Case Detail

LDLR 1/2013

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LANDS RESUMPTION APPLICATION NO 1 OF 2013

_________________

BETWEEN
	TAI PING RESTAURANT LIMITED	Applicant
	and
	DIRECTOR OF LANDS	Respondent

_________________

Before: Mr Alex NG, Member of the Lands Tribunal

Dates of Written Submissions: 2 and 22 February 2016

Date of Written Reply to the Submissions: 25 April 2016

Date of Decision: 24 June 2016

_________________

DECISION

_________________

Background

1. The application for determination of compensation pursuant to section 10(2)(a) of the Lands Resumption Ordinance, Cap 124 (“the Ordinance”) was decided by this tribunal on 8 December 2014. It was ordered that the respondent do pay the applicant compensation in the sum of $70,650,000 and the matters of professional fees, interest and costs be adjourned to a date to be fixed, with liberty to apply for any other ancillary and consequential matters.

2. Since the parties could not resolve the claim for interest by agreement, they have consented for this to be decided by the tribunal through written submissions. It is not disputed that a provisional payment of $61,076,000 was offered by the respondent and accepted by the applicant on 8 March 2013, and the balance in the sum of $9,574,000 was paid by the respondent on 27 January 2015. In the interim, interest on the provisional payment in the sum of $208.9 was also paid by the respondent on 26 March 2013.

3. The issues in dispute are (1) whether the tribunal is entitled to award interest on the provisional payment; and (2) the interest rate to be applied in the present case.

Issue 1 - Interest on the Provisional Payment

4. Mr Pao, counsel for the respondent, contended that the interest with respect to the provisional payment from the date of resumption on 3 November 2012 to the date of payment on 8 March 2013 is specifically governed by the agreement executed by the parties on 8 March 2013 (“the Agreement”). The tribunal has no jurisdiction to award interest on the provisional payment because the Agreement had set out the agreed interest rate and binds the parties as a matter of contract.

5. Mr Pao submitted that the Agreement was entered into by the parties voluntarily. Under section 16A(1)(a) and (b) of the Ordinance, it is a matter for the respondent as to whether to offer a provisional payment, and it is also a matter for the applicant whether to accept that offer. Since the applicant has elected to accept the provisional payment, on the basis of the interest rate set out in the Agreement, the applicant is not entitled to a make a claim for a higher interest to be awarded by the tribunal.

6. Further, Mr Pao submitted that the general power for the tribunal to award interest on compensation on a determination under section 17(3) is made expressly subject to section 16A(3) which deals with provisional payment pending the determination of compensation, and the combined effect of these two sections of the Ordinance is that the tribunal only has power to award interest with respect to the “amount thereof so reduced” by the provisional payment (“the Respondent’s Interpretation”). This means that the tribunal only has power to determine the rate of interest applicable to the balance $9,574,000 and simply has no jurisdiction to award interest on the provisional payment. Mr Pao contended that it is a matter of basic statutory interpretation.

7. Sections 16A(3) and 17(3) of the Ordinance provide that : -

“Where the amount of compensation payable by virtue of a determination of the Lands Tribunal under this Ordinance is reduced under subsection (2) by the amount of any payment under subsection (1), such compensation shall not as from the date on which the payment is made bear interest except on the amount thereof as so reduced.” - section 16A(3) (emphasis added by the respondent)
“Subject to section 16A(3), any sum of money payable as compensation by virtue of a determination of the Lands Tribunal or an agreement under this Ordinance shall bear interest from the date of resumption of the land until the expiration of the time specified in the notice referred to in subsection (2)......” - section 17(3)

8. Mr Pao submitted that, on a plain and natural statutory interpretation, the application of section 16A(3) is as follows; -

(1)  “such compensation” – ($70,650,000)
(2)  “shall not as from the date provisional payment is made” – (8 March 2013)
(3)  “bear interest except on the amount thereof as so reduced” – ($9,574,000)

9. Mr Pao also invited this tribunal not to follow the recent decision in Eltron Development Ltd v Director of Lands, LDLR 4/2013, 28 January 2016, in which Member Pang has ruled against the respondent in a similar dispute of another resumption case, because of the following five reasons: -

(1)  Eltron Development had no analysis as to whether the tribunal has jurisdiction to award interest on the provisional payment.
(2)  Eltron Development erred in approaching the matter from the perspective of contract law but the critical issue is not one of contract law. The critical element is the payment itself. If it is established that payment has been made, section 16A(3) extinguishes the bearing of interest on the provisional payment as from the date when it was made.
(3)  Nothing in section 16A(3) makes the exclusion of the bearing of interest conditional upon the terms of the actual agreement executed, but once payment is made that is the end of the inquiry for the exclusion of interest under section 16A(3).
(4)  It is clear from the conduct of the parties in this case that the applicant did accept and did agree the rate of interest and did accept the interest payment on 26 March 2013.
(5)  Eltron Development failed to appreciate the effect of the opening words of section 17(3) which restricts the general power to award interest on compensation and appeared to have overlooked the fact that such general power is specifically made subject to the exception in section 16A(3).

10. The respondent, represented by another counsel, has applied for leave to appeal the decision of Eltron Development, but in the summons has argued over the interest rate only and not the jurisdiction of the tribunal to award interest on the provisional payment. In any event, this was refused by Member Pang on 18 May 2016.

11. With respect to Mr Pao, I agree to the analyses of Member Pang and consider that the present case which is similar to Eltron Development could follow the reasons for decision in it. I also accept the submissions of Mr Miu, counsel for the applicant, that the applicant has not given up its right to argue over the interest on the provisional payment. All the Agreement, the offer letter dated 30 November 2012 made by the Lands Department and the Acceptance Letter “B” duly signed and returned by the applicant have stated that the acceptance of the provisional payment by the applicant was “without prejudice” to any claim the applicant might have under the Ordinance.

12. Further, I disagree to the Respondent’s Interpretation that section 16A(3) extinguishes the bearing of interest on the provisional payment as from the date when it was made. If one looks at the Ordinance broadly instead of the wording in sections 16A(3) and 17(3) only, the provisional payment mentioned in section 16A(3) in fact refers to section 16A(2), which has specifically stated that “Any payment made by the Authority ...... shall be without prejudice to the claim or the submission thereof to, or the determination thereof by, the Lands Tribunal under this Ordinance”.

13. I also agree with Mr Miu that the Respondent’s Interpretation, which would limit the right of claimant to argue over interest on provisional payment before the tribunal, could be unfair to the claimant, particularly when the claimant would need the provisional payment in advance of settlement of all the claims. Although a claimant would have the choice to accept, or not to accept, the provisional payment offered by the acquiring authority, a claimant is to a great extent passive in the resumption. In the present case, Mr Miu submitted that the provisional payment was required / used by the applicant to discharge the outstanding principal and interest on the mortgage loan of the property.

Issue 2 - Interest Rate

14. The applicant relies on the decision in Happy Dragon Restaurant Ltd v Director of Lands, LDLR 17 of 2006, 20 January 2014 and submitted that the interest rate should be set at prime rate + 1%, which is a long established practice, and the party who seeks to challenge this has the burden of adducing evidence to displace that presumption: -

“57. As held in The Hong Kong Electric Co Ltd v Commissioner of Rating and Valuation, supra, the practice of awarding interest at Prime +1% amounts to no more than a presumption which can be displaced if is application would be “substantially unfair either to one party or the other”. The burden of displacing this presumption lies on the party seeking to displace it, but we find no evidence from the respondent to displace such a presumption ......”

15. The respondent submitted that the rate of interest should be either (i) the 24-hour call rate; (ii) 1.5%; or (iii) in any event, not higher than 2.5% per annum.

16. Section 16A(1A) of the Ordinance provides that the minimum rate of interest payable on a provisional payment cannot be lower than the 24-hour call rate. In any event, the Agreement stated that the interest rate on the provisional payment would be determined by the respondent having regard to the 24-hour call rate. On the other hand, 1.5% follows the approach articulated in the report by the United Kingdom Law Reform Commission on “Pre-Judgment Interest on Debts and Damages” published in 2004 where it was recommended that the interest rate on pre-judgment interest should be set at the Bank of England Base Rate plus 1% with the Court given a discretion to depart from that for good reason, whilst 2.5% is the interest rate determined in Libertarian Investments Ltd v Thomas Alexej Hall (2013) 16 HKCFAR 681 and Waddington Ltd v Chan Chun Hoo Thomas & Ors (No 2) [2014] 4 HKC 356.

17. Mr Pao contended that the interest rate of prime rate + 1% is excessive having regard to the low interest rate environment in Hong Kong from the date of resumption onwards. Mr Pao submitted that the decision in Eltron Development did not consider the effect of decisions including Tajudin Sunny v Bank of America, NA (No 2) [2015] 5 HKC 202 where courts have declined to award interest at prime rate + 1% on the basis of the low interest rate environment in Hong Kong. Further, in Libertarian Investments Ltd and Waddington, the Court did not require specific evidence of the low interest rate environment in Hong Kong.

18. However, after the parties filed the written reply to the submissions on 25 April 2016, the cross-appeal in relation to the pre-judgment interest rate decided in both Tadjudin Sunny and Waddington were allowed by the Court of Appeal on 20 May 2016 and 18 May 2016 respectively, and the pre-judgment interest rates in both cases were substituted the rate of HSBC best lending rate + 1%.

19. The Court of Appeal stated in Tadjudin Sunny that: -

"179.  ...... With respect to the judge, we are of the view that having regard to the long standing practice of taking 1% over prime as the starting point for the award of pre-judgment interest, any suggestion that this starting point should be changed is something that should be considered only where there is evidence before the court to support such a change. It is, with respect, not satisfactory to proceed on the basis of the impressions (however well founded they may turn out to be) of the individual judge. In the present case, there was simply no evidence to support the suggestions that prime plus 1% was no longer an appropriate point from which to start. On this basis alone, we would be minded to interfere with the judge’s award of pre-judgment interest.”
“181.  Moreover, we do not think that either Libertarian or Waddington would provide support the judge’s conclusions in this case. Libertarian was a case where the subject matter of the claim was investments denominated in sterling. The relevant rate of interest to consider was therefore that pertaining in the UK. The choice of a rate fixed by reference to the Bank of England base rate, which would be appropriate in the circumstances of that case, does not in our view provide support for a switch from prime rate to HIBOR in Hong Kong......”
“183.  That is not to say that there may not be a case in the future in which the necessary evidential foundation (which might, for example, consist of banking evidence as to the manner in which rates for unsecured lending are fixed, that shows clearly that prime rate is no longer, or very rarely used as a starting point) will be laid for a consideration of whether or not the time has come to move away from prime rate plus 1% as the starting point for the awarding of pre-judgment interest. However, that is not this case.”

20. The Court of Appeal stated in Waddington that: -

"180.  With respect to the judge, we are satisfied that this was not an appropriate case to depart from the conventional practice of awarding pre-judgment interest at a rate of 1% over prime.”
“181.  We agree with Mr Yu that Libertarian does not support the judge’s conclusion in this case, as it was a case in which the claim was denominated in sterling, making the relevant rate of interest to consider that which would have been available in the United Kingdom. It is not relevant to the position of a Hong Kong party who would have to borrow in Hong Kong. For the same reason, consideration of the United Kingdom Law Reform Commission’s recommendations is also inappropriate.”
183.  So far as general interest rate levels are concerned, which it is fair to say that the evidence may support the suggestion that many interest rates have declined to low levels in recent years, the fact is that the HSBC Best Lending Rate, which is the commonly adopted proxy for prime rate had remained at comparatively high levels over that period. The continued publication of this rate suggests that it is still in use for the purpose of fixing lending rates, and cannot be regarded as having been supplanted by HIBOR for such purposes.”
“We therefore do not think that the material available to the judge could justify his view that 1% above prime rate is longer the appropriate standard to use for awarding pre-judgment interest generally, or that such material justified a departure from the conventional rate in this case......”
“186.  That is not to say that there may not, in the future, arise a case in which the necessary evidential foundation will be laid for a consideration of whether or not the time has come to move away from prime rate plus 1% as the starting point for pre-judgment interest. But this is not such a case.”

21. The extracts in the above paragraph are self-explanatory. In the present case, the respondent has just mentioned the low interest rate environment in Hong Kong from the date of resumption onwards but has not submitted other evidence to support a change from the conventional practice of taking 1% over prime as the starting point for the award of pre-judgment interest.

22. The Court of Appeal has distinguished that Libertarian is not relevant to the position of a Hong Kong party who would have to borrow in Hong Kong and consideration of the United Kingdom Law Reform Commission’s recommendations is also inappropriate. Further, the 24-hour call rate in section 16A(1A) of the Ordinance is the minimum rate only, and same as the reasons for decision in Eltron Development and in view of my findings in §11 above, I consider that the applicant is not bound by the Agreement to receive interest at 24-hour call rate only.

Conclusion

23. I agree to the applicant’s submissions that the applicant has not given up its right to argue over the interest on the provisional payment and the tribunal has the jurisdiction to determine the interest of the provisional payment too. In addition, since there is no evidence in the present case which could support a change from the conventional practice of awarding pre-judgment interest rate at prime rate plus 1%, I consider that the pre-judgment interest rate in the present case should be fixed at 1% above prime rate.

24. There are currently two besting lending rates in Hong Kong, but the parties have not made any submissions in this regard. Anyway, since the HSBC best lending rate is the commonly adopted proxy for prime rate in the market and the judgments in both Tadjudin Sunny and Waddington also based on the HSBC best lending rate, I consider that it is appropriate to adopt the HSBC best lending rate as the prime rate in the present case.

25. There is no reason why costs should not follow the event. I make a costs order nisi that the respondent do pay the applicant the costs of this application with certificate for counsel to be taxed on High Court Scale if not agreed.

Orders

26. Accordingly, I order that : -

(1)  The respondent do pay the applicant interest on the sum of $61,076,000 (being the provisional payment made under section 16A of the Ordinance) from the date of reversion (i.e. 3 November 2012) to the date of payment (i.e. 8 March 2013) at the rate of 1% above the HSBC’s prevailing best lending rate ;
(2)  The respondent do pay the applicant interest on the sum of $9,574,000 (being the balance of the statutory compensation under the Ordinance) from the date of reversion (i.e. 3 November 2012) to the date of judgment (i.e. 8 December 2014) at the rate of 1% above the HSBC’s prevailing best lending rate and thereafter at judgment rate until payment (i.e. 27 January 2015);
(3)  Credit be given to the interests which had previously been paid by the respondent to the applicant (if any); and
(4)  A costs order nisi that the respondent do pay the applicant the costs of this application with certificate for counsel to be taxed on High Court Scale if not agreed and this costs order be made absolute after 14 days if no application to vary it.

	(Mr Alex NG)
	Member
	Lands Tribunal

Mr Nelson Miu, instructed by Philip T. F. Wong & Co., for the applicant

Mr Jin Pao, instructed by the Department of Justice, for the respondent

LDLR 1/2013

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LANDS RESUMPTION APPLICATION NO 1 OF 2013

_________________

BETWEEN
	TAI PING RESTAURANT LIMITED	Applicant
	and
	DIRECTOR OF LANDS	Respondent

_________________

Before: Mr Alex NG, Member of the Lands Tribunal

Dates of Hearing: 14, 15 and 17 October 2014

Date of Judgment: 8 December 2014

_________________

J U D G M E N T

_________________

BACKGROUND

1. This is an application by the applicant for determination ofcompensation pursuant to section 10(2)(a) of the Lands Resumption Ordinance, Cap. 124 (“the Ordinance”).

2. The applicant is the former registered owner of section C of Kowloon Inland Lot No 1684 (“the Lot”), with a building erected thereon known as No 600 Shanghai Street, Kowloon, Hong Kong (“the Property”). The Property is a 4-storey building completed in about 1927.

3. By a notice of resumption dated 25 July 2012 and published in G.N. 5234[1], the Government informed the applicant that the Lot would be resumed and reverted to the Government for implementation of Development Scheme MK/01 by the Urban Renewal Authority at Shanghai Street / Argyle Street, Mong Kok, Kowloon on the expiration of 3 months from the date of affixing of the notice. The notice of resumption was affixed to the Lot on 3 August 2012. Thus, upon expiration of the 3-month notice period, reversion took place at midnight on 3 November 2012.

4. At the hearing, the applicant and the respondent had no dispute that, under section 10(2)(a) of the Ordinance, the basis of compensation in the present proceedings should be the market value of the Property as at the date of resumption, i.e. 3 November 2012. They agreed that market value of each storey of the Property and the roof should be assessed separately.

5. They further agreed the market values of the upper floors of the Property from 1^st floor to 3^rd floor and the roof in the total sum of $10,510,023, with breakdown as follows: -

a. 1st Floor : $5,056,336
b. 2nd Floor : $2,558,989
c. 3rd Floor : $2,603,018
d. Roof : $291,680

6. The only issue remains to be determined by the tribunal is the compensation for the ground floor of the Property (“the Ground Floor”).

7. Although the Ground floor was subject to a tenancy as at the date of resumption, the parties agreed to value it by comparative method on the basis of vacant possession.

THE EVIDENCE

8. The parties had produced the following expert reports and documents on valuation:

Mr Leo S D Cheung (“Mr Cheung”) of Prudential Surveyors (Hong Kong) Limited, on behalf of the applicant

(1) Expert report dated 20 May 2013[2];
(2) Supplementary expert report dated 28 February 2014[3];
(3) Graph of 3 comparables and sensitivity analyses of various adjustment factors[4].

Mr Lai Wah Chi (“Mr Lai”) of AA Property Services Limited, on behalf of the respondent

(1) Expert report dated 25 November 2013[5];
(2) Supplementary expert report dated 24 February 2014[6].

9. In addition, the experts had prepared a joint expert statement dated 13 October 2014 (“the Joint Statement”) and a further joint expert statement dated 16 October 2014 (“the Further Joint Statement”) setting out the areas of agreement and disagreement on the particulars of the Property and the comparables.

10. The parties together with their experts and I have inspected the Property and the comparables externally on 14 October 2014. Before the site visit, we were all aware that the actual observations in the site visit would be affected by the protests and consequent blockage of pedestrian and vehicular access to the area, and would also be different from the conditions as at the valuation date of 3 November 2012.

PARTICULARS OF THE GROUND FLOOR

11. Pursuant to the two Joint Statements, the following particulars of the Ground Floor are agreed, inter alia, between the parties:

a. Building Age : 1927
b. Effective Saleable Area : 49.19m²
c. Clear Headroom : 4.85 meters
d. Full Site Depth : 14.48 meters
e. Frontage onto Shanghai Street : 3.30 meters (full); 2.76 meters (clear)
f. Frontage onto Hong Lok Street : 4.42 meters (full); 4.19 meters (clear)

AGREEMENTS ON ADJUSTMENT FACTORS

12. Pursuant to the Joint Statement, the following adjustment factors are agreed, inter alia, between the parties:

a. Building Age : No adjustment shall be made
b. Headroom : 2% for every 1 meter difference
c. Time Adjustment : Based on the updated Private Retail Price Index for October 2012
d. Relevant Dates for Time Adjustment : Based on the dates of provisional agreement for sale and purchase

DISAGREEMENTS BETWEEN THE PARTIES

13. For the valuation of the Ground Floor, Mr Cheung proposed 8 shop comparables (referred to as “A1” to “A8”), whilst Mr Lai proposed 5 shop comparables (referred to as “R1” to “R5”) including R2 and R3 that are combined as one comparable for analysis. Nevertheless, pursuant to the two Joint Statements, both parties agreed not to adopt A5 and A8 in the present valuation.

14. At the hearing, Mr Cheung changed his expert opinion and advised the tribunal that R4 proposed by Mr Lai is the best comparable in the present valuation, although he had not included this comparable in his expert report. Mr Cheung explained he was aware of R4 when he prepared his expert report. He then considered a substantial downward adjustment for location of more than 20% should be applied to R4 and hence did not adopt it in his initial assessment. Further, when Mr Cheung commented on the comparables proposed by Mr Lai in his supplementary report, he had not considered R4 as the best comparable. He had only accepted R4 as one of the 11 comparables in his revised valuation of the Ground Floor and made a downward adjustment for location at 10% to R4, same as that suggested by Mr Lai.

15. Based on Mr Cheung’s expert opinion at the hearing, Mr Miu, for the applicant, submitted that the tribunal should adopt R4 alone as comparable in the present valuation.

16. Nevertheless, Mr Pao, for the respondent, submitted that there is reason to doubt the overall reliability of Mr Cheung’s evidence because Mr Cheung was willing to change his professional view for the purposes of suiting the interest of his client. Mr Pao also submitted that the change of Mr Cheung’s expert opinion from the abandonment of R4 as comparable to the consideration of R4 as the best comparable is not the only example. Mr Cheung had also been willing to drop the adjustment for building age and A5 and A8 as comparables in the valuation prior to the hearing. All these changes are in favour of the applicant.

17. Although the changes of Mr Cheung’s expert opinion during the proceedings appeared to be opportunistic, I consider the examples quoted by the respondent alone could not undermine the reliability of all Mr Cheung’s evidence. I find some valuation points of Mr Cheung useful and would consider them in the valuation.

18. Other than the selection of comparables, Mr Cheung and Mr Lai had disagreements on the adjustments for location, size, frontage, additional accessibility / visibility onto Hong Lok Street, frontage to depth ratio, and etc. The disagreements between the parties are discussed in the paragraphs below.

Selection of Comparables

19. In the closing submission, Mr Miu submitted the applicant’s primary case as follows: -

“(1) Comparables differ in terms of “quality”: a comparable that requires little adjustment for individual factors, as well as overall adjustment, is superior to one that requires large adjustments for individual factors and/or overall.
(2) There is no minimum number of comparables that the Tribunal must adopt. The Tribunal should consider the quality of the comparables and the weight to be attached to them.
(3) While no market is perfect, the imperfection in the market is not to be cured by increasing the number of comparables. Adding in comparables which are obviously poorer in quality does not improve the quality of the analysis. The Tribunal should only consider “the best comparable(s)” that is (are) available.
(4) In an appropriate case, if one comparable is shown to be sufficiently similar to the subject property, and superior to all others, the Tribunal can and should use just that one comparable for analysis.”

20. Mr Miu relied on two previous tribunal cases to illustrate his submission. In Yuen Long Fish Merchants Association Limited v Secretary for Transport LDMR 44/2000, the tribunal had adopted 2 out of 19 comparables proposed by the parties. The 2 common comparables that are located within the same town were considered to be the best comparables. In Yin Shuen Enterprises Limited v Director of Lands LDLR 5/2000, notwithstanding the Government’s successful appeal on the legal issue (FACV 3/2000; [2003] 2 HKLRD 399, (2003) 6 HKCFAR 1), only 1 comparable was adopted in the first instance judgment though the applicant had proposed 2 comparables and the respondent had proposed 3 comparables in the assessment. Mr Miu contended that, as indicated in these two cases, the tribunal should be far more concerned with quality than quantity of the comparables.

21. Mr Pao had also referred this tribunal to two previous tribunal cases. In both Tsan Luk Yuk Lin v Secretary for the Environment, Transport and Works LDMR 3/2005 and John James Toohey v Hero Plaza Limited LFNT 60/1999, the tribunal agreed that “it is generally not a good approach to carry out any valuation by direct comparison method using a single comparable”.

22. I consider there is no contradiction among the findings of these four tribunal cases. I agree it is generally not a good approach to carry out any valuation by direct comparison method using a single comparable. I also agree quality of the comparables is more important than quantity of the comparables. It is a matter of valuation that the backgrounds and availability of objective evidence would determine the number of comparables to be adopted in a particular valuation. Different cases would have different backgrounds and evidence, and therefore may have different number of comparables in the respective assessments. There is no fixed valuation rule in this regard.

23. I consider Mr Miu had overstated in (3) and (4) of his submission in paragraph 17 above. In (3), I consider the tribunal should only consider “relevant comparable(s)”, instead of “the best comparable(s)”, that is (are) available in an imperfect market. In (4), I consider if one comparable is shown to be sufficiently similar to the subject property and superior to all others in an appropriate case, the tribunal can and “may”, instead of “should”, use just that one comparable for analysis. All depend on the backgrounds and evidence in each valuation.

24. In the present valuation, I agree that R4, which is close to the Ground Floor, is located in an area with cluster of retail shops (i.e. shops selling interior decoration materials) similar to the subject location and was transacted close to the valuation date, is comparable to the Ground Floor and is a relevant comparable. Nevertheless, the relevancy of other comparables should also be examined.

25. Mr Cheung opposed the use of R2 and R3 as comparables in his supplementary expert report. He further opposed the use of R1 and R5 as comparables at the hearing. The reasons of his opposition are as follows: -

R1 Its location is far away from Langham Place with different character and trade.
R2 and R3 They are located in a different neighborhood, on the eastern side of Nathan Road and far away from the Mongkok MTR station and Langham Place.
R5 It was transacted much earlier than the valuation date with substantial overall adjustments.

26. I, with the benefit of site visit together with the parties, agree with Mr Cheung that R1, R2 and R3 are not the relevant comparables in the present valuation. R1’s location is relatively far from the Ground Floor and has different character and trades in its vicinity. R2 and R3 on the other side of Nathan Road are located in a different neighborhood.

27. R5 is located in an area with cluster of retail shops (i.e. shops selling interior decoration materials) similar to R4 and the Ground Floor. Since there would be lesser location adjustment to R5 and the time difference could be adjusted with reference to price index, I accept R5 as a relevant comparable in the present valuation.

28. Mr Lai opposed the use of A1, A2, A3, A4 and A7 as comparables in the present valuation because of the following reasons: -

A1 It is a corner shop with an irregular shape and is substantially smaller than the Ground Floor too.
A2 It is located in a prime location with frontage onto Nathan Road.
A3 and A7 They are located in the busiest area in this part of Mong Kok and in the immediate vicinity of Langham Place, where have heavy pedestrian flow.
A4 It is close to an extremely busy pedestrian subway with heavy pedestrian flow.

29. I agree with Mr Lai that A1 is not comparable to the Ground Floor at all. In the applicant’s closing submission, the applicant also withdrew A1 as a comparable from consideration.

30. I, with the benefit of site visit together with the parties, also agree with Mr Lai that A2, A3, A4 and A7 are not the relevant comparables in the present valuation because their respective locations are much better than the location of the Ground Floor. The characters of their respective localities and trades in their respective vicinities are different from the Ground Floor too.

31. Mr Lai has not opposed the use of A6 as comparable, but he did not agree on the location adjustment suggested by Mr Cheung. I accept it as a relevant comparable in the present valuation.

Adjustment for Location

32. Mr Cheung and Mr Lai agreed on the adjustment for location to R4 at -10%, but they had disagreements on adjustments to A6 and R5 as follows: -

Mr Cheung Mr Lai
A6 0% -15%
R5 25% 15%

33. I agree with Mr Lai A6 is better than the Ground Floor and would command a downward location adjustment, but I consider the adjustment rate should be -5% only. On the other hand, I agree with Mr Lai lesser upward adjustment at 15% should be made to R5. I consider the location of R5 is not as worse as that suggested by Mr Cheung.

Adjustment for Size

34. Mr Cheung applied an adjustment rate of 1% per 10m² differences in size between the comparables and the Ground Floor, whilst Mr Lai applied an adjustment rate of 1% per 4m². Mr Cheung considered Mr Lai’s adjustment rate is excessive and is suitable for valuation of tiny shops in prime areas only. Mr Lai considered Mr Cheung’s adjustment rate is insufficient to take into account the difference in value for shops on account of quantum difference in this case.

35. I agree with Mr Lai that Mr Cheung’s adjustment rate is on the low side and the present valuation justifies an adjustment rate for size at 1% per 4m².

Adjustments for Frontage, depth and etc.

36. The parties had adopted two different approaches to adjust for frontage, depth, and etc. In addition to the adjustment for full frontage, Mr Cheung made adjustments for return frontage, additional accessibility / visibility onto Hong Lok Street and depth to frontage ratio. Mr Lai had also considered the frontage onto Hong Lok Street, but he made adjustment for clear frontage only and nil adjustment for depth.

37. Except the adjustment for return frontage to A1, which will not be discussed in this judgment because A1 is not selected as a comparable in the present valuation, the main differences and arguments between the parties are as follows: -

Mr Cheung Mr Lai
Adjustment for clear or full frontage Full frontage: the columns on the frontage can and should be included in the computation of frontage because they are usually painted with the shop’s colour and to that extent would help to enhance the image of the shop Clear frontage: (1) the more important element of the frontage of a shop is its clear frontage which allows for access to the shop and space where goods and items may be displayed; (2) since columns may be located in different places on the shop front and may vary in terms of width and prominence, it is desirable for comparison purposes to use clear frontage for the purposes of consistency and uniformity
Adjustment for frontage onto Hong Lok Street 5% upward adjustment Half of the width of the lot boundary of Hong Lok
Street is added to the effective frontage for comparison purposes
Adjustment for depth to frontage ratio (1) only half of the full site depth is computed; (2) 5% for every 0.4 ratio difference; (3) to account for the difference in depth and regularity of shape Nil because its inclusion would consider the frontage twice in the assessment. Further, Mr Pao submitted that it defies common sense, has not considered the different weight attached to depth and frontage respectively, and would ignore the need to consider the irregularities in layout
Adjustment rate for frontage 2% for every 1 meter difference 4% for every 1 meter difference
Adjustment for depth The use of depth to frontage ratio has already accounted for the difference in depth (1) the depth of the Ground Floor and the comparables are within similar depth range; (2) the adjustment for size differences has already accounted adequately for the depth differences

Adjustment for clear or full frontage

38. I consider columns on the frontage of a shop are valuable, but the weight of such columns in an assessment is generally less than that of clear frontage. Subject to the availability of information, different weights should be attached to columns on the frontage and clear frontage respectively in an assessment. Nevertheless, in the absence of detailed assessment, there is no material difference between these two approaches if each could be applied consistently in the valuation.

39. In the present valuation, I would prefer the adjustment for full frontage to the adjustment for clear frontage because the former would not miss the effects of columns on the frontage if any in the frontage adjustment.

Adjustment for frontage onto Hong Lok Street

40. In the absence of comparable similar to the Ground Floor with frontages onto two parallel streets, the parties had made subjective adjustments to account for the frontage onto Hong Lok Street. Nevertheless, irrespective of the differences in the two approaches, Mr Miu contended that the end result of the adjustments for additional accessibility / visibility onto Hong Lok Street and depth to frontage ratio suggested by Mr Cheung is not all that different from the frontage adjustment suggested by Mr Lai[7]. Mr Pao also submitted that the two approaches, in substance, are close to each other, and the real issue is the rate of frontage adjustment only.

41. In the present valuation, I would prefer Mr Cheung’s approach to Mr Lai’s approach because the former is relatively straight forward to reflect the effects of the second frontage on value. Mr Lai’s approach is complicated by both the computation of effective frontage and the rate of frontage adjustment, which would be applied to the adjustments for both main frontage and second frontage.

Adjustment for depth to frontage ratio

42. Mr Pao’s contentions are based on two recent tribunal cases, Supergoal Investment Limited v Five F Ming House Limited [2014] 1 HKLRD 286 at §§93-97 and Main Light Limited v Chow Chiao Shing Tseng and Others LDCS 40000/2012, 30/06/2014 at §§30-38. I agree with the respondent that the present valuation should not adopt the adjustment for depth to frontage ratio.

43. The adjustment for depth to frontage ratio has also been the subject matter of comments by the tribunal in Main Light Limited v Time Richie Investment Limited LDCS 3000/2013, 31 October 2014 at §§20-25, which did not agree to adopt this adjustment too. The counsel in this case rightly pointed out that such ratio only shows the relativity of these two factors but cannot always reflect the impact which each factor may have on the valuation of a particular property.

44. Although I agree depth to frontage ratio could to a certain extent reflect the shape of a property as suggested by Mr Cheung, the adjustment rates in the range of 4% to 29% in Mr Cheung’s valuation are substantial and could not be the appropriate adjustments for shape if necessary. In the event if there are needs to adjust for depth and/or shape, these adjustments should be made separately.

45. Further, even if the adjustment for depth to frontage ratio is to be adopted in the valuation, I have reservation about the measurement of depth suggested by Mr Cheung. He had taken only half of the full site depth to compute the effective depth of the Ground Floor, but there is only one shop to be valued. I do not find the justifications for such measurement of depth and agree with Mr Lai that this is unsupported by authority.

Adjustment rate for frontage

46. Whilst Mr Lai suggested a higher adjustment rate for frontage at 4% per 1 meter difference in clear frontage, Mr Pao submitted that the adjustment rate at 2% per 1 meter difference in full frontage suggested by Mr Cheung would be insufficient to reflect the difference in value.

47. In view of the respective submissions, I agree with Mr Cheung on the adjustment rate at 2% per 1 meter difference in full frontage. The adjustment for frontage in this instance should reflect the effects of the frontage onto Shanghai Street only and should not be mixed up with the adjustment for frontage onto Hong Lok Street.

48. Generally, we may not make any adjustment for frontage unless the frontage in consideration is clearly superior or inferior to the norm that the benefits or disabilities which the frontage produces are clearly evident. In the present valuation, I consider the adjustment rate at 4% per 1 meter difference suggested by Mr Lai is excessive.

Adjustment for depth

49. Both parties considered there should be adjustment for depth, but they had adopted different approaches to make this adjustment. Mr Cheung contended that the adjustment for depth to frontage ratio has already accounted for the difference in depth, whilst Mr Lai contended that the shop comparables are within similar depth range and the adjustment for size has already accounted for the difference in depth.

50. I do not agree with both Mr Cheung and Mr Lai on their respective approaches to account for the depth differences. I do not agree to make an adjustment for depth to frontage ratio in the present valuation, which has been discussed in the above paragraphs. On the other hand, I consider the shop comparables are not within similar depth range. I am also of the view that size and depth are two different attributes of a shop and their adjustments should not be considered together in one adjustment rate. A larger shop may not have a longer depth and vice versa.

51. I consider depth should be adjusted separately in the present valuation. Since only one shop instead of two shops is valued and the adjustment for frontage onto Hong Lok Street should have not taken depth into consideration, the full site length of the Ground Floor should be considered in the direct comparison. In view of the subject location, I consider an adjustment rate at 1% per 1.5 meters difference could be applied in the present valuation.

VALUATION OF THE GROUND FLOOR

52. In view of the above agreements on adjustment factors and discussions on disagreements between the parties, the Ground Floor is valued as follows: -

Subject/
Comparable A6 R4 R5 Subject
Consideration $29,700,000 $42,800,000 $57,000,000
Full Frontage (m)[8] 3.25 3.72 4.50 3.30
Depth (m) 9.23 9.14 20.37 14.48
Headroom (m) 4.71 3.70 4.80 4.85
Effective Saleable Area (m²) 30.01 27.62 82.76 49.19
Unit Rate (per m²) $989,670 $1,549,602 $688,739

Adjustments
(i) Age[9] 0.0% 0.0% 0.0%
(ii) Time[10] 27.7% 2.6% 27.7%
(iii) Headroom[11] 0.3% 2.3% 0.1%
(iv) Location[12] -5.0% -10.0% 15.0%
(v) Size[13] -4.8% -5.4% 8.4%
(vi) Main Frontage[14] 0.1% -0.8% -2.4%
(vii) Second Frontage[15] 5.0% 5.0% 5.0%
(viii) Depth[16] -3.5% -3.6% 3.9%

Total Adjustments 19.8% -9.9% 57.7%
Adjusted Unit Rate (per m²) $1,185,625 $1,396,191 $1,086,141 $1,222,652
         (average)

53. The then market value of the Ground Floor is assessed at $60,142,252 ($1,222,652 per m² x 49.19m²).

CONCLUSION

54. I determine the value of the Ground Floor of the Property should be, for the purpose of section 10(2)(a) of the Ordinance, in the sum of $60,142,252. Further, both parties had agreed on the market values of the upper floors of the Property from 1^st floor to 3^rd floor and the roof in the total sum of $10,510,023. The total of the two is $70,652,275, which could be rounded down to $70,650,000.

ORDERS

55. Accordingly, I order that the respondent do pay the applicant compensation for the Lot in the sum of $70,650,000. The matters of professional fees, interest and costs shall be adjourned to a date to be fixed, with liberty to apply for any other ancillary and consequential matters.

	(Mr Alex NG)
	Member
	Lands Tribunal

Mr Nelson Miu, instructed by Philip T. F. Wong & Co., for the applicant

Mr Jin Pao, instructed by the Department of Justice, for the respondent

[1] See Bundle page 1

[2] See Bundle pages 16 - 92

[3] See Bundle pages 218 - 250

[4]See Exhibits A1, A3 and A4

[5] See Bundle pages 96 - 217

[6] See Bundle pages 251 - 284

[7] As illustrated in Exhibit A3 that contains a sensitive analysis of the two different approaches. However, this sensitive analysis has not included the adjustment for frontage suggested by Mr Cheung.

[8] See §§38-39 of this judgment

[9] See §12 of this judgment; both parties agreed that no adjustment shall be made

[10] See §12 of this judgment; both parties agreed the adjustment be based on an index

[11] See §12 of this judgment; both parties agreed an adjustment rate at 2% for every 1 meter difference

[12] See §§32-33 of this judgment

[13] See §§34-35 of this judgment; an adjustment rate at 1% for every 4m² difference

[14] See §§46-48 of this judgment; an adjustment rate at 2% for every 1 meter difference

[15] See §§40-41 of this judgment; an adjustment rate at 5%

[16] See §§49-51 of this judgment; an adjustment rate at 1% for every 1.5 metres difference

TAI PING RESTAURANT LTD v. DIRECTOR OF LANDS

Related cases with same parties

Files (2)

a. 1st Floor :	$5,056,336
b. 2nd Floor :	$2,558,989
c. 3rd Floor :	$2,603,018
d. Roof :	$291,680

a. Building Age :	1927
b. Effective Saleable Area :	49.19m²
c. Clear Headroom :	4.85 meters
d. Full Site Depth :	14.48 meters
e. Frontage onto Shanghai Street :	3.30 meters (full); 2.76 meters (clear)
f. Frontage onto Hong Lok Street :	4.42 meters (full); 4.19 meters (clear)

a. Building Age :	No adjustment shall be made
b. Headroom :	2% for every 1 meter difference
c. Time Adjustment :	Based on the updated Private Retail Price Index for October 2012
d. Relevant Dates for Time Adjustment :	Based on the dates of provisional agreement for sale and purchase

R1	Its location is far away from Langham Place with different character and trade.
R2 and R3	They are located in a different neighborhood, on the eastern side of Nathan Road and far away from the Mongkok MTR station and Langham Place.
R5	It was transacted much earlier than the valuation date with substantial overall adjustments.

A1	It is a corner shop with an irregular shape and is substantially smaller than the Ground Floor too.
A2	It is located in a prime location with frontage onto Nathan Road.
A3 and A7	They are located in the busiest area in this part of Mong Kok and in the immediate vicinity of Langham Place, where have heavy pedestrian flow.
A4	It is close to an extremely busy pedestrian subway with heavy pedestrian flow.

	Mr Cheung	Mr Lai
Adjustment for clear or full frontage	Full frontage: the columns on the frontage can and should be included in the computation of frontage because they are usually painted with the shop’s colour and to that extent would help to enhance the image of the shop	Clear frontage: (1) the more important element of the frontage of a shop is its clear frontage which allows for access to the shop and space where goods and items may be displayed; (2) since columns may be located in different places on the shop front and may vary in terms of width and prominence, it is desirable for comparison purposes to use clear frontage for the purposes of consistency and uniformity
Adjustment for frontage onto Hong Lok Street	5% upward adjustment	Half of the width of the lot boundary of Hong Lok Street is added to the effective frontage for comparison purposes
Adjustment for depth to frontage ratio	(1) only half of the full site depth is computed; (2) 5% for every 0.4 ratio difference; (3) to account for the difference in depth and regularity of shape	Nil because its inclusion would consider the frontage twice in the assessment. Further, Mr Pao submitted that it defies common sense, has not considered the different weight attached to depth and frontage respectively, and would ignore the need to consider the irregularities in layout
Adjustment rate for frontage	2% for every 1 meter difference	4% for every 1 meter difference
Adjustment for depth	The use of depth to frontage ratio has already accounted for the difference in depth	(1) the depth of the Ground Floor and the comparables are within similar depth range; (2) the adjustment for size differences has already accounted adequately for the depth differences

Subject/ Comparable	A6	R4	R5	Subject
Consideration	$29,700,000	$42,800,000	$57,000,000
Full Frontage (m)[8]	3.25	3.72	4.50	3.30
Depth (m)	9.23	9.14	20.37	14.48
Headroom (m)	4.71	3.70	4.80	4.85
Effective Saleable Area (m²)	30.01	27.62	82.76	49.19
Unit Rate (per m²)	$989,670	$1,549,602	$688,739

Adjustments
(i) Age[9]	0.0%	0.0%	0.0%
(ii) Time[10]	27.7%	2.6%	27.7%
(iii) Headroom[11]	0.3%	2.3%	0.1%
(iv) Location[12]	-5.0%	-10.0%	15.0%
(v) Size[13]	-4.8%	-5.4%	8.4%
(vi) Main Frontage[14]	0.1%	-0.8%	-2.4%
(vii) Second Frontage[15]	5.0%	5.0%	5.0%
(viii) Depth[16]	-3.5%	-3.6%	3.9%

Total Adjustments	19.8%	-9.9%	57.7%
Adjusted Unit Rate (per m²)	$1,185,625	$1,396,191	$1,086,141	$1,222,652
				(average)