Case Detail

LDLR 4/2013

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LANDS RESUMPTION APPLICATION NO 4 OF 2013

_________________

BETWEEN
	ELTRON DEVELOPMENT LIMITED (錦昌發展有限公司)	Applicant
	and
	DIRECTOR OF LANDS	Respondent

_________________

Before: Mr Lawrence PANG, Member of the Lands Tribunal

Date of Hearing: 10 May 2016

Date of Decision: 18 May 2016

_________________

DECISION
(APPLICATION FOR LEAVE TO APPEAL)

_________________

Background

1. This case arises from an application (“the Application”) by the applicant for determination of compensation pursuant to section 10(2)(a) of the Lands Resumption Ordinance, Cap 124 (“the Ordinance”). The Application relates to two subdivided shop units (collectively referred to as “the Property”) on the ground floor of Chung Nam House at Mut Wah Street in Kwun Tong, Kowloon.

2. The Application was opposed and the matter went on trial by this Tribunal with judgment handed down on 21August 2015ordering that:

(1) the respondent do pay the applicant compensation for the Property in the sum of $35,000,000; and
(2) 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.

3. Thereafter, having considered written submissions filed by the parties, the Tribunal handed down a further judgment on 28 January 2016 (“the Further Judgment”) ordering that, in respect of the issue of interest (“the Issue”), interest at Prime + 1% be adopted, with the following consequential orders:

(1)  That the respondent shall pay the applicant interest on the sum of HK$20,764,000 (being the provisional payment made under section 16A of the Ordinance) from the date of reversion (ie 2 June 2012) to the date of payment, at the rate of 1% above HSBC’s prevailing prime rate (ie 6% per annum);
(2)  That the respondent shall pay the applicant interest on the sum of HK$14,236,000 (being the balance of the statutory compensation under the Ordinance) from the date of reversion (ie 2 June 2012) to the date of the Judgment at the rate of 1% above HSBC’s prevailing prime rate (ie 6% per annum) and thereafter at judgment rate until payment;
(3)  That credit be given to the payment of interests previously paid to the applicant (if any).

4. On 24 February 2016, the respondent took out an inter partes Summons for leave to appeal against the Further Judgment in respect of the Issue. In support, the respondent has prepared a draft Notice of Appeal setting out in detail the proposed grounds of appeal and the questions of law arising insofar as the Issue is concerned.

Proposed Grounds of Appeal

5. Section 11(2) of the Lands Tribunal Ordinance provides that:

“Subject to section 11AA and the provisions of any Ordinance relating to appeals from the Tribunal, any party to proceedings before the Tribunal may appeal to the Court of Appeal against a judgment, order or decision of the Tribunal on the ground that such judgment, order or decision is erroneous in point of law.”

6. The grounds of appeal raised by the respondent are that the Tribunal erred in law and in the exercise of its discretion in the determination of interest rate pursuant to section 17(3A) of the Ordinance, the Tribunal:

(1) failed to take into account alternative approach in the determination of rate of interest; and/or
(2) failed to take into account relevant evidence including the rental income of the Property at the time of resumption.

7. In Happy Dragon Restaurant Limited v Director of Lands [2014] 3 HKC 538 (“Happy Dragon2014”), the Tribunal stated:

“37. The Prime + 1% practice (in the absence of evidence to show that this rate is too high or too low) represents a “broad brush” approach to determine what rate of interest is just and appropriate: it would be neither practical nor proportionate (even in a case involving large sums) to attempt a minute assessment of what will precisely compensate the recipient. In particular, the courts do not need to have regard to the rate at which a particular recipient of compensation might have borrowed funds (see Fiona Trust & Holding Corporation vYuriPrivalov [2011] EWHC 664 (Comm)).”

8. More particularly at §36 of the Further Judgment, I referred to the paragraph further down the judgment as follows:

“57. As held in TheHong 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 its 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….” (emphasis added)

9. With respect to Mr Jenkin Suen (“Mr Suen”), counsel for the respondent, those grounds of appeal as put forward above never appeared in his written submissions on 21 December 2015 or in his reply on 18 January 2016 to displace “the presumption”.

10. Mr Benjamin Chain (“Mr Chain”), counsel for the applicant, refers to section 11(2) of the Lands Tribunal Ordinance cited above at §5 that any appeal to the Further Judgment should be limited to point of law. Referring to Flywin Co Ltd v Strong & Associates Ltd (2002) 5 HKCFAR 356 (“Flywin”), Mr Chain submits that as those grounds of appeal as cited at §6 have not been taken before the Tribunal with proper evidence, the leave to appeal should be refused. At §38 of Flywin, Mr Justice Bokhary PJ (as he then was) for the Court of Final Appeal said:

“… What is involved is a general principle. Where a point is taken at the trial, the facts pertaining to it are open to full investigation at the evidence-taking stage of the litigation. That is as it should be. Therefore where a party has omitted to take a point at the trial and then seeks to raise that point on appeal, the position is as follows. He will be barred from doing so unless there is no reasonable possibility that the state of the evidence relevant to the point would have been materially more favourable to the other side if the point had been taken at the trial.”

11. I agree with Mr Chain that the present application for leave to appeal should be refused on this point alone. Nevertheless, as I anticipate the respondent, being charged with the responsibility for undertaking resumption pursuant the Ordinance from time to time, might be raising similar arguments in future, I consider it is opportune to deal with them now.

Failure to Take into Account Alternative Approach

12. Firstly, Mr Suen refers to Komala Deccof & Co SA and Others v Perusahaan Pertambangan Minyak Dan Gas Bumi Negara (Pertamina) [1984] HKLR 219 (“Komala Deccof”). While the Court of Appeal awarded interest at Prime + 1% over a commercial debt withheld by the respondent, Mr Suen submits, by reference to Tate & Lyle Food and Distribution Ltdand Anotherv Greater London CouncilandAnother [1982] 1 WLR 149 which was cited with approval at §20 of the judgment, that:

(1) the rationale for adopting Prime +1% is that it was considered to be “the rate at which plaintiffs in general could borrow money”; and
(2) the court should look at the rate at which plaintiffs with the general attributes of the actual plaintiff in the case could borrow money as a guide to the appropriate interest rate.

13. Then Mr Suen submits that pre-judgment interest should be awarded just to compensate a plaintiff for the return which he could have expected had he invested the amount in question. At this juncture, I am afraid that Mr Suen may have confused himself because what a plaintiff can get as return from his investment is completely different from “the rate at which plaintiffs in general could borrow money” as cited in Komala Deccof. See also §32 below.

14. While Mr Suen acknowledges the position of the courts both in Hong KongIsland Development LtdvThe World Food Fair Ltd & Another (2006) 9 HKCFAR 162 and Happy Dragon2014 on which the Further Judgment was based that Prime +1% was adopted in the absence of any other evidence, he submits there is another line of authorities which adopt or favour a different approach in the award of interest based on changing commercial environment and practice, albeit based on the same rationale to compensate the plaintiff for being kept out of his money. In this latter regard, Mr Suen refers to a report on “Pre-Judgment Interest on Debts and Damages” (“UK Report”) published by the Law Commission in the United Kingdom in 2004 in which it recommended that the interest rate on pre-judgment interest should be set at the Bank of England base rate plus 1% but that the court should have a discretion to depart from such rate for good reasons.

15. Mr Suen then refers to Revenue and Customs Commissioners v Royal Society for the Prevention of Cruelty to Animals [2006] EWHC 422 (Ch) and Libertarian Investments Limited v Thomas Alexej Hall (2013) 16 HKCFAR 681 (“Libertarian Investments”) in which this English base rate + principle was followed.

16. More particularly, Mr Suen relies on Waddington Limited v Chan Chun Hoo Thomas (No 2) [2014] 4 HKC 356 (“Waddington”) and points out that Recorder Patrick Fung SC (as he then was) referred to Chan Pak Ting v Chan Chi Kuen [2013] 1 HKLRD 634 and Chan Pak Ting v Chan Chi Kuen (No 2) [2013] 2 HKLRD 1 in which Bharwaney J considered the substantial downturn in economic landscape in Hong Kong since 1996 which resulted in a constant state of low interest rates and worked out a series of new discount rates on a much lower scale in personal injuries cases. Recorder Fung SC proceeded to rely on Libertarian Investments and the UK Report and held as follows:

(1) The current UK base rate is 0.5%, the current 12-month HIBOR is 0.87% and the current prime rate in Hong Kong is 5%. The interest rates in Hong Kong have steadily been at low level for the past decade or more. There is no longer justification for adopting the conventional figure of prime plus 1% for pre-judgment interest on judgment sums.
(2) It is not necessary in the present case for any further evidence or submissions to be received on this aspect, and the court has come to the conclusion that adopting a figure of 2.5% per annum will do justice between the parties.

17. Therefore, Mr Suen submits that this Tribunal ought to have taken into account the above alternative approach and awarded interest at the rate of (a) the Bank of England base rate plus 1% (ie 1.5% per annum)[1], (b) 2.5% per annum (as adopted in Libertarian Investments and Waddington), or (c) such other appropriate rate as the Tribunal deems fit.

18. With respect, I am not persuaded that a local real estate investor like the applicant can be readily accessible to borrowing in terms of the Bank of England base rate in the absence of evidence. It simply cannot be assumed that a local real estate investor is also a sophisticated trader in the money market exposing himself/herself to unnecessary exchange rate risk in borrowing in foreign currency. In any event the interest rates pertaining in the United Kingdom bear no direct relationship with the interest rates applicable in Hong Kong. Even covered interest rate parity by use of forward contracts to cover (eliminate exposure to) exchange rate risk cannot always hold due to the effects of various risks, costs, taxation, and ultimate differences in liquidity of domestic and foreign assets.

19. In the above regard, Libertarian Investments is readily distinguished because all along in that case the currency in which the funds misappropriated were in British pound whereas in the present case the Property resumed has been traded in the local currency. Similarly, I find no reason to follow Waddington in which proceedings were in the nature of a multiple derivative action brought by a minority shareholder in a parent company (“Playmates”), a company incorporated in Bermuda and listed on the Stock Exchange of Hong Kong, for wrongs allegedly done to and damage suffered by the parent company’s indirectly via another wholly-owned subsidiary, also a BVI incorporated company. It is noted that Playmates’ core activities are in the creation, design, marketing and global distribution of branded toys, ie it is engaged in businesses in the global sphere. Again, the applicant in the present case is a mere local real estate investor.

20. As rightly conceded by Mr Suen, however, Deputy High Court Judge Eugene Fung SC (“Mr Fung”) was faced with a similar issue in Wan Chi Hing v Strong Master Corporation Limited, HCA 1554 & 1555/2013 (unreported, dated 8 December 2015) (“Wan Chi Hing”). At §§24-25 of the judgment, Mr Fung stated:

“24. It is unclear to me from To J’s judgment what evidence was adduced by the defendant in that case to support the departure from the “prime plus 1%” practice. To J did not regard the authorities cited by the defendant as representing a departure from the principles in Komala as approved by the Court of Final Appeal in Polyset. It seems to me that there must have been some evidential basis for To J to come to 2.85% as the pre‑judgment interest rate in the case.
25. In the present case, no evidence has been adduced by Strong Master to show that there is some other rate which is more appropriate than the conventional “prime plus 1%”. The citation of Tadjudin is not sufficient for this purpose because, as I said earlier, it is not clear to me what evidence was laid before To J for him to arrive at 12‑month HIBOR + 2%, or 2.85%.”

21. I fully agree with Mr Fung[2].

22. Mr Suen further submits that his argument is reinforced by section 17(3B) of the Ordinance which provides for the fixing of the interest rate, being:

“(a) in respect of a working day must not be lower than the lowest of the interest rates paid on deposits at 24 hours’ call by note-issuing banks at the close of business on that day; and
(b) in respect of a non-working day must not be lower than the lowest of the interest rates paid on deposits at 24 hours’ call by note-issuing banks at the close of business on the last working day before that day.”

23. Although on proper construction, this provision does not mean that the minimum rate of interest as set out therein should be adopted unless the applicant could establish a good reason, Mr Suen suggests that the provision does contemplate that “interest rates paid on deposits” may be appropriate in at least some of the time.

24. I trust this point has been adequately dealt with in the Further Judgment at §§37-38. There was simply no evidence for me to displace the adoption of interest at Prime +1%.

Failure to Take into Account Relevant Evidence

25. For the second ground of appeal, Mr Suen refers to however §55 of Happy Dragon2014 where the Tribunal said:

“In order to compensate the applicant fully and fairly, we agree with the applicant that the investment approach is more appropriate in the circumstances of the applicant’s case. Without the use of the compensation money, the applicant would either need to borrow the money from a bank or suffer the loss of the return from the use of the money in making investments…..”

26. Then, Mr Suen submits the cost of borrowing is not necessarily the only appropriate measure for all cases, and the return on the deposit of the compensation money (which is a form of return on investment) may also be appropriate in some circumstances. Mr Suen suggests the Tribunal could ask what is “the loss of return the applicant has suffered from being deprived of the use of the money for making investments”.

27. Mr Suen theorizes the situation where a landowner like the applicant whose property had, prior to the resumption, been rented out to a tenant, the loss of return on such investment would have been the rental income lost to the land owner before he received the compensation money. Under the “investment approach”, the cost of borrowing the compensation money would be less appropriate. This is because borrowing by itself does not confer on the applicant any investment return. It is the use to which the borrowed money is put that produced such benefit.

28. Further or alternatively, but for the fact that the applicant has been kept out of money, he could have used the compensation money to acquire a substitute property of the same value. Assuming that the return of the investment is similar, his loss of return on such replacement investment would have been the rental income lost to the land owner.

29. Then Mr Suen suggests that there was evidence before the Tribunal that the Property was subject to a tenancy agreement yielding a rental income of $100,000 per month for a period of two years from 1 October 2010 to 30 September 2012. In the midst of such tenancy agreement, the Property was resumed by the Government on 2 June 2012. Based on annual rental income at $1,200,000, the rate of return would have been $1,200,000 divided by $35,000,000 (ie the market value of the Property as determined by the Tribunal) that is equal to 3.43% per annum.

30. Therefore, Mr Suen argues that the applicant’s return on investment would only have been around 3.43% per annum. An award of 6% per annum by the Tribunal would, on such basis, constitute a windfall to the applicant to the tune of around 6% - 3.43% = 2.57% per annum.

31. I cannot agree with Mr Suen.

32. Firstly, I would like to point out that when Mr Suen cited §55 of Happy Dragon2014, he had taken out words out of the context. The last sentence of the paragraph states clearly that:

“Using the “broad brush” approach in the long established practice as discussed above, the interest rate of Prime + 1% does represent the theoretical cost to the applicant of borrowing the compensation money withheld by the respondent.”

The word “or” in front of “suffer the loss of the return from the use of the money in making investments…..” refers to the consequence of not borrowing money from a bank rather than an alternative.

33. On the other hand, “the loss of the return from the use of the money in making investments” refers not to a single rate of return but a cost of capital, as it is sometimes called, which varies depending on the quality of the investment which comprises a function of a risk free opportunity cost, expected income and capital growth, liquidity, operating expenses, psychic income, risk and other factors pertaining to the investment. For instance, the higher the expectation of income and/or capital growth, the more an investor is prepared to pay for the investment, ceteris paribus and, as an consequence, the initial yield the investor is prepared to accept is lower. In any event, however, the investor would not commit to a particular investment if his total expected return would not be higher than his cost of borrowing, ie the expected return, or cost of capital should be higher than the cost of borrowing.

34. In addition to the above, I find Mr Suen’s argument wholly misconceived. It is basic property valuation principle or Finance 101 that the initial rental or the yield derived therefrom of a property (an investment) does not represent the total required return from the property. For a current income flow, say rental of C₀ per period being expected for n periods, the value, or more properly, the present value P₀ is:

Current rental C₀
YP @ i for a period n YP factor
Market Value P₀
where i is the initial yield³

This can be expressed as

so that if n becomes too large or approaches infinity,

35. However, this initial yield, i, incorporates a series of implicit measurements of expected income and capital growth. In real life or alternatively if a constant growth element, g, is explicit or expected in the cash flow for a required return of r, so that

where C₂ = C₁ (1+g), C₃ = C₁ (1+g)², etc., the equation above can be reduced to

by the Gordon growth model.

36. Where

Therefore, r – g = i (1 + g)

or r = i + ig + g
or r ≈ i + g
or r ≈ r – g⁴ (or if C₁ = C₀, i = r – g at the first instant)

37. In other words, the initial yield of 3.43% suggested by Mr Suen is just a function of the required return less the expected income growth during the holding period of the investment so that the true rate of return expected should be much higher.

38. By reference to the private retail price index published by the Rating and Valuation Department, for a period of 10 years prior to March 2012, the private retail price had increased from 83.5 to 375.6 or an annual growth at about 16.5%. And since March 2012 until March 2016, the index has increased from 375.6 to 513.5 which is equivalent to an annual growth at about 8%.

39. Therefore no matter the expected growth rate as at the date of resumption was 16.23% or 8.13%, the return of the Property should be:

(1) 3.43% + 16.23% = 19.66% or
(2) 3.43% + 8.13% = 11.56%.

I am sure that Mr Suen is not suggesting the respondent is prepared to pay interest to the applicant at either 19.66% or 11.56% when he refers to “the loss of the return from the use of the money in making investments”.

40. Thus, more often than not, this initial yield is only regarded as a unit of comparison used to value property investment instead of the actual return from the property investment.

41. It is highly regretted that the respondent, being charged with a government department endowed with a wealth of valuation expertise, has missed such an elementary concept in property valuation when giving instructions to counsel.

Leave to Appeal being Refused

42. According to section 11AA(6) of the Lands Tribunal Ordinance,

“Leave to appeal shall not be granted unless the Tribunal, the Court of Appeal or the registrar hearing the application for leave is satisfied that—
(a) the appeal has a reasonable prospect of success; or
(b) there is some other reason in the interests of justice why the appeal should be heard.”

43. Towards the end of his submission, Mr Suen concedes that the Tribunal committed no error in law in awarding interest at Prime +1%. He simply likes to point out that there are conflicting authorities between the traditional and alternative approaches in the award of interest. It is in the interest of justice that the matter be considered by the Court of Appeal to resolve the conflict and clarify the position.

44. With respect, I do not find indeed there are conflicts at all. For instance, by virtue of Happy Dragon2014 or even Wan Chi Hing, the Prime +1% is just a presumption that can be displaced by evidence. The Tribunal is ready and willing to consider evidence when they are available. However as pointed out by the Court of Appeal in Komala Deccof at §14 thereof:

“The onus of showing what is exceptional rests on the losing party.”

45. Further at §15, the Court of Appeal said:

“…… the award of interest is a matter of discretion ….”

46. In this regard, Mr Chain refers to CLP Power Hong Kong Limited v Commissioner of Rating and Valuation, HCMP 3207/2015 (unreported, dated 14 March 2016). Although in this particular case, the Court of Appeal was dealing with an application for leave to appeal against an order for cost instead of interest rate, Mr Chain submits that the same principle applies. At §5 of the judgment, the Court of Appeal had the following to say:

“(a)  It is well established that this court will not interfere with the costs decision of a lower court unless it can be shown that the lower court has erred in principle or its decision was plainly wrong…
…
(d)  Quite obviously, the Tribunal had exercised its discretion bearing in mind the success of CLP as well as …
(e)  In substance, CLP tried to invite this court to come to a different view on how the discretion should be exercised. As explained in the cases cited above, this is not a proper approach.”

Conclusion

47. Having regard to the above, I decide that the respondent’s appeal has no reasonable prospect of success, and the respondent failed to satisfy that there is some other reason “in the interests of justice” why the appeal should be heard.

48. As the application for leave to appeal is refused, I shall make an order for costs that costs should follow the event, to be taxed at High Court scale if not agreed.

49. My order is as follows:-

(1) the respondent’s application for leave to appeal be dismissed;
(2) the respondent do pay the applicant costs of the application for leave to appeal, with certificate for counsel, to be taxed at High Court scale if not agreed.

	Mr Lawrence PANG
	Member
	Lands Tribunal

Mr Benjamin Chain, instructed by Lui & Law, for the applicant

Mr Jenkin Suen, instructed by Department of Justice, for the respondent

[1] The Bank of England base rate has been at 0.5% per annum since March 2009.

[2] Once again, I find Tadjudin should be distinguished as well as the plaintiff in that case was employed by Bank of America as an analyst at the level of vice president and paid with denomination in US currency.

[3] In North America the term is more often called ‘capitalization rate’ whilst in Commonwealth areas the term is also referred to as ‘all risks yield’.

[4] See also, Andrew Baum, Real Estate Investment: A Strategic Approach, 3^rd Edition (2015), para 4.4.2; Peter Wyatt, Property Valuation, 2^nd Edition (2013), para 4.3.1.; Sheridan Titman & John D Martin, Valuation:The Art and Science of Corporate Investment Decisions, 3^rd Edition (2015), pp 264-266.

LDLR 4/2013

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LANDS RESUMPTION APPLICATION NO. 4 OF 2013

_________________

BETWEEN
	ELTRON DEVELOPMENT LIMITED	Applicant
	(錦昌發展有限公司)
	and
	DIRECTOR OF LANDS	Respondent

_________________

Before: Mr. Lawrence PANG, Member of the Lands Tribunal

Dates of Filing of Written Submissions by Applicant and Respondent: 21 December 2015

Further Reply of the Parties: 18 January 2016

Date of Decision: 28 January2016

_________________

D E C I S I O N

_________________

Background

1. The application by the applicant for determination of compensation pursuant to 10(2) (a) of the Lands Resumption Ordinance, Cap 124 (“the Ordinance”) was heard by this Tribunal with judgment handed down on 21August 2015 (“the Judgment”). The background of this case can be found in the Judgment and I am not going to repeat here.

2. In the Judgment, it is ordered that :

(1) the respondent do pay the applicant compensation for the Property in the sum of $35,000,000 (“the Compensation”); and
(2) 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 (§86 of the Judgment).

3. By way of a consent order, parties agreed for the issue of professional fees, interest and costs (“Outstanding Issues”) to be dealt with by way of paper application. This is my ruling on the Outstanding Issues.

Professional Fees and Costs

4. Section 6(2A) of the Ordinance provides that:

“Where, in the case of land resumed under an order made under section 3 on or after the commencement of the Crown Lands Resumption (Amendment) Ordinance 1984 (5 of 1984), an offer of compensation is made or a claim for compensation is submitted to or by any person under this section, such offer may provide for the payment by the Authority to that person of, or such claim may include a claim for, any costs or remuneration reasonably incurred or paid by him in employing persons to act in a professional capacity in connection with such offer or claim.”

5. Further, section 10(2)(e)(ii) provides that the Tribunal shall determine the compensation payable on the basis of “the amount of any costs or remuneration mentioned in sections 6(2A) and 8(4).”

6. On the other hand, the respondent submits a wealth of authorities, including KJ v KMLM, HCMC 4/2010 (unreported, dated 21 May 2014) and Pfeiffer v Cheung Hay Kit, CACV 245/2013 (unreported, dated 29 October 2014) suggesting that a Court (which according to the respondent includes the Tribunal) should be more ready to take an issue-based approach and depart from the general rule that costs will follow the event.

7. In this regard, the respondent may have lost sight of the judgment of the Court of Appeal in Good Faith Properties Limited & Others v Cibean Development Company Limited [2014] 5 HKLRD 534 which has reviewed the “the compensation approach” and emphasized at the beginning of §27 that “(i)n compulsory acquisition cases, the general approach on costs is that it should not be dealt with in the same manner as ordinary hostile litigation.”

8. The judgment then cited several paragraphs of the judgment of Potter LJ in Purfleet Farms Ltd v Secretary of State for Transport, Local Government and the Regions [2003] 1 P & CR 20 as follows:

“29 … the costs of a successful claimant (i.e. a claimant who is awarded more than the amount of an unconditional offer by the respondent) should be that he is entitled to his costs incurred in the proceedings in the absence of some “special reason” to the contrary … special reasons should only be regarded as established where the Tribunal considers that an item of costs incurred or an issue raised was such that it could not on any sensible basis be regarded as part of the reasonable and necessary expenses of determining the amount of the disputed compensation…
…
36 … exaggeration alone is not enough in the event of a large disparity between the sum claimed and the sum awarded. The matters to which the Tribunal should have regard are (a) the reasons for that disparity, and (b) their effect upon the conduct of the claim. As to (a), if the reasons are defensible, in the sense that there was a legitimate, albeit unsuccessful, argument put forward in support of the figure concerned, there can be no good reason to regard the claim as exaggerated in the pejorative sense necessary to justify a sanction in costs. …
37 … if the amount of the “exaggerated” claim is based on the valuation, opinion and evidence of the claimant’s expert witness, it will rarely be appropriate in my view to make an adverse costs order against the successful claimant. Valuation is an inexact science …
38 … in such cases, disallowance of a proportion of the claimant’s costs will usually only be justified where the Tribunal is satisfied that (a) no competent valuer could reasonably have regarded the comparable as of real relevance or assistance in the valuation exercise; (b) as a result of its introduction and discussion, a significant amount of the Tribunal’s time has been wasted and the proceedings unduly prolonged; (c) no equivalent or near equivalent proportion of the proceedings has been spent dealing with issues unreasonably and unsuccessfully raised by the respondent; (d) the amount or proportion of the costs disallowed is proportionate to the time wasted.”

9. There is no dispute that the award of the Compensation in the sum of $35,000,000 exceeds the last offer by the Government on 18 December 2013 in the amount of $24,097,000 by a significant margin. In comparison, the expert on behalf of the applicant, Ms Sat Wei Ling (“Ms Sat”), upon trial, revised her valuation both on the 2-shop basis and on the 1-shop basis to $46,200,000 and $39,020,000[1] respectively. See §11 of the Judgment.

10. Here the respondent takes issue that the applicant failed to persuade the Tribunal that the Property should valued on a 2-shop basis as opposed to a 1-shop basis. Despite that, I do not consider this a “special reason” that would justify a departure from the “the compensation approach” that the applicant be entitled to its costs and professional fees.

11. Moreover, in Emslie & Simpson Ltd v Aberdeen District Council (No. 2) [1995] RVR 159; [1995] SC 264, Lord Morison of the Court of Session of Scotland said at §25 that:

“In most cases however it is perfectly reasonable that, having been put to the expense of establishing a right which has been disputed, a claimant should put forward hisclaim on the maximum basis which he can reasonably support and should be entitled to the expenses of doing so if he is successful in the general assertion of his right.” (emphasis added)

12. Even the respondent acknowledges in its submission that the Tribunal proceeded initially with the determination of the market value of the Property on the 2-shop basis. Although the Tribunal did not adopt the 2-shop approach in the end, it was only through a comparison with the 1-shop basis that it found in §79 of the Judgment that “the difference between the 2-shop basis and the single-shop basis is not significant … but here I find the demand for mini-shops is not dominant.” The Tribunal did not suggest that the 2-shop basis is wholly without statutory basis or generally wrong in principle.

13. To the extent that the respondent refers to the comparables put forward by Ms Sat on the 2-shop basis were not suitable, this is not entirely correct as the Tribunal adopted comparable A1.1 in the determination of the compensation payable. In contrast, most of the comparables put forth by Ms Sat on the 1-shop basis were adopted and provided a strong support of the valuation in the end.

14. The respondent also suggests that the Tribunal had rejected Ms Sat’s adjustment for layout. This is misconceived. At §44 of the Judgment, the Tribunal stated: “… On the other hand, as this comparable has a depth as much as 10 metres or thereabouts whereas the Property has only 4.91 metres, I agree with the adjustment of 4% for layout proposed by Ms Sat. Such adjustment was also conceded by Mr Faulkner during cross-examination.”

15. What the Tribunal was not satisfied was the indiscriminate application of Ms Sat’s adjustment on size at 1% per 1 sq m difference because “the embarrassing result occurs only when too much emphasis is placed on the adjustment for frontage”. In this regard, the respondent should have realised that this “adjustment for frontage” at +/- 4% per 1 m difference was agreed by both experts instead of being proposed by Ms Sat alone. In any event, “valuation is an inexact science” and I do think it is fair for the respondent to take issue on that as regards either professional fees or costs.

16. It is however correct that the Tribunal had held against the application of the return frontage by Ms Sat but I consider that the applicant had a legitimate reason for putting forward such an argument, albeit unsuccessful. The applicant was entitled to, legally speaking, the return frontage; it was only the finding of the Tribunal that the enjoyment of the return frontage if there were no resumption was remote and its value enhancement should be disregarded on the basis of market value. See §33 of the Judgment. This should not be taken as a good reason to regard the claim as exaggerated in the pejorative sense necessary to justify a sanction in costs or professional fees.

17. All in all, the applicant has been awarded more than the amount of an unconditional offer by the respondent and there is no special reason why it should not be entitled to his costs incurred in the proceedings.

18. Likewise, the respondent should pay the applicant the professional remuneration reasonably incurred by the applicant in, for instance, employing Ms Sat in this application.

Interest

19. Section 17(3) of the Ordinance provides that:

“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) …”

20. Under section 17(3A) of the Ordinance, the rate of interest “shall be such rate as the Lands Tribunal may fix”.

21. Section 17(3B) of the Ordinance further provides for the fixing of the interest rate, being:

“(a) in respect of a working day must not be lower than the lowest of the interest rates paid on deposits at 24 hours' call by note-issuing banks at the close of business on that day; and
(b) in respect of a non-working day must not be lower than the lowest of the interest rates paid on deposits at 24 hours' call by note-issuing banks at the close of business on the last working day before that day.”

22. The applicant submits that the correct interpretation of section 17 of the Ordinance is as that of the Court of Appeal’s decision in Happy Dragon Restaurant Limited v Director of Lands (No 2) [2013] 3 HKC 287, and the subsequent decision of the Tribunal in Happy Dragon Restaurant Limited v Director of Lands [2014] 3 HKC 538 (“Happy Dragon”) . In respect of the latter, the Tribunal observed (at 550C-D) that:

“However, the “broad brush” approach in awarding interest rate at Prime + 1% in the absence of any other evidence may still be relevant for our consideration, as it may well represent an amount that could compensate the applicant fairly and fully for being kept out of the money in accordance with the principle of equivalence.” (emphasis added)

23. The Tribunal then went on to accept Prime +1% as the interest rate to be adopted until judgment and thereafter at judgment rate until payment. The applicant submits that the Tribunal should follow suit in the present application.

24. Furthermore, the applicant refers to The World Food Fair Ltd & Another v Hong Kong Island Development Ltd, FACV 6/2006 (unreported) where Ribeiro PJ of the Court of Final Appeal, after referring to the Determination on interest and costs in Polyset Ltd v Panhandat Ltd, FACV 28/2000 (unreported, dated 25 April 2002), said at §12:

“There is no reason in this case to depart from the usual practice and accordingly the applicable rate of interest should be 1% above the HSBC best lending rate from the date of each relevant payment until judgment.”

25. The respondent however refers to, for instance, section 16A(3) of the Ordinance to which section 17(3) is subject. This section provides that:

“(1) Where, in the case of land resumed under an order made under section 3 on or after the commencement of the Crown Lands Resumption (Amendment) Ordinance 1984 (5 of 1984), any offer of compensation made by the Authority to any person under this Ordinance in respect of any claim is not accepted, the Authority may, pending the determination by the Lands Tribunal of the compensation, if any, payable in respect of such claim under this Ordinance, pay-
(a) an amount as a provisional payment of the amount payable by virtue of such determination; and
(b) interest on any payment made under paragraph (a), for the period from the date on which the land reverts to the Government under section 5, until the date on which the payment is made, calculated on a daily basis according to subsection (1A).
(1A) For the purposes of subsection (1)(b), the rate of interest paid-
(a) in respect of a working day must not be lower than the lowest of the interest rates paid on deposits at 24 hours' call by note-issuing banks at the close of business on that day; and
(b) in respect of a non-working day must not be lower than the lowest of the interest rates paid on deposits at 24 hours' call by note-issuing banks at the close of business on the last working day before that day.
(2) Any payment made by the Authority under subsection (1) in respect of any claim shall be without prejudice to the claim or the submission thereof to, or the determination thereof by, the Lands Tribunal under this Ordinance; but the amount of compensation payable by virtue of such determination in respect of such claim shall be reduced by the amount of such payment.
(3) 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 made 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.
…..”

26. The respondent refers to particularly an “Agreement as to Provisional Payment of Compensation and Indemnity in respect of Undivided Share in Land Resumed” (“the Agreement”) entered into between the parties on 14 December 2012. Pursuant to the Agreement, the respondent had paid a provisional payment in the amount of $20,764,000 on even date. Hence, the applicant can only claim interest on the reduced balance of compensation, ie $35,000,000 - $20,764,000 = $14,236,000.

27. The respondent emphasizes that by virtue of the Agreement the respondent accepted the provisional payment “under section 16A of the Ordinance in respect of the value of the undivided share resumed and assessed in accordance with the Ordinance (bearing interest at such rate as shall be determined by the Director having regard to the lowest rate offered from time to time by the three note-issuing banks in Hong Kong on their 24 hours’ call deposits for the period from the date of resumption …)”[2] The respondent concedes that the latter wordings in the parenthesis is equivalent to the rate of interest under section 17(3B)

of the Ordinance.

28. Further, the respondent submits that under Clause 2(iii) of the Agreement, the applicant irrevocably authorizes the respondent to deduct the provisional payment and any interest later paid thereon from any award of compensation and interest which may be made to it by the Tribunal. More particularly, the respondent refers to the following clauses of the Agreement whereby the applicant undertakes:

(a) in the event that the provisional payment together with any interest later paid thereon exceed the amount of statutory compensation and interest determined by the Tribunal, to repay on demand to the Government the amount of such excess;[3] and
(b) to pay or repay to the respondent upon demand by the respondent the sum(s) paid to it under the Agreement together with interest thereon in the event that the provisional payment and the interest have been wrongly paid to it in any circumstances, with the interest payable to be at the lowest rate offered from time to time by the note-issuing banks in Hong Kong on their 24 hours’ call deposits from the date or dates of payment by the respondent under the Agreement to the date of payment or repayment by it.[4]

29. By reference to the above, the respondent submits that:

(a) The interest payable on the provisional payment from the date of resumption to the date of payment was calculated on
the lowest 24-hour call deposit rate paid by the 3 note-issuing banks.
(b) If there was any excess of payment, the applicant needs only repay the excess to the Government without interest.
(c) Even if there be any provisional payment advanced to the applicant by mistake or wrongfully, the applicant needs only pay interest at the rate calculated on the lowest 24-hour call deposit rate paid by the 3 note-issuing banks.

Therefore, the consideration of fairness, equality and mutuality would suggest that, in the event that amount of statutory compensation exceeds the provisional payment, the Government should similarly be called upon to pay interest at the same rate, ie the lowest 24-hour call deposit rate paid by the 3 note-issuing banks.

30. While there is force in the above arguments, I do not agree that the applicant is bound by the Agreement to receive interest at the rate calculated on the lowest 24-hour call deposit rate paid by the 3 note-issuing banks.

31. I agree firstly with the applicant’s reply that what is cited in §27 above is merely a preamble to the Agreement which cannot be taken as an operative part of the agreement in itself. Secondly the preamble provides that “… bearing interest at such rate as shall be determined by the Director having regard to the lowest rate …” instead of “at the lowest rate”.

32. The modern approach on construction of contractual provisions should not be in dispute. The requirements for implying a term into a written contract were set out by Lord Simon in BP Refinery (Westernport) Pty Ltd v President, Councillors and Ratepayers of Shire of Hastings (1978) 52 ALJR 20 at 26D:

“Their Lordships do not think it necessary to review exhaustively the authorities on the implication of a term in a contract which the parties have not thought fit to express. In their view, for a term to be implied, the following conditions (which may overlap) must be satisfied : (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that “it goes without saying”; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.

33. This statement was applied by Ribeiro PJ of the Court of Final Appeal in KenslandRealty Ltd v Whale View Investment Ltd (2001) 4 HKCFAR 381 at §59.

34. Thus, for a term to be implied, it is not enough that the court considers the term to be one that is reasonable or equitable for the parties to agree on. It must be “necessary” in the sense that the court must be satisfied that it is what the contract actually means[5]. As the respondent concedes, the applicant’s acceptance of the Agreement would be without prejudice to its claim for compensation under the Ordinance and the payment of interest would be equivalent to the rate of interest under section 17(3B) of the Ordinance.[6] No reciprocity would be necessarily implied for receiving interest at the lowest 24-hour call deposit rate paid by the 3 note-issuing banks only because (i) if there was any excess of payment, the applicant needs only repay the excess to the Government without interest or (ii) if there be any provisional payment advanced to the applicant by mistake or wrongfully, the applicant needs only pay interest at the rate calculated on the lowest 24-hour call deposit rate paid by the 3 note-issuing banks.

35. Even if I am wrong in this regard, I note the applicant, as an affected owner in land resumption, was required to sign the Agreement in the form prescribed by the respondent before it was allowed to accept the provisional payment. In interpreting the Agreement, therefore, I would invoke the contra proferentem rule of construction (§14-009 of Chitty on Contracts) so that the applicant is still entitled to the interest payment under section 17(3B) of the Ordinance in spite of the other terms which may render a contrary suggestion.

36. In spite of the above, it does not necessarily follow that Prime +1% should be the interest rate as suggested by the applicant. The Tribunal in Happy Dragon found at §57 of the judgment that:

“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 its 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”

37. In consideration of the interest rate, therefore, I should pay regard to whether the respondent’s contention of the unreasonable behaviour of the applicant tends to displace the presumption of awarding interest at Prime +1% and the minimum rate stated in section 17(3B) of the Ordinance should be adopted instead.

38. Nevertheless, as I have explained in §§9-17 above, I do not find any fault of the applicant that may justify the displacement of this presumption and thus, interest at Prime +1% should be adopted.

Conclusion

39. Having regard to the above, I accede to all the reliefs sought by the applicant as regards the Outstanding Issues.

Orders

40. Accordingly, I order that:

(1) That the respondent shall pay the applicant the professional remuneration reasonably incurred by the applicant by virtue of section 6(2A) and 10(2)(e)(ii) of the Ordinance, ie the professional remuneration of Ms Sat Wei Ling, expert for the applicant, with the amount to be determined by the Tribunal if not agreed;
(2) That the respondent shall pay the applicant interest on the sum of HK$20,764,000 (being the provisional payment made under section 16A of the Ordinance) from the date of reversion (ie 2 June 2012) to the date of payment, at the rate of 1% above HSBC’s prevailing prime rate (ie 6% per annum);
(3) That the respondent shall pay the applicant interest on the sum of HK$14,236,000 (being the balance of the statutory compensation under the Ordinance) from the date of reversion (ie 2 June 2012) to the date of the Judgment at the rate of 1% above HSBC’s prevailing prime rate (ie 6% per annum) and thereafter at judgment rate until payment;
(4) That credit be given to the payment of interests previously paid the applicant (if any); and
(5) That the respondent shall pay the applicant’s costs of this application (including all costs reserved together with this application) together with Certificate for Counsel, to be taxed on High Court Scale on party and party basis if not agreed.

	Mr. Lawrence PANG
	Member
	Lands Tribunal

Ms Jo C W Siu, instructed by Messrs Lui & Law, for the applicant

Mr Jenkin Suen, instructed by the Department of Justice, for the respondent

[1] In her supplemental expert report dated 14 July 2014, Ms Sat assessed it as $35,067,000.

[2] See Recital (d) of the Agreement.

[3] See Clause 2(iv) of the Agreement.

[4] See Clause 2(v) of the Agreement.

[5] Recently in Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Limited and another [2015] UKSC 72; [2015] PLSCS 341, the United Kingdom Supreme Court refined, at §21, that “a term can only be implied if, without the term, the contract would lack commercial or practical coherence.”

[6] See Recital (d) of the Agreement.

LDLR 4/2013

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LANDS RESUMPTION APPLICATION NO. 4 OF 2013

_________________

BETWEEN
	ELTRON DEVELOPMENT LIMITED	Applicant
	(錦昌發展有限公司)
	and
	DIRECTOR OF LANDS	Respondent

_________________

Before: Mr. Lawrence PANG, Member of the Lands Tribunal

Date of Trial: 18-21 May and 6 August 2015

Date of Inspection of Comparables: 18 May 2015

Date of Judgment: 21 August 2015

_________________

J U D G M E N T

_________________

Background

1. This is an application by the applicant for determination of compensation pursuant to section 10(2)(a) of the Lands Resumption Ordinance, Cap. 124 (“the Ordinance”). The applicant is the former registered owner of a property comprising as (1) Shop IA (“Shop IA”) on Ground Floor of Chung Nam House, Nos 79-91 Hip Wo Street and Nos 50-58 Mut Wah Street, Kowloon, Hong Kong (“the Building”) and (2) Shop IB (“Shop IB”) on Ground Floor of the Building both registered in the Land Registry as Kwun Tong Inland Lot No 337 (“the Lot”).

2. Shop IA and Shop IB used to be a single shop unit as registered in the Land Registry as Shop I on Ground Floor of the Building (“Shop I”). By an agreement for sale and purchase registered in the Land Registry with memorial no UB 7034801 (“the Agreement for Sale and Purchase”), Shop I was purported to be sold to Mr Lai Chik Kun Michael (“Mr Lai”), a director of the applicant. Later, by a nomination agreement dated 8 October 1997, Mr Lai’s interest in Shop I was transferred to the applicant.

3. Then by a Deed of Partition dated 13 May 2011 registered in the Land Registry with memorial no 11072101680013 (“the Deed of Partition”), Shop I was partitioned into Shop IA and Shop IB (hereinafter collectively referred to as “the Property”).

4. By a notice of resumption dated 13 February 2012 and published in GN 1296, the Government informed the applicant that the Property would be resumed for implementation of the First Phase of the Kwun Tong Town Centre – Main Site Development Scheme by the Urban Renewal Authority after the expiration of 3 months from the date of the affixing of the notice. The notice of resumption was affixed to the Property on 2 March 2012 and therefore the Property reverted to the Government at midnight on 2 June 2012.

5. The applicant received from the Government the offer of $21,532,000 dated 22 June 2012, which includes the value of the Property at $20,764,000. On or about 18 December 2013, the Government increased the offer to $24,097,000 in full and final settlement of all claims arising out of the provisions of the Ordinance or otherwise arising out of the resumption of the Property.

6. The applicant did not accept the offer. On 27 December 2013, the applicant filed a Notice of Application to Determine Compensation for Land Resumed under the Ordinance requiring the Lands Tribunal to determine the amount of compensation payable in respect of the resumption of the Property.

7. The applicant and the respondent have no dispute that under 10(2)(a) of the Ordinance, the basis of compensation should be the market value of the Property as at the date of resumption, ie 2 June 2012. They further agreed that the compensation should be determined on the basis of vacant possession despite the Property was subject to a tenancy with some 4 months unexpired as at the date of resumption. However, they cannot agree at the quantum. This leads also to the question on whether the market value of the Property should be determined on a 2-shop basis and/or 1-shop basis. This is dealt with first under the captioned trial before the amount of interest and professional fees under section 17(3) and 10(2)(e)(ii) respectively of the Ordinance being also claimed by the applicant could be settled.

The Evidence

8. Ms Jo CW Siu (“Ms Siu”) appears for the applicant and Mr Jenkin Suen (“Mr Suen”) appears for the respondent for the purpose of the present application.

9. On behalf of the applicant, Ms Sat Wei Ling (“Ms Sat”) produced an expert report on valuation dated 14 May 2014 assessing the market value of the Property on the basis of 2 shops in the total sum of $45,210,000 whereas Mr David Nicholas Faulkner (“Mr Faulkner”), on behalf of the respondent, produced an expert report on valuation dated 13 May 2014 assessing the market value of the Property on the basis of single-shop in the sum of $23,075,000.

10. As a fallback, Ms Sat produced a supplemental expert report dated 14 July 2014 assessing the market value of the Property on the basis of 1 shop in the sum of $35,067,000. Mr Faulkner also produced a supplementary expert report dated 10 July 2014 focusing however only on comments on Ms Sat’s valuation of 14 May 2014. He maintained his valuation of the Property at $23,075,000 as at 2 June 2012.

11. In addition, Messrs Sat and Faulkner have prepared a joint statement dated 11 May 2015 (“the Joint Statement”) setting out the areas of agreement and disagreement basically on the particulars of the Property and the comparables to be referred to by the experts. Whereas Ms Sat has revised her valuation both on the 2-shop basis and on the 1-shop basis to $46,200,000 and $39,020,000 respectively, Mr Faulkner, in addition to revising his 1-shop valuation to $23,150,000, produced an alternative valuation on 2-shop basis at $21,260,000.

Particulars of the Property

12. The Building, completed in 1965 with 9 storeys, was situated near the junction of Mut Wah Street and Hip Wo Street.

13. Hip Wo Street is a main distributor leading from Kwun Tong Town Centre (which was better known as Yue Man Square) to the upper residential district of Kwun Tong and Sau Mau Ping. There were few shops on the western side of Hip Wo Street and no shops on the eastern side. The experts agree that pedestrians walking from Yue Man Square to the residential district to the north would also take Fu Yan Street and then turn right or left onto Mut Wah Street which is a local distributor with shops on both sides serving as the main shopping area second only to Kwun Tong Town Centre. By reference to the exhibits of photographs submitted as well as the joint site inspection, Mut Wah Street appears to be a busy shopping street served by a wide variety of public transport including numerous bus routes. This street is favoured by banks, jewellery shops as well as a wide variety of local trades and restaurants etc. Pedestrians walking from Yue Man Square to the north might alternatively take Hong Ning Road which has however a relatively steep gradient; pedestrian flow between Yue Man Square and Mut Wah Street on the eastern side of this section of Hong Ning Road was perhaps interrupted because of the presence of a children playground though at its junction with Mut Wah Street, a McDonald's Restaurant was present.

14. Prior to the sub-division or partition afore-mentioned, the Property comprises one of the twelve ground floor shop units of the Building arranged like a L-shape with one side abutting Mut Wah Street and the other side abutting Hip Wo Street; though the Property fronted onto Mut Wah Street, it was situated near the corner where the two streets meet and was supposed to have a return frontage onto an open square which was a few steps below street level. By reference to a photograph taken on 22 April 2012[1], however, this return frontage, if any, was totally obstructed or blocked by a toy shop in the front. When Mr Lai was called to give evidence on 18 May 2015, he confirmed in cross-examination that the toy shop was there when he or the applicant acquired the Property in 1997 and neither he nor the applicant took any action to remove the toy shop.

15. According to Mr Lai, nevertheless, when the applicant purchased the Property in 1997, the Property had been physically sub-divided into 2 portions. For instance, by a tenancy agreement dated 11 April 1997, a portion which approximately corresponded to Shop IA was let to a Cho Kwai Chee who operated a clinic for a term of 2 years from 1 July 1997 to 30 June 1999; the remaining portion which approximately corresponded to Shop IB was let to a jewellery shop by a tenancy agreement dated 9 April 1997 also for a term of two years from 25 April 1997 to 24 April 1999.

16. It is the evidence of Mr Lai that the premises to the west of the Property were then occupied by Kwong On Bank. From the photographs at Exhibit A1 and the map at Exhibit R6, just prior to the resumption, next to the bank premises to the further west was a famous multiple for clothing, then a shoes store, a restaurant, another bank[2], another restaurant, a Saint Honore Cake Shop etc.

17. It is also the evidence of Mr Lai that in or about 1998, the predecessor of the Urban Renewal Authority, ie the Land Development Corporation, announced that it would launch the Kwun Tong Town Centre redevelopment project. In fear of the prospect of resumption, Mr Lai suggests though the applicant or its associates are sophisticated retail shop investors in the area, the applicant experienced difficulties in seeking high rent for the Property when the tenancies in respect of the two portions expired[3]. Then on 28 October 2000, the applicant managed to enter into a tenancy agreement for letting the Property as a whole to Hang Fook Jewellery & Gold Limited (“Hang Fook Jewellery”) for a term of 3 years from 16 October 2000 to 15 October 2003. This tenancy had been subsequently renewed and Hang Fook Jewellery remained as the only tenant of the Property until the date of reversion notwithstanding the Deed of Partition.

18. In spite of the above, Mr Lai suggests that should the applicant intend to rebuild the partition wall, such works can be done easily at minimal costs[4] without prior approval from the Building Authority. Mr Lai refers to an Architect’s Certificate dated 6 October 1997 in which Mr Michael WK Yuen, an Authorised Person, took the view that the physical subdivision of the Property into 2 portions would fall within exempted works under the Buildings Ordinance.

19. The other particulars of the Property, inter alia, are agreed between the parties as per the Joint Statement as follows:

		Shop I A	Shop IB	Total
Saleable Area	:	13.90 sq m	13.90 sq m	27.80 sq m
Clear Frontage	:	2.51 metres	2.79 metres	5.40 metres
Return Frontage	:	3.77 metres
Headroom	:	5.09 metres in front (40%) and 2.68 metres at rear (60%), ie effective headroom at 3.64 metres

The Comparables

20. Pursuant to the Joint Statement, the two experts agree the following comparables to be adopted for valuation on 2-shop basis:

Ref No	Address	Date of Transaction	Consideration	Effective Area (sq m)	Frontage (m)	Headroom (m)	Unit Rate (/sq m)
A1.1	Shops 2B & 3, G/F, Cambridge Building, 25-39 Hong Ning Road	6 Mar 12	$30,000,000	17.19	2.93	5.54	$1,745,201
A1.2	Shop A1, G/F, Cheung On Mansion, 70-86 Shui Wo Street	24 May 12	$17,200,000	11.61	2.38	3.76	$1,481,481
A1.3	Shop A2, G/F, Cheung On Mansion, 70-86 Shui Wo Street	2 Nov 12	$20,800,000
				10.22	2.23	3.76	$2,035,225
				10.22	Return Frontage 3.55	3.76	$2,035,225
R1	Ground Floor, 4R Yee On Street	18May 12	$12,880,000	27.89	2.93	3.43	$461,814
R2	Shop D, G/F, Yenfu Mansion, 121-141 Hip Wo Street	13 Dec 11	$28,630,000	42.86	4.18	3.72	$667,989
R3	Shop C, G/F, Fu Hang Building, 70 Hong Ning Road	12 Jun 12	$20,800,000	31.10	7.43	2.9	$668,810
R4	Shop 3, G/F, 20 Fu Yan Street, Fu Shing House	9 Nov 11	$35,000,000	62.99	4.18	4.21	$555,644
R5	Shop 4, G/F, 18 Fu Yan Street, Fu Shing House	12 Jul 11	$33,800,000	62.55	4.08	4.21	$540,368

* The comparables with the prefix “A” are those adopted by Ms Sat whereas the comparables with the prefix “R” are those adopted by Mr Faulkner.

21. In fact, the above set of comparables adopted by Mr Faulkner is the same set of comparables adopted by him on the 1-shop basis. On this latter basis, Ms Sat relies on a different set of comparables as her fallback position. In this regard, Ms Sat actually adopts one comparable used by Mr Faulkner, ie R2 which also had a subsequent transaction approximately 1 year later, ie A2.5:

Ref No	Address	Date of Transaction	Consideration	Effective Area (sq m)	Frontage (m)	Headroom (m)	Unit Rate (/sq m)
A2.1/R2	Shop D, G/F, Yenfu Mansion, 121-141 Hip Wo Street	13 Dec 11	$28,630,000	42.86	4.18	3.72	$667,989
A2.5	Shop D, G/F, Yenfu Mansion, 121-141 Hip Wo Street	21 Jan 13	$42,000,000	42.86	4.18	3.72	$979,935
A2.2	Shop K, G/F, Yan On Mansion, 357-375 Ngau Tau Kok Road	20 Dec 11	$52,500,000	37.16	10.60	3.37	$1,412,809
A2.3	G/F, Wah On Building, 43 Mut Wah Street	13 Mar 12	$75,000,000	59.12	3.87	4.18	$1,268,606
A2.4	Shop C, G/F, Hong Ning Building, 1-11 Mut Wah Street	14 Jun 12	$65,000,000	33.44	9.31	4.87	$1,943,780

22. The two experts have also set out the adjustment factors that they agreed to be relevant for the purpose of valuation. For some non-disputed adjustment factors, they could even agree on the degree of adjustment, a practice that should be highly encouraged. A summary of their views is set out below:

Adjustment Factors	Both experts agreed to be relevant	Degree of Adjustment Agreed
Time	Yes	Private Retail Price Index of Rating and Valuation Department (“RVD”)
Location	Yes	No
Frontage	Yes	+/- 4% per 1 m difference
Corner Frontage	Yes	No
Headroom	Yes	+/- 2% per 1 m difference (single-shop approach only); No agreement for 2-shop approach
Quantum	Yes	No
Layout	No	No
Visibility	Depending on the suitability of the comparables	Depending on the suitability of the comparables
Steps in Front	Depending on the suitability of the comparables	Depending on the suitability of the comparables

Analysis of Comparables

23. Indeed, such debate on whether the valuation of a property should be assessed on a 2-shop basis and/or on a 1-shop basis arose in Mingo Properties Limited v the Director of Lands, LDLR 6 of 2005 (unreported, 26 February 2007) (“Mingo Properties”) and Data Key Limited v Director of Lands, LDLR 6 of 2009 (unreported, 5 August, 2011) (“Data Key”). Mingo Properties is particularly comparable with the present case in that the actual ownership and occupation of the property to be valued had been for use as one shop for 15 years before the date of valuation. In both cases, the Lands Tribunal observed, inter alia, that when the summation of the values of the two portions would give rise to a higher value, the 2-shop basis should be preferred to the value of the two portions as a single unit in determining the market value of the two portions; this accords with the principle of determining the “the highest and best use” of properties.

24. For the above reason, I proceed initially with the determination of the market value of the Property on the 2-shop basis assumption.

Comparable A1.1

25. This comparable is situated at the busiest section of Hong Ning Road close to a pedestrian crossing. In comparison, this is at a better location than the Property where, by reference to the location plan and photos exhibited[5], parade window shopping would be discouraged by the break of open space close to the junction of Mut Wah Street and Hip Wo Street. While guard railings were erected in front of the Property, pedestrians crossing Mut Wah Street without using the traffic light crossings further down the street across is possible when the guard railings stopped.[6] This means pedestrians walking up Mut Wah Street, from Fu Yan Street or Hong Ning Road, could be attracted to cross the road if their destination is not restricted to passing the section in front of the Property, say to the pedestrian crossings across Mut Wah Street or Hip Wo Street where a bus terminal is located

26. Upon our joint site inspection, I noted this comparable has been combined and occupied together with Shop 4 and Portion A of Shop 21 in the rear as a mahjong parlour. By reference to the land search record of these shop units, the purchaser of this comparable A1.1 had been the owner of Shop 4 and Portion A of Shop 21 since June 2005, ie some 7 years before the purchase. No particulars or information regarding the acquisition process was provided. However, I note Shop 4 and Portion A of Shop 21 altogether are much larger in size than this comparable; the acquisition of the comparable is therefore extremely crucial and advantageous from a tactical perspective since it opens up Portion A of Shop 21 and nearly doubles the frontage of the entire unit. This transaction is tainted with the possibility of an additional bid from a “special purchaser” ie the owner of Shop 4 and Portion A of Shop 21 who would like to expand his shop space to accommodate a mahjong parlour. The purchaser might be more willing to pay a premium to secure this comparable.

27. Although I am skeptical of the reliability of this comparable, I continue to look at the analysis provided by Ms Sat as follows:

Unit Rate (/sq m)	Adjustments								Adj. Unit Rate (/sq m)
	Time	Location	Frontage	Corn-er	Head-room	Quant-um	Steps at Shop front	Total
$1,745,201
	11.0%	-25.0% (-55.0%)	-1.7% for Shop IA; -0.6% for Shop IB	9.4% for Shop IA only	-3.5%	3.3% (1.6%)	2.0% (0%)	-4.5% for Shop IA; -12.8% for Shop IB;	$1,666,667 for Shop IA; $1,521,815 for Shop IB
			(13.4% for Shop IA if the corner effect is applicable)

* The corresponding adjustments proposed by Mr Faulkner are shown in parentheses

28. Whereas the two experts do not have dispute on the time adjustment, their views are wide apart on the adjustment on location: Ms Sat suggests -25% and Mr Faulkner suggests -55%. I have also stated in §25 above that this comparable occupies a much better location but I do not agree with the adjustment proposed by Mr Faulkner; if the magnitude of his suggestion be correct, this comparable should no longer be a comparable at all. I would only agree -30%.

29. I have mentioned that the return frontage, if any, of the Property was totally obstructed or blocked by a toy shop. When the trial proceeded, it appears that the toy shop was there pursuant to a hawkers’ licence issued under the Hawker Regulation, Cap 132AI.

30. In Tsang Foo Keung & Another v Chu Jim Mi Jimmy & Others, HCA 7140/1995 (unreported, 30 June 2015), it appears that such a licence could be succeeded by the next of kin of the licensee upon his death although Reg 19(2) of the Hawker Regulation suggests otherwise. There has also been a long-standing practice to require fixed pitch licence holders to vacate their pitch only if the pitch is on private land, and the owner of the land no longer consents to the presence of the pitch on the land. See Wu Chee-ling v Urban Council [1996] 1 HKLRD 282. Here, Ms Siu concedes that the toy shop was occupying public Government land.

31. In Inglory Limited v The Director of Food and Environmental Hygiene, HCAL 87/2011 (unreported, 24 May 2012), the applicant was upset by the alleged encroachment of such a licensed newspaper stall beyond the limits of the permitted stall area. It was the respondent’s case that it was not their departmental policies to cancel the licence due to conviction of offences relating to obstruction notwithstanding its power under section 125 of the the Public Health and Municipal Services Ordinance. The respondent there also cited that notwithstanding repeated prosecutions under that section, none of the Magistrates deciding the cases had ever suggested or recommended suspension or cancellation of the licence. In any event, Lam J (as he then was) was agreeable to the flexible approach of the respondent and the application for judicial review was dismissed.

32. By reference to §26 of the judgment, it suffices that the Director of Food and Environmental Hygiene (“DFEH”) had given consideration to the opinion of cancellation. Whereas the applicant’s challenge was premised on the DFEH renouncing the power conferred upon him by the statute (§33 of the judgment), the underlying premise is that the power to cancel the licence lies squarely with the government and the government was entitled to reject taking up the option of cancellation.

33. Returning to the present case, I note the applicant, even when it became the registered owner of the Property in 1997, saw fit to let the toy shop to continue its status quo. During cross-examination, Ms Sat conceded she was not aware of and had not allowed for the availability of return frontage in her reports until the preparation of the Joint Statement dated 11 May 2015. Even at trial she had no idea or knowledge of the prospect of how such a licence could be terminated. Bearing in mind the above, I consider there would be remote prospect of the Property or Shop IA ever enjoying the return frontage if there were no resumption; its value enhancement because of the return frontage should as well be disregarded on the basis of market value. If this be the case, I note Mr Faulkner has no dispute on the frontage adjustments adopted by Ms Sat.

34. The next area of difference between the two experts is on quantum adjustment. Basically their differences are derived from Ms Sat adopting 1% per 1 sq m difference whereas Mr Faulkner adopt the same percentage adjustment but for 2 sq m difference. It is however noted that Ms Sat also adopt 1% per 2 sq m difference if the assessment be on the single-shop basis; that means Ms Sat considers such more sensitive adjustment is required when the shop area is very small. I agree with Ms Sat’s approach.

35. Lastly, this comparable has some 4 steps difference above the pavement level or a prospective customer had to climb the few steps to reach the inside. Ms Sat allows an adjustment of 2% whereas Mr Faulkner considers such adjustment not necessary. I concurs with Ms Sat that the presence of these steps inhibits the accessibility of the premises and discourages prospective customers from entering inside.

36. In light of the above, if this comparable is otherwise acceptable for the purpose of comparison, its adjusted unit rate should be as follows:

Unit Rate (/sq m)	Adjustments								Adj. Unit Rate (/sq m)
Unit Rate (/sq m)	Time	Location	Frontage	Corner	Head-room	Quant-um	Steps at Shop front	Total	Adj. Unit Rate (/sq m)
$1,745,201	11.0%	-30.0%	-1.7% for Shop IA; -0.6% for Shop IB	0%	-3.5%	3.3%	2.0%	-18.9% for Shop IA; -17.8% for Shop IB	$1,415,358 for Shop IA; $1,434,555 for Shop IB

Comparable A1.2

37. This comparable is situated at the heart of the wet market area where, I agree with Mr Faulkner, there is substantial difference in trading potential and locality from the Property which fronted onto the main street of Mut Wah Street. In any event, Mr Faulkner suggests in view of the limited trades mix permissible around the wet market, on balance, he has assigned no adjustment for location in respect of this comparable.

38. Although during our joint site inspection, I noted a barbecued meat shop is also located obliquely across the road from the Property, I am not convinced that the occupier of this comparable, being a fish stall, would be willing to be relocated at the Property, not to mention paying the similar level of rental. For these shops within the wet market area, the depth and area are not so important as customers would not go inside. While I agree with Mr Faulkner that it is too difficult to compare apple with orange, I do not agree that there should be no adjustment for location. There should be advantage for the economies of agglomeration of trades.

39. Thus for the purpose of checking, I proceed to analyse this sale, adopting the -10% adjustment for location but otherwise adopting the same adjustments for other factors proposed by Ms Sat. The result of the analysis would be as follows:

Unit Rate (/sq m)	Adjustments						Adj. Unit Rate (/sq m)
Unit Rate (/sq m)	Time	Location	Frontage	Head-room	Quant-um	Total	Adj. Unit Rate (/sq m)
$1,481,481	3.8%	-10.0%	0.5% for Shop IA; 1.6% for Shop IB	1.5%	-2.3%	-6.5% for Shop IA; -5.4% for Shop IB	$1,385,185 for Shop IA; $1,401,481 for Shop IB

Comparable A1.3

40. This comparable, which was only introduced additionally at the beginning of the trial, comprises a corner unit situated next to Comparable A1.2 and is occupied as a butcher’s shop. While I have commented Comparable A1.2 is not a good comparable, the comparability of this “comparable” is further worse as it is a corner unit with additional advantage not being enjoyed by the Property. In Data Key, supra, the Lands Tribunal has remarked “It is always the best practice in valuation to compare properties with the minimum adjustments.”

41. I discard this Comparable A1.3 as it is not a comparable at all, especially when I have included Comparable A1.2 for reference.

Comparable R1

42. This comparable is situated further away from the Mut Wah Street district, being at a quiet location despite it is in proximity to a public light bus terminal. Whereas there is no rule in principle against using comparables that are located some distance away from the Property, if there are good comparables situated close to the Property, why should comparables further away be adopted? Further worse, this comparable appears to be occupied together with the adjoining ground floor unit, a phenomenon which casts doubt on its suitability like Comparable A1.1. I agree with Ms Sat that this comparable should be discarded..

Comparable R2 (which is also A2.1)

43. This comparable is occupied as a restaurant at a raised platform along this section of Hip Wo Street. That is, pedestrian going along Hip Wo Street trying to reach this platform has to take a flight of steps and this should justify a +5% adjustment for accessibility. I agree therefore with the total adjustment of 20% for location as proposed by Ms Sat.

44. I agree with the frontage adjustment proposed by the two experts but I prefer Mr Faulkner’s 1% per 2 sq m difference when the size difference between the two shops is large, ie +14.5%; there should be a limit in applying Ms Sat’s formula of 1% per 1 sq m difference. On the other hand, as this comparable has a depth as much as 10 metres or thereabouts whereas the Property has only 4.91 metres, I agree with the adjustment of 4% for layout proposed by Ms Sat. Such adjustment was also conceded by Mr Faulkner during cross-examination.

45. Thus my analysis for this comparable is as follows:

Unit Rate (/sq m)	Adjustments							Adj. Unit Rate (/sq m)
Unit Rate (/sq m)	Time	Location	Frontage	Head-room	Quantum	Layout	Total	Adj. Unit Rate (/sq m)
$667,989	20.8%	20%	-6.7% for Shop IA; -5.6% for Shop IB	-0.2%	14.5%	4.0%	52.4% for Shop IA; 53.5% for Shop IB	$1,018,015 for Shop IA; $1,025,363 for Shop IB

46. At this juncture, it is interesting to note that if this comparable is analyzed on a single-shop basis, the result would be contradictory to the assumption that the summation of the values of the two portions would give rise to a higher value:

Unit Rate (/sq m)	Adjustments							Adj. Unit Rate (/sq m)
Unit Rate (/sq m)	Time	Location	Frontage	Head-room	Quantum	Layout	Total	Adj. Unit Rate (/sq m)
$667,989	20.8%	20%	4.9%	-0.2%	7.5%	4.0%	57.0%	$1,048,743

47. Ms Siu suggests that if Ms Sat’s adjustment at 1% per 1 sq m difference be adopted on the 2-shop basis, the result would be consistent, being $1,114,874/sq m for Shop IA for instance. However, I am not convinced that the adjusted result should have been so radically different because of the subdivision; otherwise, all shop owners would have divided their shops into the smallest units, a phenomenon which is not reflected in the market at least in this section of Mut Wah Street.

48. It appears that the embarrassing result occurs only when too much emphasis is placed on the adjustment for frontage (eg a difference between -6.7% and 4.9% or 11.6% for Shop IA). The Tribunal has indeed in Supergoal Investment Limited v Five F Ming House Limited & Others, LDCS 46000/2011 [2014] 1 HKLRD 286 criticized the expert in applying any mechanistic formula in valuation of properties. At §94 of the judgment, the Tribunal remarked:

“In the case of valuation of a shop, it is well understood that a shop with a wider street frontage (and hence, a bigger shop window) is more valuable than a shop of the same area but with a narrower shop front and a greater depth. This explains why, sometimes, an adjustment for the depth to frontage ratio is required. However, this does not mean that the combination of, say, two standard sized shops of equal frontage and depth (thus yielding 1/2^nd the depth to frontage ratio) would justify a higher unit price. Mechanical application of depth to frontage adjustments clearly defies common sense and market expectation that retail shops with long shop fronts can be subdivided and let/sold more profitably (in terms of unit rate) in parts.”

49. Of course, at the footnote of the above citation, it was stated:

“In contrast, reverse quantum, i.e. an increase in value for size, may otherwise occur when there is shortage of large units in a locality or where national multiples are prepared to pay a premium in competition for securing their presence.” (emphasis added)

50. In the meantime, in Tin Kung Investment LimitedvSecretary for Transport, LDRW 16 of 2001, (unreported, 29 June 2004), the Lands Tribunal commented that:

‘The number of factors adopted by AW for adjustment is 11 and later reduced to 10 with some original factors taken out and substituted with others. The greatest amount of adjustment made for a single factor is 23% and the greatest in aggregate for a Comparable is 51.1%. The number of factors contained in RW's valuation reports is 9. The greatest amount of adjustment he has proposed for a single factor is 16% and the greatest amount in aggregate is 31.5%
Putting before anyone these statistics, there must be the concern whether the Comparables selected for valuation are indeed suitable for comparison. Making adjustment to compensate for the difference between two properties is not a perfect and effective valuation tool. What the experts have built in the valuation formula are largely subjective views (and such formula may be manipulated to arrive at an intended result). The subjective views tend to cause error, the risk of which goes in proportion to the quantum of adjustment made. Its application therefore is with limitation. It is suitable for use only if the two properties are in great similar but in minor place different. In the case where a large number of factors and amount of adjustment as the above are applied in the valuation, the risk of getting the valuation wrong is high. If this fundamental principle of application is not observed, the price of a commercial property in a central business area can be absurdly taken to find out the value of a piece of farmland in the green belt zone through adjustments. The great total number of factors/amount of adjustment adopted is a sheer indication of the unsuitability of a property for use for comparison to the other. In this regard, the Respondent's counsel has rightly quoted HH Judge Cruden's view in his book entitled "Land Compensation and Valuation Law in Hong Kong".’

51. In the present case, although the number of adjustment factors does not come up to as much as 9 or 10, the resulting adjustments amount to 52.4% to 57.0% respectively[7]. This points to an alarming signal to doubt whether this transaction can be relied on as a comparable at all.

Comparable R3

52. This comparable is situated at the upper section of Hong Ning Road (ie further up the steep sloping gradient) with a frontage of 5.03 metres to Hong Ning Road and also a return frontage of 2.4 metres to Shung Yan Street which leads to a Municipal Services Building where a formal wet market is situated.

53. Looking at its size and layout, I see no reason why if the Property could be subdivided into two smaller shops, this comparable cannot be likewise subdivided. Therefore, when comparing like with like, there is no need to analyse this comparable vis-a-vis the Property on a 2-shop basis especially when they are roughly of the same size (for instance, when the quantum adjustment suggested by Mr Faulkner is only 1.7%).

54. In terms of location, I agree with Mr Faulkner that this comparable is inferior; however, I consider the magnitude of adjustment should be much larger. Although Mr Suen suggests that this section of Hong Ning Road has also a Citibank branch and some few other financial institutions, the latter are finance companies which usually have a much narrower clientele than banks. Also, they are located further down the road and more readily accessible. In any event, this comparable is located near the top of the section of the road which is much quieter. During our site inspection, this comparable unit was occupied by a chiropractor but it is definitely not suitable as a jewellery shop like the Property. The minimum adjustment I consider appropriate is 50% instead of the mere 20% proposed by Mr Faulkner.

55. The other adjustment I would add to Mr Faulkner’s at trial bundle (II) page 342-3 would be the 4% for layout because this comparable also has a depth of about 8.4 metres. Thus my assessment of the market value of the Property on the basis of this comparable is as follows:

Unit Rate (/sq m)	Adjustments							Adj. Unit Rate (/sq m)
Unit Rate (/sq m)	Time	Location	Frontage	Head-room	Quantum	Layout	Total	Adj. Unit Rate (/sq m)
$668,810	0.0%	50.0%	-8.1% basically for the return frontage	1.5%	1.7%	4.0%	49.1%	$997,196

56. Like my comment in §28 and §51 above, the reliability of this comparable is in doubt when the magnitude of location adjustment or resulting adjustment is so high.

Comparables R4and R5

57. These two comparables are adjoining shops opposite the Municipal Services Building mentioned above. I agree that because of their relatively narrow frontages when compared with the Property, it is more difficult to be subdivided and therefore should be analysed on a two-shop basis, assuming once again summation of the values of the two portions would give rise to a higher value.

58. As regards time adjustment, I note the transaction occurred more than half a year earlier than the relevant date. R5 in particular took place nearly as much as 1 year earlier in respect of which the adjustment as agreed by the experts comes up to 26.1% by reference to the Private Retail Price Index of RVD. Nevertheless, the preparation of an index is more or less an averaging exercise and there is no guarantee that the price trend for the subject location or property necessarily follows the index. This is particularly the case for shop premises where a slight variation in location would lead to significant difference in value. Therefore, the larger the extent of the adjustment, the higher probability of error would ensue.

59. I do not agree with the adjustment for location proposed by Mr Faulkner (-20%) as I consider the subject appears to be better though the location between the Property and this comparable is comparatively similar[8]. Pedestrians may be deterred from walking up the sloping street (ie this section of Fu Yan Street) unless they are determined to reach the Municipal Services Building or the residential area in the vicinity.

60. I would however accept the 10% adjustment proposed by Mr Faulkner for visibility when pedestrians’ view to these shops is largely blocked by the minibus station in front of it. Subject to my comment below, I would as well adopt the other adjustments proposed by him at trial bundle (II) page 341-4 though I would add an extra adjustment of 10% for layout because the depth of these comparables extends to 15 metres which is some three times as much as the Property. My analysis based on Mr Faulkner’s adjustments would then become:

Comp	Unit Rate (/sq m)	Adjustments								Adj. Unit Rate (/sq m)
Comp	Unit Rate (/sq m)	Time	Location	Frontage	Head-room	Quant-um	Visibility	Layout	Total	Adj. Unit Rate (/sq m)
R4	$555,644	21.0%	10.0%	-6.7% for Shop IA; -5.6% for Shop IB	-1.1%	24.5%	10.0%	10.0%	67.7% for Shop IA; 68.8% for Shop IB	$931,815 for Shop IA; $937,927 for Shop IB
R5	$540,368	26.1%	10.0%	-6.3% for Shop IA; -5.2% for Shop IB	-1.1%	24.3%	10.0%	10.0%	73.0% for Shop IA; 74.1% for Shop IB	$934,837 for Shop IA; $940,781 for Shop IB

61. Like what I have commented at §51 above, the reliability of these two comparables is in doubt when the magnitude of resulting adjustments are so high.

62. Thus, although I have analysed as much as 6 comparables (excluding comparables A1.3 and R1), they are not reliable for various reasons. Particularly in respect of the comparables put forward by Mr Faulkner, either they should be discarded right away (eg R1 or possibly R3) or they have to be placed little weight for the reasons that they are significantly different in terms of locality or very substantial adjustments are required if the comparables are to be included.

63. Then I proceed to consider the further comparables A2.2 – A2.5 introduced by Ms Sat as her fallback on a single-shop based.

Comparable A2.2

64. This comparable appears like a quadrant fronting onto the prominent junction of Hong Ning Road and Ngau Tau Kok Road between Yue Man Square and Mut Wah Street. Although this comparable has such an awkward shape, this may to a certain extent be compensated by having slightly larger size, rendering it possible to be sub-divided into two portions like the Property.

65. Whereas this comparable is suitable for comparing like with like with the Property in terms of its size, regardless of whether it is subdivided or not, there is marked difference in opinion between the two experts on the adjustment for location: Ms Sat proposes -25% and Mr Faulkner proposes -55%. Remember I have allowed -30% for comparable A1.1 which is not too far away from this comparable, I would therefore allow the same -30% for this comparable.

66. The adjustments for other factors are agreed by the two experts except Ms Sat proposes additional adjustments for the “return frontage” and layout at 9.4% and 3% respectively. I consider the frontage of this comparable is curved in shape but do not agree that it has a return frontage. I would therefore allow nothing for it. I accept however the proposed adjustment for layout at 3%.

67. Thus, the result of my analysis is as follows:

Unit Rate (/sq m)	Adjustments							Adj. Unit Rate (/sq m)
Unit Rate (/sq m)	Time	Location	Frontage	Head-room	Quantum	Layout	Total	Adj. Unit Rate (/sq m)
$1,412,810	20.8%	-30.0%	-20.8%	0.5%	4.7%	3.0%	-21.8%	$1,104,817

Comparable A2.3

68. In terms of location, this appears to be the best comparable as it is located obliquely opposite the Property across Mut Wah Street though I agree that this northern side of Mut Wah Street is more busy. The northern side of Mut Wah Street is present with all branded jewellery shops but based on the evidence of Mr Lai and the photo no 5 in Exhibit R4, Hang Fook Jewellery appears to be the only jewellery shop on the southern side prior to resumption. This may be explicable as I noted in §25 above that the parades of shops were broken by the open space off the junction of Mut Wah Street and Hip Wo Street. Ms Sat proposed an adjustment of -10% when Mr Faulkner proposes -40%. I consider -20% is more reasonable.

69. Nevertheless, this comparable has a mere frontage about 3.87 metres and a depth of 11 metres or thereabout, rendering it not too suitable for subdivision into two smaller units. I would first analyse this comparable on a two-shop basis like that for comparable R2. The result of my analysis is as follows:

Unit Rate (/sq m)	Adjustments							Adj. Unit Rate (/sq m)
Unit Rate (/sq m)	Time	Location	Frontage	Head-room	Quantum	Layout	Total	Adj. Unit Rate (/sq m)
$1,268,606	11.0%	-20.0%	-5.4% for Shop IA; -4.3% for Shop IB	-1.1%	22.1%	4.0%	10.6% for Shop IA; 11.7% for Shop IB	$1,403,078 for Shop IA; $1,417,033 for Shop IB

70. Again, my analysis on the single-shop basis is as follows:

Unit Rate (/sq m)	Adjustments							Adj. Unit Rate (/sq m)
Unit Rate (/sq m)	Time	Location	Frontage	Head-room	Quantum	Layout	Total	Adj. Unit Rate (/sq m)
$1,268,606	11.0%	-20.0%	6.1%	-1.1%	15.7%	4.0%	15.7%	$1,467,777

Comparable A2.4

71. This comparable, like comparable A2.2, comprises a corner unit of quadrant shape fronting onto the junction of Mut Wah Street and Fu Yan Street. Its saleable area of 33.44 sq m is very similar to that 37.16 sq m for comparable A2.2 and close to the total saleable area of the Property at 27.8 sq m. Likewise, I consider therefore this comparable can be easily sub-divided into two smaller units and can be directly comparable to the Property regardless of whether it has been sub-divided or not.

72. I also consider the location adjustment should be -30%. My analysis, following that proposed by Ms Sat, is as follows:

Unit Rate (/sq m)	Adjustments							Adj. Unit Rate (/sq m)
Unit Rate (/sq m)	Time	Location	Frontage	Head-room	Quantum	Layout	Total	Adj. Unit Rate (/sq m)
$1,943,780	0.0%	-30.0%	-15.6%	-2.5%	2.8%	3.0%	-42.3%	$1,121,561

Comparable A2.5

73. This is actually in respect of the same property as Comparable A2.1/R2 but a later transaction some 7 months after the relevant date. As to the use of a comparable transacted after the valuation date, it is well established that a market transaction concluded after the valuation date does not per se bar it from being considered as a comparable[9].

74. Indeed, the time adjustment in respect of this transaction is even smaller at -16.0% instead of 20.8% for Comparable A2.1/R2. Thus every other adjustment otherwise being the same as that for Comparable A2.1/R2, my analysis on the 2-shop basis is as follows:

Unit Rate (/sq m)	Adjustments							Adj. Unit Rate (/sq m)
Unit Rate (/sq m)	Time	Location	Frontage	Head-room	Quantum	Layout	Total	Adj. Unit Rate (/sq m)
$979,935	-16.0%	20.0%	-6.7% for Shop IA; -5.6% for Shop IB	-0.2%	14.5%	4.0%	15.6% for Shop IA; 16.7% for Shop IB	$1,132,805 for Shop IA; $1,143,584 for Shop IB

75. Alternatively, my analysis on the single-shop basis is as follows:

Unit Rate (/sq m)	Adjustments							Adj. Unit Rate (/sq m)
Unit Rate (/sq m)	Time	Location	Frontage	Head-room	Quantum	Layout	Total	Adj. Unit Rate (/sq m)
$979,935	-16.0%	20.0%	4.9%	-0.2%	7.5%	4.0%	20.2%	$1,177,882

The Valuation

76. The following shows the analysed result of all the comparables:

Comp.	Price for the transaction	Unit Rate (/sq m)	Total Adjustment	Adjusted Unit Rate (/sq m)
Comp.	Price for the transaction	Unit Rate (/sq m)	Total Adjustment	For IA	For IB	As a whole
A1.1	$30,000,000	$1,745,201	-18.9% for Shop IA; -17.8% for Shop IB	$1,415,358	$1,434,555
A1.2	$17,200,000	$1,481,481	-6.5% for Shop IA; -5.4% for Shop IB	$1,385,185	$1,401,481
A1.3	$20,800,000	$2,035,225		discarded
R1	$12,880,000	$461,814		discarded
R2/ A2.1	$28,630,000	$667,989	52.4% for Shop IA; 53.5% for Shop IB	$1,018,015	$1,025,363	$1,048,743
R3	$20,800,000	$668,810	49.1%			$997,196
R4	$35,000,000	$555,644	67.7% for Shop IA; 68.8% for Shop IB	$931,815	$937,927
R5	$33,800,000	$540,368	73.0% for Shop IA; 74.1% for Shop IB	$934,837	$940,781
A2.2	$52,500,000	$1,412,809	-21.8%			$1,104,817
A2.3	$75,000,000	$1,268,606	10.6% for Shop IA; 11.7% for Shop IB	$1,403,078	$1,417,033	$1,467,777
A2.4	$65,000,000	$1,943,780	-42.3%			$1,121,561
A2.5	$42,000,000	$979,935	15.6% for Shop IA; 16.7% for Shop IB	$1,132,805	$1,143,584	$1,177,882

77. From the above table, the analysed result falls into two ranges: one slightly above $1,400,000/sq m and the other around $1,100,000/sq m or below. It is unfortunate that nearly all the comparables put forward by the parties on the 2-shop basis are not reliable. Thus the comparables left are A2.2, A2.3, A2.4 and A2.5 with adjusted unit prices ranging from $1,104,817/sq m to $1,467,777/sq m. In comparison, they are comparables with least adjustments so that the extent of arbitraries, distortions, variances and inaccuracies can be minimized[10].

78. In this regard, the analysed result for comparable A1.1 appears not to be outside the range and I am prepared to add it back to the comparable list.

79. Also from the result, it appears that the difference between the 2-shop basis and the single-shop basis is not significant. I agree that there would be separate market demands for mini-shops as well as ordinary shops but here I find the demand for mini-shops is not dominant.

80. Firstly, although the applicant alleges that threat of resumption since 1997/98 would affect the marketability of the Property, the applicant managed to secure a high-end tenant, Hang Fook Jewellery, in 2000 and such state of affairs continued for 12 years until the resumption in 2012. As Mr Lai has conceded the applicant or its associates are sophisticated retail shop investors in the area, there is no reason why the Property could not be let to two separate tenants if such would provide a higher yield. Here, I agree with the submission of Mr Suen that if the threat of resumption has any impact on the use of the Property, the demand for mini-shops or ordinary shops would be similarly affected; indeed, I consider the demand for ordinary shops would have been more affected because small or mini-shops tend to be more versatile, requiring less capital investment and usually less concerned with the threat of resumption for years to come.

81. Secondly, by reference to the Photo Nos 5 & 6 in Exhibit R4 and observation from my inspection, both sides of Mut Wah Street were/are occupied by ordinary shops instead of the mini-ones, a phenomenon which demonstrates that the latter have been unable to outbid the former.

82. Thus, the assumption I made in §24 above is rebutted and the existing use as jewellery shop should be regarded the highest and best use of the Property and therefore comparable A1.2 (or comparable A1.3) should not be regarded as comparable. This being the case, it is the evidence of Mr Lai that for such a small size of the Property, a jewellery shop like Hang Fook Jewellery would not bother to have an additional return frontage for security reason; this reinforces my view that the value of the return frontage, if any, apart from the reasons mentioned in §33 above, should be minimal.

83. Thus I have altogether five comparables as follows:

Comp.	Price for the transaction	Unit Rate (/sq m)	Total Adjustment	Adjusted Unit Rate (/sq m)
A1.1	$30,000,000	$1,745,201	-18.9% for Shop IA; -17.8% for Shop IB	$1,424,957*
A2.2	$52,500,000	$1,412,809	-21.8%	$1,104,817
A2.3	$75,000,000	$1,268,606	15.7%	$1,467,777
A2.4	$65,000,000	$1,943,780	-42.3%	$1,121,561
A2.5	$42,000,000	$979,935	20.2%	$1,177,882
			Average:	$1,259,399

* The average of the analysis for this comparable is taken because of its small size, it is not appropriate to compare with the Property on a single-shop basis.

84. Therefore, the market value of the Property is assessed as follows:

27.8sq m x $$1,259,399/sq m = $35,011,292
Say $35,000,000

Conclusion

85. I have determined the value of the Property, for the purpose of section 10(2)(a) of the Lands Resumption Ordinance, in the sum of $35,000,000.

Orders

86. Accordingly, I order that the respondent do pay the applicant compensation for the Property in the sum of $35,000,000. 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. Lawrence PANG
	Member
	Lands Tribunal

Ms Jo C W Siu, instructed by Messrs Lui & Law, for the applicant

Mr Jenkin Suen, instructed by the Department of Justice, for the respondent

[1] 2^nd photo in Exhibit R1.

[2] Chiyu Banking Corporation Limited.

[3] It is the evidence of Mr Lai that Cho Kwai Chee did not exercise the renewal option reserved in the tenancy agreement for a further term of 2 years though he stayed over for a few months.

[4] Mr Lai states the amount would be about $10,000 in 1997 whereas Mr Faulkner estimates the amount would be about $50,000 as at the relevant date.

[5] See particularly the last photo in Exhibit A1 and the first photo in Exhibit A2.

[6] Exhibit A1.

[7] If Ms Sat’s adjustment at 1% per 1 sq m difference be adopted, the resulting adjustments will even be more drastic.

[8] R5 is occupied by a Saint Honore Cake Shop which might have been relocated from its previous location from Mut Wah Street after the resumption.

[9] See Good Faith Properties Limitedand Others vCibean Development Company Limited, LDCS 42000/2011 (unreported, dated 31 May 2013), at §97 and Cruden, Gordon N, in Land Compensation andValuationLaw in Hong Kong, 3^rd edition (2009), pp. 606-608.

[10] Although the total adjustment for comparable A2.4 appears to be large, no time adjustment is required and the main adjustment comes from that for location which I find is consistent with that for comparables A2.2 and A2.3, the latter of which being closest to the Property.

ELTRON DEVELOPMENT LTD v. DIRECTOR OF LANDS

Related cases with same parties

Files (3)

Current rental	C₀
YP @ i for a period n	YP factor
Market Value	P₀
where i is the initial yield³