniently termed as the existing use values, the “EUV” of all units) in the Building on the Lots as at 9 February 2012. The Application Report was prepared not earlier than 3 months before the date of the Application, i.e. 11 April 2012 and is therefore, in my view, in compliance with section 3 of the Ordinance.

14.  Under section 4(1)(a)(i), if there is a dispute between the parties on the EUV of the units in the Building on the Lots, the Tribunal has to determine the values.

15.  Section 4(1)(a)(ii) further provides that, in the case of any minority owner of the Lots who cannot be found, the majority owner of the Lots is required to satisfy the Tribunal that the value of the minority owner’s property as assessed in the application is “(A) not less than fair and reasonable; and (B) not less than fair and reasonable when compared with the value of the majority owner’s property as assessed in the application.”  Although the 4^th respondent is not a missing owner, the Tribunal is prepared to do the same for its unit.

16.  In the Application Report of 5 April 2012, Mr Ng explained the method of valuation and the process of his assessment to arrive at the EUV of each unit of the Building.

17.  In his valuation of the EUV of the domestic units on the upper floors of the Building, Mr Ng adopted the following methodology :

(i) He selected 3/F (Rear Portion), No. 16A Ka Shin Street, ie the unit facing Fuk Chak Street (“the Reference Domestic Unit”), which was situated on the middle floor of the domestic portion as the reference unit for the purpose of valuing its unit price.

(ii) The unit price of the Reference Domestic Unit was first assessed by making reference to market comparables.  He took into account 9 comparable transactions in different buildings scattering in the same Tai Kok Tsui district.  After making what he regarded as the necessary adjustments (for time, location, age floor, quantum and view, lighting & ventilation) for all these comparable transactions, he took the average of the adjusted unit rates of the comparables to arrive at the unit price of the Reference Domestic Unit.

(iii) He further considered the floor difference, quantum, view, lighting & ventilation, noise effect and internal conditions of the Reference Domestic Unit and the remaining domestic units within the Building and made adjustments to arrive at the EUV of all the domestic units.

18.  In assessing the EUV of the ground floor units, Mr Ng adopted the following methodology:

(i) He selected Ground Floor (Front Portion), No. 16 Ka Shin Street as the Reference Shop Unit.  He then took into account 15 comparable shop transactions in 10 different buildings nearby.  After making what he regarded as the necessary adjustments (for time, location, quantum, frontage/layout, return frontage, headroom, building age/condition) for all these comparable transactions, he took the average of the adjusted unit rates of the comparables to come to the unit price of the Reference Shop Unit.

(ii) He further considered the location, quantum and “occupation permit user” among the Reference Shop Unit and the remaining retail units within the Building and made adjustments to arrive at the EUV of all the ground floor units.

19.  Mr Ng updated the Application Report by another report dated 25 July 2013 (“Supplemental Report”) in which he revised the EUV of all the units in the Building after taking into account the inspection of more units in the Building and the updated property index prepared by the Rating and Valuation Department.  In this report, whereas Mr Ng repeated the exercise he did in the Application Report but for the upper floor domestic units, Mr Ng took into account 2 additional comparable transactions occurring after 9 February 2012; for the ground floor units, Mr Ng included 6 more up-to-date transactions and discarded 10 older ones, taking into account 11 comparable transactions in 7 different buildings nearby[1].

20.  I note however that Mr Ng had assessed the rear units on ground floor ie the two units facing Fuk Chak Street (including the 4^th respondent unit) on the basis of shop uses despite he had made a discount of 5% for its non-conforming use when compared with that provided in the occupation permit.  Indeed a similar situation arose in the case of EversoundInvestmentsLtd vWong Hiu Man& others, LDCS10000/2012 (unreported, dated 15 August 2013) when the applicant initially put forward two different scenarios, one assuming the permitted domestic uses as shown in the occupation permit and another assuming the existing non-domestic uses.  Then when the applicant was invited to confirm which of the two scenarios should be adopted for determining the EUV of the ground floor units concerned, the applicant submitted that the change in use would render the title of the units defective and it would be for the party who contended that any change in use is legal or proper on the basis that the risk of any enforcement action was theoretical to justify it.  See §§19-22 of the judgment of EversoundInvestments, supra.

21.  Of particular interest in EversoundInvestmentsis that the applicant owned all the ground floor units of non-conforming use while the respondent was absent and unrepresented.  The assumption in assessing the EUV based on the permitted domestic use instead of the non-conforming non-domestic use would serve to the advantage of the remaining minority owners’ interest. In the Application, however, such unit of non-conforming use is owned by the 4^th respondent.  Here the applicant, relying on Mr Ng evidence, contends that the rear units on ground floor ie the two units facing Fuk Chak Street can be legally converted into shop uses relatively easily subject to the submission of necessary plans for alterations and additions building works (commonly known as the A & A plans in the industry) to the Buildings Department. Mr Benson Wong (“Mr B Wong”), an Authorised Person and a qualified building surveyor, who is another expert appearing on behalf of the applicant, confirms that the process would only take a few months subject to a cost of $700,000-$800,000. Mr B Wong also gave evidence that according to the prevailing “Buildings Department’s Enforcement Policy Against Unauthorised Building Works”[2], such unauthorised change in use will be accorded very low priority for enforcement action, if any, by the Building Authority.  In this regard, Ms Ngai draws the attention of the Tribunal to a demolition and re-instatement order issued by the Building Authoritydated 19 December 2007 pursuant to section 24 of the Buildings Ordinance, Cap 123 against unauthorised building structures in the front and rear yard of 4^th respondent’s unit. This order was registered against the 4^th respondent’s unit[3]. Despite that, nothing was mentioned in this order about the change in use which had occurred for a very long time.

22.  Ms Ngai further submits that the term of EUV has never been used in the Ordinance.  Pursuant to Part 1 of Schedule 1 to the Ordinance, an applicant is only required under section 3(1) to file a valuation report setting out:-

“the assessed market value of each property on the lot –

(a) on a vacant possession basis;

(b) assessed as if the lot could not be made the subject of an application for an order for sale; and

(c) not taking into account the redevelopment potential of the property or the lot.” (Emphasis added)

23.  Ms Ngai refers to Dragon House Investment Limited & Another v Secretary for Transport and Housing (2005) 8 HKCFAR 668 where Lord Millett NPJ held at 676C that in the assessment of compensation for the resumption of land under ss.10 and 12 of the Lands Resumption Ordinance, Cap 124:-

“Section 12(d) represents the open market value of the subject land, but it is expressly made subject to s.12(c).

12. Paragraph 17 of the Yin Shuen judgment sets out the principles of English law which govern the assessment of compensation for the compulsory acquisition of land when based on its open market value. Paragraph 17(3) states the general rule that the subject land must be valued not only by reference to its present use but also by reference to any potential use to which it may lawfully be put. Paragraph 17(4) explains that, where land is subject to restrictions which affect its value, the claimant is not entitled to be paid the unrestricted value of the land.While, however, the existence of the restrictions must be taken into account, so too must the possibility of obtaining a discharge or modification of the restrictions.In such a case the costs as well as the risks and delays involved in obtaining any necessary consents must also be taken into account.

13. Accordingly the compensation payable on the resumption of land held under a Government lease which restricts its use, if based on the open market value of the land, would take account of the value of the land subject to the restrictions together with the prospects and cost (including the payment of any premium) of obtaining a modification of the terms of the lease.The greater the likelihood of obtaining a modification to allow a more beneficial use, the greater the open market value of the land.

14. Section 12(d), however, is subject to s.12(c). It is self-evident, therefore, that resumed land is not to be valued under s.12(d) at its open market value but at a value which takes no account of “any expectancy or probability of the grant…by the Government…of any licence, permission…or permit whatsoever.” In the Yin Shuen judgment we held that where the resumed land is held under a Government lease no account may be taken of any element in the open market value which reflects the prospect of a modification of the terms of the lease. It does not matter whether the prospects of obtaining a modification are remote or a near certainty; unless the claimant has a legal right to the modification the land must be valued without regard to the prospects or cost of obtaining it.” (Emphasis and underline added)

24.  Ms Ngai submits that similar to s12(d) of the Lands Resumption Ordinance, the value of property to be assessed under Part 1 of Schedule 1 to the Ordinance is the “market value” of the property concerned.  However, the assessment of the “market value” under the Ordinance is not subject to any qualification save for those 3 requirements set out in Part 1 of Schedule 1.

25.  Therefore, Ms Ngai submits, unlike the “open market value” to be determined under the Lands Resumption Ordinance, there is no requirement under the Ordinance to ignore the value reflecting the prospect of obtaining the approval of A & A plans under section 14 of the Buildings Ordinance and/or the prospect of effecting a change in use by way of service of a notice on the Building Authority pursuant to section 25 of the Buildings Ordinance in the assessment of the “market value” under Part 1 of Schedule 1 to the Ordinance.  There is also no requirement under the Ordinance to ignore the value reflecting the hope or expectation that the current illegal or non-conforming use will continue to be tolerated[4].

26.  Thus, it is submitted by Ms Ngai that the correct basis for the assessment of the “market value” under Part 1 of Schedule 1 is equivalent to the general rule for the assessment of “open market value” set out by Lord Millett NPJ in Dragon House, supra, at 676B to G and the basis for assessment of the EUV of the 4^th respondent unit and that of ground floor of 16A Ka Shin Street adopted by Mr Ng is in line with the principles set out by the Court of Final Appeal in Dragon House, supra. Mr Ng, for the same reason, had included the area of the common yards, but not the unauthorised structures, having been occupied in conjunction with the ground floor units in his assessment of the “market value” of the ground floor units.

27.  In the absence of evidence to the contrary, I am prepared to accept the applicant’s submission as regards the assessment of EUV on the basis adopted by Mr Ng. In Inland Revenue Commissioner v Clay [1914] 3 KB 466, a decision of the English Court of Appeal referred to in the discussion on “market value” by Cruden, Land Compensation and Valuation Law in Hong Kong, 3^rd Edition (2009) at pages 100-101, the expectation of the market was also allowed to be taken into account:

“…. The local conditions and requirements, the advantages and situation of the property for any particular purpose, and …. In order to arrive at the amount which the land might be ‘expected to realise’ all these matters ought to be taken into consideration.”

28.  Therefore, the EUV of all units in the Building assessed by Mr Ng, including the 4^th respondent’s unit, as at the relevant date of valuation of 9 February 2012, are reproduced below:

	Ka Shin Street
Floor	No. 16	No. 16A	No. 18	No. 18A
Ground Floor	$7,430,000	$8,960,000	$7,730,000	$8,880,000
1st Floor	$2,690,000	$2,400,000	$2,730,000	$2,200,000
2nd Floor	$2,770,000	$2,350,000	$2,810,000	$2,150,000
3rd Floor	$2,580,000	$2,310,000	$2,620,000	$2, 110,000
4th Floor	$2,530,000	$2,260,000	$2,560,000	$2,170,000
5th Floor	$2,250,000	$1,920,000	$2,560,000	$1,840,000
Total	$80,810,000

29.  I am satisfied, insofar as it is necessary, that the value of the 4^th respondent unit as assessed by Mr Ng is not less than fair and reasonable; and not less than fair and reasonable when compared with the value of the applicant’s properties:

(i) 4^th respondent unit - assessed at $8,880,000 (representing 10.989% of the total EUV of all units); and

(ii) the total EUV of all units - assessed at $80,810,000.

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

30.  Under Section 4(1)(b) of the Ordinance the second determination is whether an order of sale should be made.  Section 4(2) of the Ordinance provides  that there are basically 2 considerations, namely :-

(i) whether the redevelopment is justified due to age or state of repair of the Building; and

(ii) whether the applicant have taken reasonable steps to acquire all the undivided shares in the Lots where owners’ whereabouts are known.

31.  The applicant has to satisfy this Tribunal that the above statutory requirements were met; otherwise, an order for compulsory sale would not be granted.

32.  For the age and state of repair requirements, I have taken into consideration the expert evidence of Mr B Wong, an Authorised Person and the building surveyor and Mr Wong Chi Ming (“Mr CM Wong”), the structural engineer adduced by the applicant. 

33.  Mr CM Wong conducted a structural assessment and prepared a report dated 25 July 2013.   He identified the following defects in the Building:

(a) 91% of the steel reinforcement bars are suffering from mild to moderate corrosion;

(b) 93% of core samples of the structural element have either ‘considerable’ or numerous voids;

(c) carbonation has reached the concrete surrounding the steel reinforcement bars in all but one of the test samples;

(d) 50% of the core samples has chloride content exceeding 0.40%;

(e) 57% of the samples are found to pose a ‘moderate’ risk of corrosion to the steel reinforcement bars, whilst 43% of the bars are at ‘high’ risk;

(f) the average cement content is about 261kg/m³, which is lower than the current standard of 290kg/m³.

34.  Based on his findings, Mr CM Wong concluded that the structural elements of the Building were in a poor condition.   He opined that the structural elements had passed their design working life of 50 years and were inferior to the current standard.   The corrosion of the reinforcement bars had entered the propagation phase and extensive maintenance and repair works are required in the near future.   He said that the design and construction of the structural frames had become obsolete over time and the structure failed the current safety standard.   He recommended that hammer tapping works be carried out to all the structural members and all revealed cracks and spalling should be patch repaired.

35.  Mr CM Wong estimated the cost of repair to the Building in its current state is $238,940 but this estimated repair cost did not include the repair of problems such as carbonation and chloride content because they were both technically and financially impractical and would cause extensive disturbance during the works.

36.  Mr B Wong, in his condition survey report dated 24 July 2013, stated that:

(a) the Building is in a very poor state of repair due to general wear and tear;

(b) infrared thermographic survey carried out on the external rendering revealed 96 hidden hollow spots scattered throughout the external walls on all elevations posing threats to public safety;

(c) the building envelope is not external seepage resistant with extensive damp penetrations through the external walls and  roofs;

(d) the staircases is unsatisfactory means of fire escape for the upper floors;

(e) the most common defects noted inside the flats are unauthorized building works of enclosed front balconies and enclosed kitchen balconies, which also have implications in structural safety;

(f) the other commonly found defects relating to the flats are unauthorized building works concerning first safety deficiencies and these include internal flat sub-divisions, door opening to staircase, protected lobby encroachments, flat entrance gates swinging out onto fire escape routes and flat entrance doors are non-conforming fire resisting types;

(g) the conditions of the internal doors, finishes, bathroom and kitchen fittings are poor; the most common defects in the flats are missing or defective internal doors to bedrooms, bathrooms and kitchens, cracked, spalling, stained or otherwise defective finishes to the internal floors, walls and ceilings;

(h) sanitary fitments in the bathrooms and cooking facilities in the kitchen generally are broken or otherwise defective requiring replacement;

(i) the old mild steel windows in the flats are corroded and not watertight;

(j) the electrical installations inside 13out of 16 flats inspected have been haphazardly altered and are in poor condition and required complete replacement for safety reason;

(k) the equipotential bonding connections are not provided for the metal parts inside all the 16 flats;

(l) the electrical installations in the 2 shops inspected, ie No. 16A & No. 18 are each in poor and fair requiring complete replacement and general maintenance respectively;

(m) the flushing water supply system for the flats and shops has been abandoned from use and new pre-fabricated type fibre glass tanks are needed for replacement; and

(n) closed circuit television survey carried out to the underground drainage revealed plastic drainpipes which are not permitted for underground installation; 25 metres long of defective underground drainpipes, 3 broken manholes and manhole covers required to be repaired.

37.  Mr B Wong estimated that the total costs of immediate repair works to restore the Building to tenantable standard came to $8,838,660 which was about 43% of the cost of constructing a new similar building.   He concluded that the Building has deteriorated to a state which is beyond reasonable economic repair.   As more rapid deterioration would occur in the future, the necessary maintenance and repairs would inevitably be more frequent and extensive making the continued occupation of the Building not practical and economical.   He recommended the owners to redevelop rather than repair given that the Building does not possess any historical value or architectural merit. 

38.  There is no contrary evidence and I accept the expert evidence of Mr B Wong and Mr CM Wong.   Having considered the evidence, I am satisfied that redevelopment of the Building is justified due to its age and state of repair.

Reasonable Steps to Acquire All the Undivided Shares in the LotS

39.  The applicant is under an obligation to negotiate on terms that are fair and reasonable in a situation when the whereabouts of a minority owner are known.

40.  The only minority owner remaining is the 4^th respondent. According to the applicant’s witness Lui Wing-Yan, a manager of the applicant, the applicant had made the following offers to the 4^th respondent for the purchase of its unit, all based on the valuation of Mr Ng:

Date of offer	Amount	Assessed Value reflecting the 4th respondent’s share of the redevelopment value (“RDV”) of the Composite Site	Assessed Value reflecting the 4th respondent’s share of RDV of the Lots on their own only
9 March 2012	$14,391,000	$14,390,200	-
26 March 2012	$14,429,000	$14,428,521	-
7 August 2013	$19,049,000	$19,048,883	$15,351,258
25 October 2013	$19,970,000	$19,969,793	$15,789.865
14 May 2014	$19,162,000	$19,161,659	$14,802,998

41.  None of the above offers were accepted though I note from the offer letters in evidence that the applicant had disclosed the basis of the offer and the expert’s valuation for the reference of the 4^th respondent.

42.  In considering the reasonableness of the applicant’s offers, I bear in mind the following guidance from the remarks made by Mr Justice Ribeiro PJ in Capital Well Ltdv Bond Star DevelopmentLtd (2005) 8 HKCFAR 578 at §33:

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

43.  I appreciate that the applicant was guided by expert opinion in making its offers.   There is nothing to suggest that the assessments are other than proper and professional.

44.  In addition, the applicant has acquired the interests of the 1^st respondent, the 2^nd respondents and the 3^rd respondent and has discontinued the Application against them.  The fact that all these respondents have accepted the applicant’s offers to acquire their interests is telltale of the reasonableness of the steps taken by the applicant.

45.  In the circumstances of this particular case, I am satisfied that the applicant has taken reasonable steps to acquire all the undivided shares in the Lots including the 4^th respondent’s unit. 

Reserve Price for the Auction

46.  Mr Ng has prepared another supplemental report dated 13 May 2014 (“the Further Supplemental Report”) for the purpose of assessing the RDV of the Lots. As I have stated in the introductory part of this judgment[5], this Tribunal has handed down its decision on 29 May 2014; it has clarified that the reserve price for sale of the Lots should be the RDV of the Lots without regard to the other adjoining lots within the Composite Site.  The net site area of the Lots on their own as determined by Mr Ng is 275.92 sq m.

47.  The applicant submits that the reserve price for the auction of the Lots should be fixed at $135,000,000 according to the Further Supplemental Report.

48.  I have considered Mr Ng’s valuation of the RDV of the Lots. The valuation is arrived at by means of a residual valuation conducted by deducting development costs (including construction costs, professional fees, finance costs etc) and developer’s profit from the estimated gross development value of an optimal completed development.

49.  Mr Ng was of the view that the optimal development on the Lots would be a block of 26-storey composite building comprising retail use on ground floor and cockloft, podium garden and clubhouse on first floor, and domestic uses on the floors above.  Details of the hypothetical development and residual valuation were set out in Appendix XI of the Further Supplemental Report (Bundle F2/115).  Details of the comparables with adjustments were set out in Appendix IV (for retail/shop comparable at Bundle F2/97) and Appendix VII (for the domestic comparables at Bundle F2/103-107).  The valuation arrived at was $135,000,000, representing an overall accommodation value of $48,087/sq m.

50.  I note Mr Ng had considered four land sale transactions since February 2012, two in the Tai Kok Tsui district and two in the Mong Kok district, with accommodation values ranging from $49,486/sq m to $54,022/sq m[6].  Whereas Mr Ng considered the result of his residual valuation was “in line” with these transactions, Mr Ng explains that the two comparables in the Tai Kok Tsui district have much larger site areas and therefore have the benefit of more flexibility in the design for development[7] and those in the Mong Kok district are considered to be in better location. I agree with Mr Ng.

51.  I have gone through Mr Ng’s valuations.  In the absence of evidence to the contrary, I am satisfied with his valuation, including the valuation assumptions he has adopted, the values and the costs parameters he has used in his valuation.

52.  Based on Mr Ng’s valuation, I decide that the reserve price for the auction of the Lots should be HK$135,000,000.

TRUSTEES

53.  The applicant proposes to appoint Mr Anthony Chow and Ms Anna Chow who are partner and consultant respectively of Messrs Peter C Wong, Chow & Chow & Co as the sale trustees.  Based on the information on their letter dated 19 May 2014, the proposed trustees also intend to have independent legal advice on the matter and in this connection, they propose to retain Messrs Michael Cheuk, Wong & Kee. I am satisfied that Mr Anthony Chow and Ms Anna Chow are proper persons to be appointed.  Their proposed remunerations on the basis of time charge (exclusive of disbursements) as mentioned in the letter dated 19 May 2014 are also reasonable and will be allowed.

PARTICULARS AND CONDITIONS OF SALE OF THE LOTS

54.  Ms Ngai has submitted a set of draft particulars and conditions of sale by public auction for my consideration.  While I understand these are the usual terms used for compulsory sale, I approve the draft particulars and conditions of sale accordingly.

CONCLUSION AND ORDERS

55.  By reasons of the aforesaid, I am satisfied that the redevelopment of the Lots is justified due to the age and state of repair of the Building; and the applicant has taken reasonable steps to acquire the undivided shares of the Lots. This Tribunal is also satisfied that the value of the single minority owner’s unit as assessed in the Application is not less than fair and reasonable, and not less than fair and reasonable when compared with the value of the applicant’s property as assessed in the Application. This Tribunal now makes the following orders:

(i) All the undivided shares in the Lots, the subject of the Application, be sold by way of public auction for the purposes of redevelopment of the Lots;

(ii) Mr Anthony Chow and Ms Anna Chow of Messrs Peter C Wong, Chow & Chow & Co nominated by the applicant be appointed trustees (“the Trustees”) to discharge the duties imposed on trustees under the Ordinance in relation to the Lots; and the Trustees and their intended independent legal advisor, Messrs Michael Cheuk, Wong & Kee  be authorized to charge such remuneration for their service in accordance with the terms set out in the letter from Messrs Peter C Wong, Chow & Chow & Co dated 19 May 2014;

(iii) For the purpose of the sale of the Lots by public auction,

(a) The sale of the Lots be on particulars and conditions of sale the same or substantially the same as the set of draft particulars and conditions of sale submitted to the tribunal (Document Bundle F2/29-54) initialled and approved by me;

(b) The reserve price of the Lots be set at HK$135,000,000;

(c) Subject to further extension that the Tribunal may subsequently allow upon the application of the purchaser of the Lots or its successor in title, the redevelopment of the Lots be completed and made fit for occupation within a period of six (6) years after the date on which the purchaser of the Lots becomes the owner of the Lots;

(iv) There be liberty to the applicant, the 4^th respondent and the Trustees to apply for further directions.

Costs

56.  Since neither the applicant or the 4^th respondent ask for costs, I make a costs order nisi that there be no order as to costs between the parties, such order be made absolute after 14 days if no application is made to vary the said costs order.

	(Lawrence Pang)
	Member
	Lands Tribunal

Ms Ngai Nancy, instructed by Messrs. Yam & Company, for the Applicant

4^thRespondent, acting in person, absent by notice

LDCS 28000/2012

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LAND COMPULSORY SALE APPLICATION NO. 28000 OF 2012

__________________________

BETWEEN

	Many Gain Investment Limited (多發投資有限公司)	Applicant
	and
	Chan Fai Ho	1st Respondent (Discontinued)
	Chan Ka Lai and Chan Ka Bo	2nd Respondent (Discontinued)
	Tsui Hing Yin	3rd Respondent (Discontinued)
	All Lucky Development Limited	4th Respondent

__________________________

Coram: Deputy Judge Tracy Chan, Presiding Officer of the Lands Tribunal

Date of Hearing: 26 May 2014

Date of Decision: 29 May 2014

________________

D E C I S I O N

________________

 

Preliminary Issue

1.  This court is to determine on a preliminary issue before trial of the application for effective case management.

2.  The issue is, in case an order for sale be granted by the Tribunal pursuant to section 4(1)(b) of Land (Compulsory Sale for Redevelopment) Ordinance, Cap. 545 (“the Ordinance”), whether the valuation of the reserve price for auction of lots 16-16A and 18-18A Ka Shin Street (‘the Lots”) shall be assessed on the basis of a single site on its own or to take into account the adjoining lots including lots 8-8A, 10-10A, 12-12A, 14-14A, 20-20A, 22-22A, 24-24A, 26-26A, 28-28A and 30-30A, Ka Shin Street (“the Adjoining Lots”).

Background

3.  The applicant is the majority owner of the Lots and it seeks an order for the compulsory sale of the same pursuant to section 3(2)(b) of the Ordinance.  The application was fixed for trial before HH Judge Ko and Member Pang (“the Penal”) on 11 November 2013 with 1 day reserved.  In short, the 4^th respondent was the only remaining opponent at the trial.

4.  The 4^th respondent opposed the application as it found the compensation offered by the applicant too low.  There had been certain negotiations going on and subject to the approval of the Tribunal, the parties had agreed that the assessment should reflect the redevelopment value of the Adjoining Lots (paragraph 31 of the Penal’s Judgment).  Both parties however agreed that no binding agreement had been reached one way or the other.  Notwithstanding its opposition, the 4^th respondent filed no evidence and has all along informed the Tribunal and the applicant that it would not send any representative to appear at any of the hearings.  

5.  At the commencement of trial on 11 November 2013, the Penal asked Ms Ngai, counsel for the applicant, to clarify certain questions arising from their perusing of the documents. In the trial bundles, there were two expert reports prepared by the same expert, one dated 25 July 2013, the other 25 October 2013.  The expert had revised his assessment on the redevelopment value from $140 million to $182 million.  The change was caused by different approaches for assessment being taken.  In the first report, he confined his assessment to the redevelopment of the Lots with a site area of 311.59m² then in the second, he enlarged the area to include the Adjoining Lots with a total area of 1,833.70m²  (“the Composite Site”). The factors for assessment changed from taking into account the development potential on the Lots alone to including the potential for joint redevelopment of the Composite Site.  The immediate concern of the Penal was that the Adjoining Lots had not been included in the present application at that time and there was no sufficient or any evidence at all for the Penal to rely on when assessing the reserve price.  It has to be noted that apart from the present application, there were 5 others proceedings concerning the Adjoining Lots with 1 pair of lots in each.  They are namely LDCS 26000/2012, LDCS 27000/2012, LDCS 29000/2012, LDCS 30000/2012, and LDCS 31000/2012.  However, at the time of trial of the present application, all have been discontinued as the applicant had come to successful settlement with the respective minority owners except LDCS 31000/2012 which had already been heard but a determination was still pending.

6.  At the conclusion of the hearing, HH Judge Ko directed that the applicant shall bring up all the lots in the Composite Site to enable the Penal to give directions for them to be sold together in one public auction and to set a reserve price that would reflect their full redevelopment potential.  HH Judge Ko further ordered that the trial of this application be adjourned sine die and the applicant shall seek leave from another differently constituted penal who had heard LDCS 31000/2012 to reopen the case to enlarge the scope of that case to encompass all the lots in the Composite site.

New Development since 29 November 2013

7.  When Ms Ngai returned to this court on 7 May 2014 for a call-over hearing of the present application, she made it clear that the applicant would no longer adopt the Composite Site approach.  It is submitted by Ms Ngai that notwithstanding the directions made by HH Judge Ko on 29 November there has been new development.  First the applicant has discontinued LDCS 31000/2012 on 22 January 2014 as the parties therein came to settlement as well.  As a result there is no Adjoining Site alive in the Tribunal to be brought to be heard together with the present application.  Secondly, a decision was handed down by HH Judge Wong on 14 March 2014 in which the operation of the relevant provisions in the Ordinance has been clarified.

8.  I directed that this be taken up as a preliminary issue to be heard before trial.  The hearing on the preliminary issue focused on one point which is the basis to be adopted for assessment of the reserve price for auction.  Ms Ngai has helpfully broken it down as below: -

(a)	If an Order for sale shall be granted, whether the subject of the Order should be comprised of the Lots (the subject of the Application) only?
(b)	If an Order for sale shall be granted, whether the subject of the auction should be comprised of the Lots (the subject of the Application) only?
(c)	If an Order for sale shall be granted, whether the reserve price should take into account the redevelopment potential of the Lots only without regard to the Adjoining Lots?

9.  It is also submitted by Ms Ngai that now the applicant takes the stance that the present application be heard and determined on its own.  Ms Ngai says that such approach is well within the relevant provisions of the Ordinance.  In this regard, she set out the following in her written submissions:

(i)	“the subject of the Application” consists of the Lots only;
(ii)	according to the Ordinance, in particular sections 4(1)(b) and 5(1)(a) thereof, the Lots “the subject of the Application” will become “the subject of the Order for sale” which, in turn, will become “the subject of the auction”;
(iii)	the Tribunal has no power under the Ordinance, in particular section 4(6)(a)(i) thereof, to compel a combined sale of the Lots together with the Adjoining Lots against the Applicant’s wish;
(iv)	according to Paragraph 2 of Schedule 2 of the Ordinance, the reserve price for sale of “the subject of the auction” which comprises the Lots only should therefore take into account the redevelopment potential of the Lots on their own only; and
(v)	hence, the reserve price should be the RDV of the Lots.

10.  For these reasons, she submits that the answer to the 3 questions posed by her at the beginning should be “Yes”.

Conclusion

11.  Having heard Ms Ngai, I accept her submissions that according to section 4(1)(b), the order to be made by the Tribunal is an order to sell the “subject of an application” made under the Ordinance.  I agree with Ms Ngai that in the present case, the subject of the application comprises the Lots only. 

12.  Further I accept that section 5(1)(a) provides that the subject of the auction should be the subject of the Order for sale.  This is fortified by section 7(1) which indicates that the lot to which the order for sale relates is the lot to be sold by the trustees.  Hence, the subject matter in the present application to be sold by the trustees should only be the Lots pursuant to section 5(1)(a).

13.  In brief, it is provided in the relevant provisions of the Ordinance that the Tribunal is entitled to make an order in relation to the subject of the application, for instance, the Lots in the present application.

14.  The same issue has been considered by HH Judge Wong in Day Bright Development Limited and others v. Choi Pak Ling LDCS 13000 of 2012.  He has said in paragraphs 47 to 50 of the judgment that the powers created by section 4(6)(a)(i) are restricted to directions incidental to the sale of the lot the subject of the application unless the court has already seized of other lots by other empowering provisions:

“47.  Further, section 4(6)(a)(i) cannot be read in isolation.  After the Tribunal has gone through the statutory exercise prescribed under section 4(1)(a) and is satisfied all conditions are satisfied, it may make an order under section 4(1)(b)(i), which states:
	“…making an order that all the undivided shares in the lot the subject of the application be sold…” (emphasis added)
48.  The other sub-sections of section 4 go on to deal with various situations likely to be encountered in the compulsory sale, such as rights of tenants. Section 4(6)(a)(i) stipulates:
	“Where the Tribunal makes an order for sale, it may order, subject to [not relevant to the present discussion] that … and it may also give directions as it think fit -
	(a)	Relating to -
		(i)	the sale and purchase of the lot the subject of the order, including (but without limiting the generosity of the foregoing) settling the particulars and conditions of sale of the lot;” (emphasis added)
49.  In our judgment, “the subject of the order” mentioned in section 4(6)(a)(i) refers to an order already made by the Tribunal under section 4(1)(b)(i). Necessarily it means the lot the subject of the application. So the powers created by section 4(6)(a)(i) are restricted to directions incidental to the sale of the lot the subject of the application unless the court has already seized of other lots by other empowering provisions.
50.  By reasons of the above and coupled with what this panel’s views on the legislative intent of the reserve price and section 3 after reviewing the Hansard, with the greatest respect to the differently constituted Tribunal in Many Gain, we do not consider section 4(6)(a)(i) empowers the tribunal to compel combination of lots not already before the Tribunal to form the subject matter of  the application. ”

15.  Having considered the submission of Ms Ngai in the light of relevant provisions and authorities, I agree with Ms Ngai that the answer to the 3 questions should be “Yes”.  As a result, the reserved price for the Lots is to be assessed by taking into account the redevelopment potential of the Lots on their own only without regard to the Adjoining Lots.

Costs

16.  I order that there be no order as to costs for this application.  This is an order nisi to become absolute within 14 days if no application is taken out to vary the same.

 

	Deputy Judge Tracy Chan
	Presiding Officer  Lands Tribunal

Ms Ngai Nancy, instructed by Messrs. Yam & Company, for the Applicant

4^th Respondent, acting in person, absent by notice

LDCS 28000 /2012

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LAND COMPULSORY SALE APPLICATION NO 28000 OF 2012

________________

BETWEEN

	MANY GAIN INVESTMENT LIMITED (多發投資有限公司)	Applicant
	and
	CHAN FAI HO	1st Respondent
	CHAN KA LAI AND CHAN KA BO	2nd Respondent (discontinued)
	TSUI HING YIN	3rd Respondent (discontinued)
	ALL LUCKY DEVELOPMENT LIMITED	4th Respondent

________________

Before: His Honour Judge KO, Presiding Officer, and Mr Lawrence PANG, Member, of the Lands Tribunal

Date of Hearing: 11 November 2013

Date of Decision: 29 November 2013

___________________

D E C I S I O N

___________________

 

1.  We intend to deal with two matters in this decision:

(1) the 1^st respondent’s application for costs; and

(2) the adjournment of the trial.

Background

2.  The applicant applies in this case for the compulsory sale of two adjourning lots of land known as: (i) Nos 16 & 16A Ka Shin Street, Kowloon (“Lot 1”) and (ii) Nos 18 & 18A Ka Shin Street, Kowloon (“Lot 2”) (collectively called “the Lots”) under the Land (Compulsory Sale for Redevelopment) Ordinance (“the Ordinance”).

3.  According to the Notice of Application, there is erected on each lot a 6-storey commercial/residential building and the two buildings are connected by a common staircase.  The applicant is relying on section 3(2)(b) to make this single application covering both lots.

4.  When this case commenced, the applicant owned all the undivided shares in the Lots except the following:

Ownership	Address	Undivided shares
1st respondent	2/F (Front Portion), No 16 Ka Shin Street, Kowloon	1/12th of the undivided shares in Lot 1
2nd respondent	3/F, No 18 Ka Shin Street, Kowloon	1/12th of the undivided shares in Lot 2
3rd respondent	4/F (Front Portion) No 18 Ka Shin Street, Kowloon	1/12th of the undivided shares in Lot 2
4th respondent	G/F, No 18A Ka Shin Street, Kowloon	1/12th of the undivided shares in Lot 2

5.  Since then, the applicant has acquired the undivided shares of the 2^nd and 3^rd respondents and discontinued the proceedings against them.

6.  In the Notice of Application, the applicant pleaded that the 1^st respondent had agreed by a provisional agreement dated 30 March 2011 to sell his unit to the applicant at the consideration of $4,775,500 but had failed to complete the sale.  The applicant had commenced HCA 1448/2011 against the 1^st respondent to claim for specific performance of the provisional agreement.

7.  The 1^st respondent filed a Notice of Opposition in this case in May 2012 in which he averred that the provisional agreement had been rescinded by the applicant’s repudiation.  The 1^st respondent further alleged that he had sold his unit to Sunny Palace Limited (“SPL”) although the sale had yet to complete.  The 1^st respondent claimed he was a “bare trustee” for SPL and it was an abuse of process to sue him but not SPL in this case. 

8.  Up until he amended his Notice of Opposition in January 2013, it was also the pleaded case of the 1^st respondent that if the provisional agreement was found to be valid in HCA 1448/2011, he would oppose the application for the compulsory sale of the Lots on the ground that: “… the price offered by the Applicant to the 1^st Respondent did not reflect the fair and reasonable market value and the Applicant has taken no reasonable steps to acquire nor offered reasonable terms to the 1^st Respondent.”

9.  In May 2013, the 1^st respondent withdrew his Amended Notice of Opposition by consent and undertook not to oppose the application.

10.  As for the 4^th respondent, it complained in the Notice of Opposition that “[t]he valuation of the premises is low” but filed no evidence in opposition.  By a letter dated 31 October 2013, the 4^th respondent confirmed that it would no longer oppose the application.

11.  As there was unlikely to be any opposition, this case was set down for trial with one day reserved.

12.  The applicant was represented by counsel Nancy Ngai at trial, and the 1^st respondent was represented by counsel Derek Hu. 

13.  Ms Ngai and Mr Hu informed us that the Court of First Instance had just granted judgment in HCA 1448/2011 in favour of the applicant herein and ordered, inter alia, the specific performance of the provisional agreement.  Mr Hu said the 1^st respondent would comply with the order and transfer the property to the applicant.  However, the 1^st respondent would ask for costs against the applicant.

The 1^st respondent’s application for costs

14.  Mr Hu submits that the applicant has jumped the gun in suing the 1^st respondent and should have waited until the conclusion of HCA 1448/2011 to commence this case.  He complains that:

(a)   the definition of “minority owner” in the Ordinance refers to owners with beneficial interest as opposed to paper owners who is holding the property for others;

(b)   there is duplication of proceedings; and

(c)   the applicant should have sued SPL who was the beneficial owner of the property at the commencement of this case. 

15.  With respect, we do not think there is any merit in the 1^st respondent’s contention.

16.  First, Mr Hu has provided no authority in support of his proposition that the term “minority owner” should not cover a paper owner. 

17.  The definition in section 2 provides that:

“‘minority owner’, in relation to a lot which is the subject of an application under section 3(1) –

(a) means the person or persons who -

(i) owns or own undivided shares in the lot otherwise than as a mortgagee; but

(ii) is or are not the person or persons who has or have made the application; and

(b) includes any person who becomes a successor in title to any such person or persons at any time before a purchaser of the lot becomes the owner of the lot where the lot is the subject of an order for sale.”

18.  There is nothing in the language which indicates that a distinction between beneficial owners and paper owners is intended.  In our view, a paper owner nonetheless owns the undivided shares in the property and, insofar as he is not the applicant, is caught by the definition.  In reality, applicants may not be able to find out from land search whether a registered owner has the beneficial interest in the property he owns or not.

19.  Secondly, we do not see any duplication of proceedings.  This case is concerned with the compulsory sale of the Lots whereas HCA 1448/2011 is on the validity of the provisional agreement for the sale of the 1^st respondent’s unit. Disposal of one would not render the proceedings in the other unnecessary.

20.  Thirdly, the fact that the applicant may have a cause of action against SPL does not mean that it may not pursue against the 1^st respondent.  The purpose of suing the 1^st respondent in this case is to bind him with the judgment on the compulsory sale of the Lots.

21.  Ms Ngai has further submitted that the legislative scheme actually permits the joining of a minority owner whose beneficial interest may be uncertain. 

22.  In the context of this case, there was a dispute over the beneficial ownership of the 1^st respondent’s unit.  The writ in HCA 1448/2011 has been registered against the property.  Ms Ngai submits that section 4(6)(a)(iii)(A) of the Ordinance[1] enables the applicant to proceed with this case without the need to await the result of HCA 1448/2011.  We agree.

23.  In our view, the 1^st respondent’s application is fundamentally flawed:

(a)   On the one hand, the 1^st respondent alleged that he had no interest in the property and was a bare trustee.  On the other hand, he contended, at least up to the amendment, that the applicant had neither taken reasonable steps to acquire his unit nor negotiated with him on terms that were fair and reasonable.  Had the 1^st respondent taken a neutral stance, his costs would be minimal.  He elected a combative stance and, as Ms Ngai has submitted, his costs were really self-induced.

(b)             The tribunal has ordered, by consent of the applicant and the 1^st respondent, that:

“Upon the 1^st Respondent’s undertaking not to oppose the Applicant’s Application herein, leave be granted to the 1^st Respondent to withdraw its Amended Notice of Opposition (Form 33) filed on 9 January 2013 with no order as to costs;”[2] (emphasis added)

Mr Hu accepts that given the above costs order, the remaining costs that may be covered by his application would be minimal.

24.  For the above reasons, we dismiss the 1^st respondent’s application with costs and with certificate for counsel. 

25.  Parties have submitted on quantum.  Ms Ngai estimates that the applicant’s costs come to $4,000.  This appears to be proper and necessary having regard to the time spent on the argument (about an hour) and counsel’s seniority.  We summarily assess the applicant’s costs at $4,000.

The adjournment of the trial

26.  The applicant has lodged in trial bundles and opening submissions in anticipation of the trial. 

27.  We appreciate from a general perusal of the papers that:

(a) The scope of the application, as defined in the Notice of Application, is confined to the Lots. There is no mention of any plan to redevelop the Lots together with any adjourning lot.

(b) In a report dated 25 July 2013, the applicant’s expert assessed the redevelopment value (“RDV”) of the Lots to be in the order of $140 million. [3]  It is noted that:

(i) The expert was instructed “to assess the redevelopment value of [the Lots] as at 23 July 2013”. 

(ii) The expert confined his assessment to the redevelopment of the Lots with a site area of 311.59 m². 

(iii) He considered that the optimum development to be “a 27-storey composite building comprising retail use on ground floor and cockloft, podium garden and clubhouse on first floor, and domestic uses on floors above” with a total gross floor area of 2,894.91 m² (including exempted green features).

(c) However, the revised assessment contained in the supplemental report dated 25 October 2013 (“the Supplemental Report”) is very different.  This time:

(i) The expert was instructed “to assess the redevelopment values of [the Lots] as at 23 October 2013 taking into account its redevelopment potential on its own, and its potential for joint redevelopment together with Nos 8-14A & 20-30A Ka Shin Street”. (emphasis added)

(ii) The total site area of the Lots and the adjourning Nos 8 & 8A, 10 & 10A, 12 & 12A, 14 & 14A, 20 & 20A, 22 & 22A, 24 & 24A, 26 & 26A, 28 & 28A and 30 & 30A Ka Shin Street, Kowloon (“the Adjourning Lots”) was to be 1,833.70 m².

(iii) He considered the optimum development for the Lots and the Adjourning Lots together to be: “a 31-storey commercial/residential development with Ground and First floor shops, recreational facilities/club house on First floor and domestic units on the upper floors above” with a total gross floor area of 16,776.79 m² (including exempted green features).

(iv) The expert revised his assessment to $182 million. [4]

28.  The Supplemental Report was filed after the case was set down for trial and in pursuance of the direction of the tribunal to update the RDV assessment if so advised. The difference of $42 million in the assessments is huge and is not accounted for by time.  There is no pleading pertaining to any plan to redevelop the Lots together with the Adjourning Lots.  And the only evidence in support of a composite site redevelopment is the reference in the Supplemental Report that the Lots and the Adjourning Lots are “currently under multiple ownership”. [5] 

29.  Given that the scope of this case is confined to the Lots and that the Adjourning Lots are not before us, it is not clear how we may take into account the redevelopment potential of the Lots and the Adjourning Lots together in setting the reserve price. 

30.  We wrote to the applicant before the trial to put the applicant on notice of our concern.  On the day of trial, Ms Ngai informed us that:

(a) The applicant had applied for the compulsory sale of Nos 8 & 8A and 10 & 10A Ka Shin Street, Kowloon in LDCS 26000/2012.  The proceedings had been discontinued as the applicant had acquired all the undivided shares in those lots.

(b) The applicant had applied for the compulsory sale of Nos 12 & 12A and 14 & 14A Ka Shin Street, Kowloon in LDCS 27000/2012.  The proceedings had been discontinued as the applicant had acquired all the undivided shares in those lots.

(c) The applicant had applied for the compulsory sale of Nos 20 & 20A and 22 & 22A Ka Shin Street, Kowloon in LDCS 29000/2012.  The proceedings had been discontinued as the applicant had acquired all the undivided shares in those lots.

(d) The applicant had applied for the compulsory sale of Nos 24 & 24A and 26 & 26A Ka Shin Street, Kowloon in LDCS 30000/2012.  The proceedings had been discontinued as the applicant had acquired all the undivided shares in those lots.

(e) The applicant applied for the compulsory sale of Nos 28 & 28A and 30 & 30A Ka Shin Street, Kowloon in LDCS 31000/2012.  That case was tried before a differently constituted tribunal on 17 October 2013 with judgment still pending.

31.  Ms Ngai submitted that:

“1. R4 is the sole minority owner.

…

3. The Applicant and R4 agree to sell the Lots by other means (instead of public auction) pursuant to s 5(1)(b) of the Ordinance on the condition that the Lots shall be sold at a price of not less than HK$182,120,000.

4. Hence, R4 will receive a compensation reflecting its proportionate share in the RDV of the Composite Site (ie Nos 8-8A to 30-30A Ka Shin Street) no matter whether the Applicant would become the sole owner of all the 6 pairs of lots.

5. Schedule 2 does not apply. It is unnecessary to determine any reserve price for sale of the Composite Site.

6. Combined sale of the 6 pairs of lots is unnecessary.”

32.  In our view, the applicant may not get around the problem by invoking section 5(1)(b). 

33.  Section 5(1) of the Ordinance provides that:

“Where an order for sale is granted and the trustees under the order have complied with section 7(1) in respect of the lot the subject of the order –

(a) subject to paragraph (b), the lot shall be sold by public auction in accordance with the conditions specified in Schedule 2; or

(b) if the whereabouts of each minority owner of the lot is known, the lot may be sold by any other means –

(i) agreed in writing by each minority owner and majority owner of the lot;

(ii) approved by the Tribunal in its absolute discretion; and

(iii) in accordance with such conditions, if any, as the Tribunal specifies in directions.”

34.  Even if the parties in this case agree to sell the Lots the subject of the order for sale by means other than public auction, such proposal is still subject to the approval of the tribunal.  Given that one of the key objectives of the Ordinance is to ensure that the minority owners would receive fair and reasonable compensation, [6] the tribunal would naturally be concerned about the selling price. 

35.  Ms Ngai has suggested to sell the Lots by public tender at a price “not less than HK$182,120,000”.  She says that the other details of the tender would be worked out by the parties. 

36.  Paragraph 2 of Schedule 2 to the Ordinance governs the setting of the reserve price for public auction.  It 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.”

37.  So, the tribunal is directed to take the redevelopment potential of the subject of the auction into account in setting the reserve price.  For single lot applications, the subject of the application is the same as the subject of the auction, and reserve price will be set having regard to “the redevelopment potential of the lot on its own”.  In cases (such as the present one) where the applicant is invoking section 3(2), the subject of the auction will be the “2 or more lots” covered by the application, and the reserve price will be set taking into account “the redevelopment potential of the lot…, where 2 or more lots are the subject of the auction, on their own”.

38.  We invited Ms Ngai to point us to other provisions in the Ordinance enabling us to approach the question of the selling price for sale other than by public auction differently.  There appears to be none.  In our view, the applicant may not avoid the operation of paragraph 2 of Schedule 2 (which was drafted with the aforesaid key objective in mind) by invoking section 5(1)(b).

39.  Since the applicant is planning to redevelop the Lots and the Adjourning Lots together, it is only natural that we take into account the redevelopment potential of the composite site in setting the reserve price.  Ms Ngai does not submit otherwise. 

40.  As the present application only covers the Lots and the Adjourning Lots are not before us, there is a risk that we would be unable to set a reserve price that would reflect the full redevelopment potential of the land.  There is no point in proceeding with the trial if, at the end of the day, the applicant would be unable to satisfy the tribunal with the selling price. 

41.  In our view, the problem is much more fundamental.

42.  The Court of Appeal has ruled in Bond Star Development Ltd v Capital Well Ltd[7] that the Ordinance does not apply to land of which the applicant is already 100 percent owner.  Notwithstanding the doubts subsequently expressed by the Court of Final Appeal on appeal,[8] the Lands Tribunal has consistently applied the Court of Appeal ruling. [9]  Given the state of the jurisprudence, it is understandable why applicants do not plead, in an application under the Ordinance, any plan to redevelop the lot the subject of the application together with any adjourning lot(s) that he own(s). 

43.  We have recently decided in Supergoal Investment Ltd v Five F Ming House Limited[10] that the Court of Appeal ruling is not binding on us as it has been undermined by the subsequent comment of the Court of Final Appeal.  And we have answered the following question posed by the Court of Final Appeal in the negative:

“… in cases where a majority owner each qualifies for the making of such a compulsory order and wishes to have that lot put up for auction together with adjacent development 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.”[11]

44.  We venture to suggest that in the future applicants should specifically plead in their Notice of Application any intention to redevelop the lot the subject of the application together with any adjourning lot(s) which the applicant already own(s) as at the date of the application.  In our view, this is inevitable.  Section 4(2)(b) of the Ordinance provides that no order for sale shall be made unless the tribunal is satisfied that the applicant has taken reasonable steps to acquire all the undivided shares in the lot the subject of the application.  In case of a minority owner whose whereabouts are known, the applicant will have to demonstrate that he has negotiated for the purchase of such of those shares as are owned by that minority owner on terms that are fair and reasonable.  This is usually done by an officer of the applicant testifying on oath at trial as to the reasonableness of the offers made.  There will be a difference, in terms of the value of the land, between a plan to redevelop the lot the subject of the application on its own and a grander plan of composite site redevelopment. It would be difficult for the applicant’s officer to justify the offers if the applicant only took into account the redevelopment potential of the lot on its own in setting the offers when all along the applicant had been planning a composite site redevelopment.

45.  In cases (such as the present one) where the applicant only acquires the adjourning lot(s) after the commencement of the case, the Notice of Application should be amended to reflect such factual development.  This will enable the tribunal to consider giving directions under section 4(6)(a)(i) in relation to the sale so that the lot the subject of the application for an order for sale may be sold together with those adjourning lot(s) in one public auction.  The tribunal may then set a reserve price reflecting the full redevelopment potential of the land.

46.  This is because section 4(6)(a)(i) provides that:

“Where the Tribunal makes an order for sale, … it may also give such directions as it thinks fit relating to the sale and purchase of the lot the subject of the order, including (but without limiting the generality of the foregoing) settling the particulars and conditions of sale of the lot…” (emphasis added)

In our view, the power to give directions “relating to” the sale and purchase of the lot the subject of the order enable us to go beyond the subject of the order.  After the tribunal has made an order for sale, it may then consider if the lot should be sold together with other adjourning lot(s) owned by the applicant in one public auction.  If so, the lots together will form “the subject of the auction” and the tribunal may set a reserve price reflecting their redevelopment potential in terms of paragraph 2 of Schedule 2.

47.  In our view, the above practice will promote the two-fold objectives of the Ordinancein that:

(a)   It will minimise the possibility of someone exercising “ransom power” through the medium of public auction as cautioned by the Court of Final Appeal in Bond Star, [12] thus facilitating urban renewal.

(b)   It will also ensure that the minority owners will receive fair and reasonable compensation having regard to the full redevelopment potential of the land. 

48.  Returning to the present case, the applicant will need to bring all the lots before the same tribunal to enable the tribunal to give directions for them to be sold together in one public auction and to set a reserve price that would reflect their full redevelopment potential.  Since another panel of this tribunal has already heard evidence concerning the application for the compulsory sale of No 28 & 28A and 30 & 30A, Ms Ngai is agreeable to adjourn this trial and to apply to the tribunal dealing with LDCS 31000/2012 to enlarge the scope of that case to encompass all the lots.

49.  For the above reasons, we have adjourned the trial sine die with liberty to restore. The applicant is not asking for costs and we make no order as to the costs of the adjournment.

(Justin Ko) Presiding Officer Lands Tribunal

(Lawrence Pang) Member Lands Tribunal

Ms Nancy NGAI, instructed by Yam & Co., for the applicant

Mr Derek HU, instructed by K.B. Chau & Co., for the 1^st respondent

Attendance of the 4^th respondent was excused