WEALTH MASTER INTERNATIONAL LTD AND OTHERS v. WONG WENG WA VINCENT, ADMINSTRATOR OF THE ESTATE OF WONG SHING KWONG, DECEASED

LDCS 18000/2014

[2021] HKLdT 16

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LAND COMPULSORY SALE APPLICATION NO. 18000 OF 2014

BETWEEN

______________

DECISION

APPLICATION FOR EXTENSION OF TIME

 TO COMPLETE REDEVELOPMENT

______________

Background

1.  On 8 May 2015, I handed down a judgment (“the Judgment”) which ordered, inter alia, all the undivided shares in the Remaining Portion of Marine Lot No 479 and the Remaining Portion of Marine Lot No 484 (“the Lots”) which were then erected a building at Nos 101-102 Connaught Road West, Hong Kong be sold by way of public auction for the purposes of redevelopment pursuant to section 3(1) of the Land (Compulsory Sale for Redevelopment) Ordinance, Cap 545 (“the Ordinance”).

2.  Included in the Order for Sale is a condition (“the Condition”) whereby the purchaser of the Lots or its successor in title were to complete redevelopment of the Lots and make the redevelopment fit for occupation within a period of 6 years after the date on which the purchaser of the Lots became the owner of the Lots.

3.  Placed before me was an Ex-Parte Summons filed on 23 November 2020 (“the Ex Parte Summons”) (as subsequently amended on 9 February 2021) by Messrs Mayer Brown on behalf of Grand Connaught Company Limited (“GCCL”) applying for extension of the period abovementioned from 31 July 2021 to 28 August 2026, ie a period as much as more than 5 years.

4.  There was also a Joinder Summons filed on 4 January 2020 directed to be made by me on 14 December 2020 to invite the Director of Lands or more appropriately the Secretary for Development to be joined as an interested party. Under the Crown Proceedings Ordinance, Cap 300, civil proceedings against the Government should be instituted against the Secretary for Justice and it is the case of GCCL that the Department of Justice, acting for the Secretary for Justice, would be in a better position to determine whether the Director of Lands or the Secretary for Development would be a more appropriate party from whom instructions are to be taken.

5.  Having heard the submission of Mr Mok Yeuk Chi (“Mr Mok”), counsel for GCCL, I made an order that:

(1) The Secretary for Justice be joined as an interested party to the Ex Parte Summons taken out by GCCL dated and filed on 23 November 2020 in these proceedings;

(2) Leave be granted for GCCL to amend the Ex Parte Summons as the result of (1) above (“the Amended Summons”);

(3) Service on the Secretary for Justice of copies of the following documents be dispensed with:

(a) the Ex Parte Summons;

(b) the Amended Summons;

(c) the Affidavit of Pan Wai Hung Christopher (“Mr Pan”) filed on 23 November 2020; and

(d) the Affirmation of Wong Chi Kin Kenneth (“Mr Wong”) filed on 23 November 2020.

6.  Here are my reasons.

The Condition

7.  The Condition was imposed pursuant to paragraph 1(b) in Schedule 3 of the Ordinance.

8.  By virtue of section 9 of the Ordinance, such condition specified in Schedule 3 shall be deemed to be a condition of the Government lease of the lot the subject of an order for sale and, accordingly, a breach of such a condition shall entitle the Government to re-enter the lot under and in accordance with the provisions of the Government Rights (Re-entry and Vesting Remedies) Ordinance, Cap 126. This was confirmed in the Bills Committee on the Bill on 17 February 1998: this section would apply to “cases involving breach of conditions after completion of sale, for example, delay in completing redevelopment of the lot.”[1]

The Secretary for Justice as Interested Party

9.  And in the same meeting, the Chairman concurred that encouraging private redevelopment to improve urban environment should be regarded as a ground of public interest.

10.  In this regard, reference is made to the Official Record of Proceedings of the Provisional Legislative Council dated 21 January 1998 on the then Land (Compulsory Sale for Redevelopment) Bill (“the Bill”) which later became the Ordinance. The then Secretary for Planning, Environment and Lands stated at the beginning of the second reading of the Bill as follows:

“The purpose of the Bill is to provide a solution to some problems which are often encountered in the course of land assembly for private property redevelopment; thereby quickening the pace of redevelopment and improving environment in derelict urban area…

In view of the deteriorating environment in the old districts and the serious threat which may be posed to public and residents’ safety by the state of disrepair of buildings in these districts, expediting urban renewal is a pressing task. While the Land Development Corporation and the Urban Renewal authority to be set up next year will have to make all-out efforts to meet the task, the active participation of the private sector and property owners is also indispensable. However, because of various problems encountered in the land assembly process, the replacement rate of existing buildings is slowing down. In view of the circumstances, it is necessary to implement as soon as possible the mechanism provided by the Bill so as to assist in resolving the issue of land assembly in redevelopment, thereby speeding up urban renewal and ensuring that private redevelopment projects can be conducted smoothly and quickly.” (emphasis added)

11.  Thence, it is noted that sections 3A and 3B of the Partition Ordinance, Cap 352, provide a mechanism for the Secretary for Justice to intervene and join as a party to the proceedings if she so wished. Indeed, the Secretary for Justice would have a right of intervention in a private suit whenever it affected the Government’s prerogatives. She also had a right of intervention at the invitation or with the permission of the court where the suit raised any question of public policy on which the executive might have a view which it desired to bring to the notice of the court. In the Bills Committee on the Bill on 11 March 1998, the Principal Assistance Secretary for Planning, Environment and Lands concurred that where necessary, the Lands Tribunal could invite the Secretary for Justice to intervene.

12.  In the present case, I was of the view that the Director of Lands or more appropriately the Secretary for Development should be invited to join as an interested party. This is because the Condition is fact an equivalent to a building covenant usually included in a Government lease. A full review of the government’s policy on building covenants can be found in Shun Shing Hing Investment Company Limited v Attorney General [1983] HKLR 432. See also, Ying Ho Company Limited and Others v Secretary for Justice [2005] 1 HKLRD 135, (2004) 7 HKCFAR 333 where the developers missed the deadline for fulfilling the building covenant and in order to avoid re-entry by the Government, paid over $1/2 billion in waiver premia and liquidated damages.

13.  The Ex-Parte Summons was amended on 9 February 2021 to have the Secretary for Justice be joined.

Reasons for Applying Extension

14.  Mr Pan, the Director of the Property Department of Tai Hung Fai Enterprise Company Limited (“the Group”), filed an Ex Parte Summons together with an affidavit (“the Affidavit”). Mr Pan stated that Swift China Limited was the successful purchaser of the Lots in the public auction held on 30 June 2015 and completed the purchase on 31 July 2015. GCCL, being the successor in title to Swift China Limited as a result of an intra-group internal transfer within the Group, became the registered owner of the Lots on 12 June 2020. By reason of the above, Swift China Limited and now GCCL as its successor in title were to complete redevelopment of the Lots and make the redevelopment fit for occupation within a period of 6 years from 31 July 2015, ie on or before 31 July 2021.

15.  The Affidavit intimated that an opportunity arose to redevelop the Lots together with all of the Neighbouring Lots (as shall be defined more particularly in paragraph 22 below) which include the lots occupied by premises at Nos 99-103A Connaught Road West (“CRW99-103A”) as a larger commercial development (“the Joint Development”) with improved efficiency and design. The lot area of the amalgamated site is approximately 155% larger than that of CRW99-103A. Due to unexpected complications in acquisitions of the neighbouring lots, GCCL anticipated that, if one could ignore the impact of the coronavirus outbreak, it would need around slightly more than 4 years from 31 July 2021 to complete the Joint Development.

16.  But the coronavirus outbreak had added uncertainty to the overall project programme. Factors such as (i) limited services resulting from the adoption of the Work-From-Home policy by both consultancy firms and Government departments, (ii) longer lead time of materials, (iii) fluctuating supply of workers and (iv) potential delay of work due to suspected or confirmed cases within the project team might cause delay or disruption to the construction works of the Joint Development. Such factors will therefore have to be reflected in the construction programme.

17.  GCCL further pleaded a buffer of 3 to 6 months for general bad weather/inclement weather for prudence sake.

18.  Mr Wong has been engaged as the authorised person for the Joint Development since 21 March 2017. He had deposed to the current best estimation that GCCL could complete the building works of the Joint Development, with the occupation permit granted, would be in or around August 2026. Mr Wong had filed an affirmation on 23 November 2020 which sets out the development progress and benefits of the Joint Development.

19.  The affirmation further explained that development of two of the Neighbouring Lots, namely Inland Lot 2963 and Inland Lot 3035 on which the premises thereon were known as No 99 Des Voeux Road West and No 101 Des Voeux Road West, were other pieces of land included in the Joint Development and were subject to a compulsory sale order granted in New Dorset Investments Limited v Leung Wing Hing Joss Sticks Factory (Hong Kong) Limited & Others, LDCS 30000/2018 dated 9 June 2020 ([2020] HKLdT 22) whereby redevelopment has to be completed by 28 August 2026. Therefore, the current best estimation by Mr Wong above is consistent.

Background of the Original Application for Compulsory Sale

20.  The Affidavit further explained that one of the applicants, Beauti-Sight Limited, had in fact, by a provisional agreement for sale and purchase in Chinese dated 21 September 2011, procured the respondent to sell the only outstanding unit in the Lots, namely Flat B on 10/F, Man Fung Building, Nos 101 & 102 Connaught Road West. However, there was a title problem that made it impossible for this only respondent to give good title (“the Title Issue”) despite his willingness to sell[2]. After having waited for more than 3 years for the respondent to cure the title problem of no avail, the applicants had no better alternative but to proceed with the application for compulsory sale in October 2014 so as to acquire all of the undivided shares in the Lots. The respondent was absent throughout the trial in 2015.

21.  Mr Pan emphasised that the initial plan for the redevelopment of CRW99-103A, of which the Lots formed part, was ready to proceed immediately upon completion of the sale and purchase of the respondent’s unit in 2011 but for the Title Issue[3].

Neighbouring Lots

22.  Mr Pan gave the particulars of the Neighbouring Lots as follows:

Lot No	Address	Date of Acquisition by the Group	Remarks
Inland Lot 2217	No 91 Des Voeux Road West	29 May 2017
Inland Lot 2963	No 99 Des Voeux Road West	28 Aug 2020	Subject of Compulsory Sale Application  LDCS 30000/2018
Inland Lot 3035	No 101 Des Voeux Road West
Remaining Portion of Marine Lot 404	No 92 Connaught Road West	19 Aug 2019
Remaining Portion of Marine Lot 403 and Remaining Portion of Section A of Marine Lot 404	No 93 Connaught Road West	16 Sep 2019
Remaining Portion of Marine Lot 402	No 94 Connaught Road West	20 Jun 2018
Section A of Marine Lot 401	No 95 Connaught Road West
Remaining Portion of Marine Lot 400	No 96 Connaught Road West	13 Jan 2020	Subject of Compulsory Sale Application  LDCS 6000/2017
Marine Lot 399	No 97 Connaught Road West	17 Jun  2016
Remaining Portion of Marine Lot 398	No 98 Connaught Road West
Remaining Portion of Inland Lot 2231	No 99 Connaught Road West	7 Apr  2011
Remaining Portion of Marine Lot 478	No 100 Connaught Road West
Remaining Portion of Marine Lot 479 and Remaining Portion of Marine Lot 484	Nos 101-102 Connaught Road West	31 July 2015	The Lots
Marine Lot 483	Nos 103-103A Connaught Road West	7 Apr  2011
Section A of Marine Lot 479		8 Jan 2019
Section A of Marine Lot 484		28 Mar 2018

23.  Mr Pan explained that the initial plan (“Plan A”) was to redevelop CRW99-103A which included the Lots in between into a hotel development. As early as on 15 September 2010, an application was made for approval of proposals in respect of demolition for CRW99-103A approval of which was obtained on 11 November 2010. The Buildings Department also approved the development plan on 16 March 2011. But then Plan A was held up by the Title Issue.

24.  Mr Pan stated that in or around March 2011, attempt was first made to acquire ownership of Lee Hing Building (which occupied No 96 Connaught Road West), No 97 Connaught Road West and No 98 Connaught Road West as well as No 91 Des Voeux Road West at its back (collectively referred to as “CRW96-98”).

25.  On 7 December 2012, a building amendment plan was submitted and was approved on 4 January 2013.

26.  Mr Pan suggested that at the material time of July 2015, that is, by the time when Swift China Limited was prepared to purchase the Lots through public auction, it was still expected to shortly acquire all of the interest in CRW96-98 to enable the Joint Development to be completed within the 6-year building covenant under the Order for Sale. If those lots were included in the redevelopment project, with the increased site area, the extended project (“Plan B”) could be turned into a commercial development of Grade A private offices instead of the original hotel use.

27.  This Plan B was thwarted owing to unexpected difficulty in acquiring from the owner of the only outstanding unit in Lee Hing Building. On 19 June 2017, Swift China Limited made a compulsory sale application to the Tribunal, ie LDCS 6000/2017 and only after the trial by the Tribunal in December 2019 did Swift China Limited successfully acquire that outstanding interest in Lee Hing Building on 13 January 2020.

28.  Meanwhile, Mr Wong and his firm, Ronald Lu & partners (Hong Kong) Limited were engaged for this development project from 21 March 2017.

29.  The Group had acquired the entirety or majority of the interests in the Neighbouring Lots and intended to develop with them a Grade A private office building on an even a greater scale (“Plan C”) which, according to Mr Pan, would have (1) a larger site area, (2) more gross floor area, (3) higher efficiency, and (4) improvement to neighbourhood. According to Mr Wong, The Neighbouring Lots and the Lots (“the Amalgamated Site”) together constitute a site area of 20,223 sq ft (1,878.76 sq m) and a potential gross floor area (“GFA”) of 303,345 sq ft (28,181 sq m), which is approximately 155% larger than the originally intended redevelopment CRW99-103A, ie Plan A[4].

30.  On 1 April 2020, GCCL submitted a building plan for the Amalgamated Site under Plan C for approval. On 19 August 2020, GCCL submitted another building plan for Plan C for approval. The revised General Building Plans were submitted on 28 October 2020 and were approved by the Buildings Department for the Building Authority on 4 January 2021.

31.  Mr Wong, in his Affirmation dated 20 November 2020 and filed to the Tribunal also on 23 November 2020, explained that Plan C would bring positive impact to the neighbourhood:[5]

(a) The Amalgamated Site would not be plagued by piecemeal developments and, if the Lots were to be developed on their own, ie a site area of merely 252.38 sq m, that development would be a pencil-type one by comparison.

(b) The Joint Development of the Amalgamated Site, which is substantially larger and much more efficient than the development of the Lots on their own, does have a public dimension: it satisfies the need of maximizing utility of the limited supply of land in Hong Kong and the market need of offices in the western district of Hong Kong.

(c) With its critical mass of 303,345 sq ft (28,181 sq m) in GFA, Plan C can set a positive example for urban renewal of the neighbourhood and may likely quicken the regeneration of a wider area.

(d) The design of the Amalgamated Site will comply with the Sustainable Building Design Guidelines issued by the Buildings Department (PNAP-APP 152):

(i) The Amalgamated Site, having a site area of over 1,000 sq m (20,223 sq ft or 1,878.76 sq m), will provide the required greenery coverage for the enjoyment by the public;

(ii) The provision of greenery will benefit the pedestrians and building users in terms of visual relief and ease off the urban heat island effect.

Submission of GCCL

32.  Mr Mok submitted that due to the unexpected complications in the acquisition of the last unit in Lee Hing Building at No 98 Connaught Road West and the outbreak of the coronavirus, GCCL is now advised by its authorised person, Mr Wong, that it should be able to complete the Plan C development by 28 August 2026.

33.  Mr Mok further submitted that GCCL, the 2^nd applicant and their associated companies had been taking active and continuing efforts to implement and expand the redevelopment (which always included the Lots) since the acquisition of the Lots in 2015 and the expanded redevelopment of Plan C is capable of bringing about positive impacts to the neighbourhood area.

34.  Finally, Mr Mok pointed out that the Order for Sale was not obtained against the wish of the respondent. In fact, the respondent had agreed to sell his unit before the proceedings were commenced but the agreement was not able to be completed because the respondent failed to remove a title problem. There was never any contest from the respondent against the Order for Sale.

Discussion

35.  While I accept that encouraging private redevelopment to improve urban environment should be regarded as a ground of public interest, I appreciate in Ying Ho Company Limited, supra, it was decided that there was only an implied term to the effect that the building covenant period would be extended if there is culpable conduct or undue delay on the part of the Government resulting the developers in that case not being able to comply with the building covenant.

36.  Having regard to the reasons for the Joint Development as described above, the Government was clearly not at fault or in any way culpable for delaying the development of the Lots. Once the applicants in the present case commenced the proceedings under the Ordinance in October 2014, they should have been aware of the provisions of the Ordinance which includes section 9 and the consequence of the breach of the 6-year completion period. That they chose to defer the development for an alternative scheme, Plan C or otherwise, was out of their own volition that they cannot complain. They could have deferred commencing the application for compulsory sale in the first place if the opportunity for the Joint Development so alleged arose.

37.  In Bond Star Development Limited v Capital Well Limited [2004] 2 HKLRD 855, the Court of Appeal did refer to the second reading of the Bill on 7 April 1998 and affirmed that the legislation would apply to single lots only irrespective of the following comments made by the Provisional Legislative Councillors:[6]

(a) Mr Edward Ho was reported to have said: “The key lies in the Bill being applicable to single lots only. It is therefore not applicable to consolidated redevelopment plans for buildings straddling several lots. As a result, development of pencil buildings will result. From the angle of town planning and of increasing space and basic community facilities for an area, ‘pencil buildings’ are far from being satisfactory. Hence I hope the Government can look into other ways, which better conform to town planning principles, to help the private sector to conduct redevelopment.”

(b) Mr Ronald Arculli expressed his concern that due to the stringent requirement that an applicant for an order for compulsory sale will have to own 90% of the undivided share of the lot or lots which may be the subject of an application, this might result in pencil rather than comprehensive redevelopment.

(c) Mr Ngan Kam-chuen also referred to the “pencil’ developments which he referred to as not being conductive to comprehensive urban redevelopment.

38.  The Secretary for Planning, Environment and Lands did not say anything to disagree but he also did not further address the issue. Neither the town planning issue has been included as one of the considerations in section 4(2)(a) of the Ordinance or as a criterion of granting an order for sale. In my view, therefore, the purpose of achieving a better development scheme for the reason of better town planning, improving the environment of the neighbourhood or otherwise should not be regarded as a good excuse for not complying with the 6-year development completion period.

39.  Nevertheless, in a letter dated 29 January 2021, the Department of Justice intimated that the Director of Lands had no comment on the present application to extend the time for completion of the redevelopment of the Lots from 31 July 2021 to 28 August 2026.

40.  I have also taken note of the peculiar background of this case that the Order for Sale was not obtained against the wish of the respondent. In fact, the respondent had agreed to sell his unit before the proceedings were commenced in 2014 but the agreement was not able to be completed because of the Title Issue. There was never any contest from the respondent against the Order for Sale. That is, there would not be any prejudice to the respondent if the time for completion of the redevelopment of the Lots is extended.

41.  As a result, I made the order as granted.

Costs

42.  I make a costs order that costs of the Joinder Summons be paid by GCCL to the Secretary for Justice on High Court Scale, to be taxed if not agreed.

Mr MOK Yeuk Chi, instructed by Messrs Mayer Brown, for Grand Connaught Co Ltd, as successor of the 2^nd applicant

1^st and 3^rd applicants, unrepresented and did not appear

Respondent, unrepresented and did not appear

Attendance of the Secretary for Justice as Interested Party was excused

LDCS18000/2014

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL

ADMINISTRATIVE REGION

LAND COMPULSORY SALE APPLICATION NO.

18000 OF 2014

________________________

BETWEEN

________________________

______________

J U D G M E N T

______________

Background

1. This is an application for compulsory sale of all the undivided shares in the Remaining Portion of Marine Lot No 479 (“Lot 1”) and the Remaining Portion of Marine Lot No 484 (“Lot 2”) which are hereinafter collectively referred to as “the Lots” where necessary, for the purposes of redevelopment pursuant to section 3(1) of the Land (Compulsory Sale for Redevelopment) Ordinance, Cap. 545 (“the Ordinance”). There had a building erected thereon known as Man Fung Building, Nos 101-102 Connaught Road West, Hong Kong (“the Building”).

2. The Building, which was demolished in 2013, consists of a block of 13-storey commercial/residential building served by one lift and two common staircases. According to an occupation permit issued on 9 March 1967, the Building had 2 retail shops on Ground Floor, 3 office units on the First Floor, 4 office units on the Second Floor and 3 domestic units on each of the Third to Twelfth Floors. Each of the units was allotted either some of the 43 undivided shares of Lot 1 or some of the 43 undivided shares of Lot 2 by a Deed of Covenant dated 31 August 1967.

THE APPLICATION

3. When the 1^st applicant, the 2^nd applicant and the 3^rd applicant (hereinafter collectively referred to as “the applicants”) commenced the present proceedings on 28 October 2014 (“the Application”), the ownership of the undivided shares in the Lot was:

	Lot 1			Lot 2
	Remaining Portion of Marine Lot No 479			Remaining Portion of Marine Lot No 484
G/F	Shop A			Shop B
	(6/43)			(6/43)
	1st applicant			2nd applicant
1/F	Portion A-1		Portion BC		Portion A-2
	(2/43)		(1/43)	(1/43)	(2/43)
	1st applicant		3rd applicant		1st applicant
2/F
	Portion A-1	Portion B		Portion A-2		Portion C
	(2/43)	(2/43)		(2/43)		(2/43)
	2nd applicant	3rd applicant		2nd applicant		3rd applicant
	Flat B		Flat A		Flat C
	(2/43)		(1/43)	(1/43)	(2/43)
3/F	2nd applicant		2nd applicant		2nd applicant
4/F	2nd applicant		2nd applicant		2nd applicant
5/F	3rd applicant		2nd applicant		2nd applicant
6/F	2nd applicant		2nd applicant		2nd applicant
7/F	3rd applicant		2nd applicant		2nd applicant
8/F	2nd applicant		2nd applicant		2nd applicant
9/F	2nd applicant		2nd applicant		2nd applicant
10/F	respondent		2nd applicant		2nd applicant
11/F	2nd applicant		2nd applicant		2nd applicant
12/F & Roof	2nd applicant		2nd applicant		3rd applicant

4. As manifested from the above table, the applicants are the persons who owned the average of 97.6744% of the undivided shares of the Lots. The only remaining interest was held by the sole respondent, estate of Wong Shing Kwong, deceased (“the Deceased Owner”) who owns the 2 undivided shares allotted to Flat B, 10/F of the Building (“the Unit”).

5. According to the Witness Statement dated 24 February 2015 of Pan Wai Hung Christopher, the Director of the Property Department of Tai Hung Fai Enterprise Company Limited, the holding company of the applicants, the Deceased Owner made his will naming Pun Man Yung (“Madam Pun”) as the sole executrix and beneficiary before he passed away on 18 November 1984. Madam Pun also made her will, naming Wong Weng Wa Vincent (“Vincent Wong”) and Wong Wing Yee as executors of her estate before she passed away on 15 December 1985 without having proved the will of the Deceased Owner.

6. On 15 October 1997, Letters of Administration with the will annexed of the estate of the Deceased Owner was granted to Vincent Wong who has become the respondent in the Application.

7. However, the Unit is said to be held in trust by the Deceased Owner for certain beneficiaries and the Unit was omitted from the Schedule of Property annexed to the Letters of Administration.

8. By a Provisional Agreement of 21 September 2011, Vincent Wong, as the personal representative of the estate of the Deceased Owner, agreed to sell the Unitto the 3^rd applicant. Paragraph 2 of the Schedule to the Provisional Agreement provided that the respondent was making an application to amend the Schedule of the Trust Property[1].

9. The amendment has never been approved and the parties entered into a Supplemental Agreement of 26 September 2014 providing for an alternative way of performing the spirit of the Provisional Agreement. Clause 2 contained the respondent’s acknowledgement that the Building had been demolished after the signing of the Provisional Agreement and provided that if the revised Letters of Administration be issued, the parties would proceed to complete but it would not be necessary for the respondent to deliver possession of the Unit. Clause 4 provided, inter alia, that if the Order for Sale being sought in the Application is obtained before the completion of the sale and purchase and the Lots be sold in auction, the respondent shall be deemed to have assigned the interest in the estate of the Deceased Owner in respect of the portion of net sale proceeds to be apportioned to the Unit to the 3^rd applicant and the Provisional Agreement (and any formal agreement) shall be treated as terminated.

10. Mr Mok Yeuk Chi (“Mr Mok”), counsel for the applicants, submits that under O 15  r.14 (1):

“Any proceedings … may be brought by or against trustees, executors or administrators in their capacity as such without joining any of the persons having a beneficial interest in the trust or estate, as the case may be; and any judgment or order given or made in those proceedings shall be binding on those persons unless the Court in the same or other proceedings otherwise orders on the ground that the trustees, executors or administrators, as the case may be, could not or did not in fact represent the interests of those persons in the first-mentioned proceedings.”(underline added)

11. Mr Mok further refers to paragraph 15/14/2 of the Hong Kong Civil Procedure 2015 which provides that :

“Where an action is brought by a stranger in respect of property vested in trustees, the trustees sufficiently represent all persons interested, and the beneficiaries should not be joined; but may be allowed to come in to protect their interests and to make a defence separately from the trustees …” (underline added)

12. In any event, there has been no application by any beneficiaries in the Application to be joined.

13. The applicants contend that all the requirements of the Ordinance have been satisfied and ask for an order for sale in terms of the draft order submitted.  The respondent is absent throughout the trial.

Section 3 of the Ordinance – Ownership of the ApplicantS

14. Section 3(1) of the Ordinance requires the applicants to have not less than 90% of the undivided shares in a lot before they can make the Application.

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

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

(b)  2 or more lots-

(i)  on which one building is connected to another building by a staircase intended for common use by the occupiers of the buildings; and

(ii)  where the average of-

(A)  the percentage of the undivided shares owned by the majority owner in the lot or lots on which one of the buildings stands; and

(B)  the percentage of the undivided shares owned by the majority owner in the lot or lots on which the other of the buildings stands, is not less than the percentage specified in subsection (1).

16. When the applicants commenced the present proceedings on 28 October 2014, it owned on average 97.6744% of the undivided shares in the Lots which share two common staircases.  The applicants were therefore entitled to make the Application under section 3(2)(a) of the Ordinance.

Section 4(2)(a)of the Ordinance– WHETHER REDEVELOPMENT WAS JUSTIFIED

17. Under section 4(2)(a) of the Ordinance, the Tribunal shall not make an order for sale unless, after hearing the objections, if any, of the minority owners of the lot the subject of the application under section 3(1) concerned, the Tribunal is satisfied that redevelopment of the Lots is justified. As stated in §2 above, however, the Building has been demolished.

18. According to the Witness Statement of Pan Wai Hung Christopher afore-mentioned, the applicants commenced the acquisition of units in the Building since March 2009. Since early 2010, however, the applicants kept receiving a number of building orders from the Buildings Department relating to various repair works of the Building under section 26 of the Buildings Ordinance, for instance. While the applicants then considered that it was more economical to demolish the Building for redevelopment, the applicants were advised by the agent responsible for acquiring the units that it would only take a few more months to acquire the Unit which is the only unit outstanding to complete 100% ownership of the Building. On the other hand, the redevelopment proposal and demolition plan were approved by the Buildings Authority in November 2010 and by the Provisional Agreement of 21 September 2011, the respondent, as the personal representative of the estate of the Deceased Owner, agreed to sell the Unitto the 3^rd applicant. Believing that the respondent would act in good faith and eventually amend the Letters of Administration as stated in §8 above, the Construction Department of Tai Hung Fai Enterprise Company Limited proceeded with the demolition in respect of the Building in the end of October 2012. Demolition works were completed in May 2013.

19. Mr Mok refers to Bond Star Development Limited v Capital Well Limited, LDCS 2000 of 2001 (unreported, dated 5 December 2002) (“the Bond Star Development case”) where the buildings on the lots the subject of an application under the Ordinance were similarly demolished.

20. Then the Tribunal, after considering the parties’ submissions on the construction of section 4(2)(a)(i), agreed that the scope of the Ordinance should cover the situation where the building was no longer standing on the lots. Later, when the Bond Star Development case proceeded to the Court of Appeal[2], Hon Rogers VP affirmed at §24 of the judgment that “the Ordinance envisages that redevelopment includes building on land where there has formerly been buildings.”  The same is also affirmed by the Court of Final Appeal. See §§25-27 of the judgment: (2005) 8 HKCFAR 578 at p 587.

21. Nevertheless, Mr Mok does not proceed the Application on the basis that the Tribunal does not have to satisfy itself that redevelopment of the Lots is justified as per the judgment of the Bond Star Development case. Indeed, as remarked by Hon Rogers VP at §23 of the Court of Appeal judgment, “it is still possible to give effect to [section 4(2)(a)(i)]  in the circumstances of this case… it is justifiable to take into account the state of repair of the buildings on the lot at the time when they were demolished for redevelopment.” Mr Mok called the evidence of Mr Benson Wong (“Mr B Wong”), an Authorised Person and a qualified building surveyor, to prove that redevelopment of the Lots is justified regarding the age or state of repair of the Building.

22. Mr B Wong, in his Condition Survey Report dated 9 February 2015 stated that he understood from the outset of his appointment that the Building had already been demolished. His views on the age and the state of repair of the Building prior to its demolition were based on, inter alia, the following documents:

(i) Certified copies of approved plans and amendment plans for the Building from Buildings Department;

(ii) Occupation Permit of the Building No H67/67, dated 9 March 1967;

(iii) Building orders under section 26 of the Buildings Ordinance issued by the Buildings Department;

(iv) Building orders under section 24 of the Buildings Ordinance issued by the Buildings Department;

(v) Demolition Plan Submission dated 15 September 2010 for the demolition of the buildings at Nos 99-103A Connaught Road West, which included the Building and two adjoining buildings on its sides;

(vi) Valuation report dated 14 January 2011 prepared by Savills Valuation and Professional Services Limited;

(vii) Valuation report dated 29 April 2011 prepared by Savills Valuation and Professional Services Limited;

(viii) Photo records of the exteriors and interiors of the Building taken by the Valuation Team of Savills Valuation and Professional Services Limited in 2010 before the commencement of demolition of the Building in 2012; and

(ix)Photo records taken by the demolition work contractor showing various stages of demolition of the buildings at Nos 99-103A Connaught Road West, during the period from 31 August 2012 to 13 May 2013.

23. Mr B Wong examined two section 26 and twenty eight section 24 building orders which remained in force prior to the demolition of the Building. Most of the section 24 building orders were first issued in 2005 and nearly all had been superseded one or twice by new building orders owing to changes of ownership and/or some unauthorised building works being removed to partly comply with some prior building orders.

24. As manifested from the occupation permit, the Building would have been aged over 47 years had it not been demolished. Mr B Wong stated that in structural engineering terms the building structure has only a design working life about 50 years. Also, in specifying the various recommendations, the Code of Practice for Structural Use of Concrete 2013 assumes a design working life of 50 years for reinforced concrete structure. Thus the Building was approaching the end of its design working life.

25. From his review of the record photographs of the building elevations, the internal common parts, the interiors of the flats as well as the building service installations of the Building, Mr B Wong was of the view that the Building had not changed with time and had become functionally obsolete in many aspects before its demolition.

26. On the issue of state of repair, Mr B Wong specifically referred to two building orders both dated 29 December 2005 issued by the Buildings Department under section 26 of the Buildings Ordinance which required removal of loose cracked and defective concrete from the reinforced concrete structure and adding steel bars as necessary.

27. On the same day, the Buildings Department also served two section 24 building orders to the Incorporated Owners of the Building requiring removal of unauthorised building works.

28. These orders were ignored and eventually the required works were taken over by the Buildings Department in 2010. Judging on the neglects of the building orders, Mr B Wong said the Incorporated Owners did not have the minimum awareness, inclination or ability to handle the repairs.

29. By reference to the two section 26 building orders, Mr B Wong suspected there should be corrosion of the steel reinforcement bars and spallings and cracks of the concrete of the reinforced concrete structure of the Building in parts other than the common areas.

30. Mr B Wong formed his views that

(i)  the Building was in a poor state of repair well below tenantable standard and

(ii)  the repairs required to restore the Building back to the tenantable standard would likely have been as extensive as those required of other old buildings lacking proper maintenance of similar age.

31. Thus Mr B Wong formed his view that the Building was aged and in a poor state of repair at the time when the Building was demolished in 2012.  He also commented that the Building did not possess any historical value or architectural merit.

32. The applicants also rely upon “the age test” conducted bythe applicants’ valuation expert witness Mr Charles C K Chan of Savills Valuation and Professional Services Limited (“Mr C Chan”). In his Supplemental Report prepared on 17 February 2015 (which was prepared subsequent to his initial Valuation Report prepared on 25 August 2014 pursuant to section 3(1)(a) of the Ordinance).

33. Mr C Chan conducted the age test by comparing the aggregate market value of the existing units of the Building prior to its demolition and the redevelopment value (“RDV”) of the Lots and formed his opinion that redevelopment is economically justified.

34. There is no contrary evidence and I accept the applicants’ evidence in whole.  In particular, I am satisfied that based on the evidence of Mr B Wong, redevelopment of the Lots is justified due to the age and the state of repair of the Building :

(i)  The Building was constructed in 1967, with obsolete designs;

(ii)  The unit owners had totally neglected the maintenance of the Building as amply demonstrated by the ignorance of the building orders for about 5 years leading eventually to the Buildings Department carrying out the required works to remove imminent danger;

(iii) Corrosion of the steel reinforcements of the reinforced concrete structure must have commenced before its demolition;

(iv)The Building had become obsolete in many respects both physical and functionally, and some of the items of obsolescence carried obvious safety and hygiene implications;

(v)  The Building would likely involve a very substantial and disproportionate amount of repair costs and disturbance to restore the Building to a tenantable condition;

(vi)The respondent had entered into the Provisional Agreement to sell to the 3^rd applicant its interest and the sale would have been completed if not for the title problem of the Schedule of the Letters of Administration not having included the Unit. All other unit owners had sold their units to the applicants rather than complying with the building orders.

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

35. The Application was accompanied by the Valuation Report dated 25 August 2014 (“The Application Report”) prepared by Mr C Chan, containing assessments of the values of all units (which are conveniently termed as the existing use values, the “EUV” of all units) in the Building on the Lots as at that date. The Application Report was prepared not earlier than 3 months before the date of the Application, i.e. 28 October 2014 and is therefore, in my view, in compliance with section 3 of the Ordinance.

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

37. Section 4(1)(a)(ii) further provides that, in the case of any minority owner of the Lots who cannot be found, the majority owner of the Lots is required to satisfy the Tribunal that the value of the minority owner’s property as assessed in the application is “(A) not less than fair and reasonable; and (B) not less than fair and reasonable when compared with the value of the majority owner’s property as assessed in the application.”  

38. In the Application Report of 25 August 2014, Mr C Chan explained the method of valuation and the process of his assessment to arrive at the EUV of each unit of the Building.

39. In his valuation of the EUV of the domestic units on the upper floors of the Building, Mr C Chan adopted the following methodology :

(i) He selected Flat C on 7/F as the reference unit (“the Reference Domestic Unit”) for the purpose of valuing its unit price.

(ii) The unit price of the Reference Domestic Unit was first assessed by making reference to market comparables.  He took into account 5 comparable transactions in 3 different buildings in the vicinity.  After making what he regarded as the necessary adjustments (for time, location & environment, floor level, age, size, lighting & ventilation, view and noise) for all these comparable transactions, he took the average of the adjusted unit rates of the comparables to arrive at the unit price of the Reference Domestic Unit.

(iii) He further considered the floor level, top floor effect, size, lighting & ventilation, view and noise of the Reference Domestic Unit and the remaining domestic units within the Building and made adjustments to arrive at the EUV of all the domestic units on the upper floors of the Building.

40. In assessing the EUV of the office units on 1/F and 2/F, Mr C Chan selected Portion B on 2/F as the reference office unit (“the Reference Office Unit”). Here he made reference to 5 comparable transactions in 5 different office buildings in the vicinity.  After making what he regarded as the necessary adjustments (for time, location, floor level, age, size & view) for all these comparable transactions, he took the average of the adjusted unit rates of the comparables to arrive at the unit price of the Reference Office Unit. He then proceeded to determine the EUV of the other office units, making similar adjustments.

41. In assessing the EUV of the ground floor units, Mr C Chan selected Shop A on Ground Floor as the Reference Retail Unit.  He then took into account 4 comparable shop transactions nearby.  After making what he regarded as the necessary adjustments (for time, location, size, age, frontage, layout and headroom) for all these comparable transactions, he took the average of the adjusted unit rates of the comparables to come to the unit price of the Reference Retail Unit. He then compared the Reference Retail Unit with the other retail unit on Ground Floor and made adjustments to arrive at the EUV for the latter.

42. Mr C Chan updated the Application Report by the Supplemental Report dated 17 February 2015 afore-mentioned (“Supplemental Report”) in which he revised the EUV of all the units in the Building after taking into account the updated property index prepared by the Rating and Valuation Department.  In this report, Mr C Chan repeated basically the exercise he did in the Application Report.

43. The EUV of all units in the Building assessed by Mr C Chan as at 25 August 2014, are reproduced at the Appendix hereto.

44. I am satisfied that the values of the respondent’s unit as assessed by Mr C Chan is not less than fair and reasonable; and not less than fair and reasonable when compared with the value of the applicants’ properties:

(i) Flat B, 10/F - assessed at $6,770,000 (representing 2.57% of the total EUV of all units);  and

(ii) the total EUV of all units - assessed at $263,420,000.

Section 4(2)(b)of the Ordinance - Reasonable Steps

45. Under section 4(2)(b) of the Ordinance the second consideration in making an order for sale should be whether the applicants have taken reasonable steps to acquire all the undivided shares in the Lots where the owners’ whereabouts are known.

46. As stated in §§8-9 above, the Provisional Agreement for the sale of sole remaining unit was not completed only because of the title problem of the Unit not having been included in the Letters of Administration. Mr Mok also submits that the Supplemental Agreement in 2014 demonstrates the parties agreed inter alia to the alternative way of performing the spirit of the Provisional Agreement in the event the compulsory sale order being applied for is granted and the Lots are auctioned. All other units have been acquired by the applicants.

47. In the circumstances of this particular case, I am satisfied that the applicants have taken reasonable steps to acquire all the undivided shares in the Lots. 

Reserve Price for the Auction

48. In the Supplemental Report, Mr C Chan has prepared an assessment of the RDV of the Lots at $309,000,000 (ie an accommodation value of $81,623/ sq m) as at 17 February 2015. The total site area of the Lots as determined by Mr C Chan is 252. 38 sq m.

49. The applicants submit that the reserve price for the auction of the Lots should be fixed at $309,000,000 accordingly.

50. I have considered Mr C Chan’s valuation of the RDV of the Lots which was on the basis of a residual valuation. This is done by deducting development costs (including construction costs, professional fees, finance costs etc) and developer’s profit from the estimated gross development value of the completed optimum development.

51. For instance, Mr C Chan opined that the optimal development on the Lots would be a 25-storey commercial building with shop units on ground floor and commercial/office units on upper floors.  Details of the hypothetical development and residual valuation were set out in Appendix 3.3 of the Supplemental Report (Bundle B1/64).  Details of retail and commercial/office comparables with adjustments were set out in Appendix 3.4 (Bundle B1/67) and Appendix 3.5 (Bundle B1/69-70) respectively.  Mr C Chan also adopted the Development Cost Pro-forma promulgated by the Hong Kong Institute of Surveyors to facilitate consideration of construction costs in land value assessments (Bundle B1/65). The valuation arrived at by Mr C Chan was $309,000,000, representing an overall accommodation value of $81,623/sq m.

52. Mr C Chan has not conducted a valuation on basis of direct comparison because he said there was no relevant land sale transaction.

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

54. Based on Mr C Chan’s valuation, I decide that the reserve price for the auction of the Lots should be HK$309,000,000.

TRUSTEES

55. The applicants propose to appoint Mr Ma Ho Fai (馬豪輝) and Ms Tsang May Ping (曾美萍) who are respectively senior partner and partner of Messrs Woo Kwan Lee & Lo as the sale trustees.  Based on the information on their letter dated 30 March 2015, the proposed trustees also intend to appoint Messrs Michael Cheuk, Wong & Kee to act as the solicitors of the trustees/vendors in the sale of the Lots for handling the sale and discharging the duties imposed on the trustees under the Ordinance. I am satisfied that Mr Ma Ho Fai (馬豪輝) and Ms Tsang May Ping (曾美萍) are proper persons to be appointed.  Their proposed remuneration at the rate of $5,500 per hour (exclusive of disbursements and fees payable to consultants) as mentioned in the letter dated 30 March 2015 is also reasonable and hereby allowed.

PARTICULARS AND CONDITIONS OF SALE OF THE LOTS

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

Conclusion AND ORDERS

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

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

(ii) Mr Ma Ho Fai (馬豪輝) and Ms Tsang May Ping (曾美萍) nominated by the Applicants be appointed trustees (“the Trustees”) to discharge the duties imposed on trustees under the Ordinance in relation to the Lots; and the Trustees be authorized to charge such remuneration for their service in accordance with the terms set out in the letter from Messrs Woo Kwan Lee & Lo dated 30 March 2015;

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

(a) The sale of the Lots be on particulars and conditions of sale the same or substantially the same as the set of draft particulars and conditions of sale submitted to the tribunal (Appendix 2 of  the Applicants’ opening submission) initialled and approved by me;

(b) The reserve price of the Lots be set at HK$309,000,000;

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

(iv) There be liberty to the applicants, the respondent and the Trustees to apply for further directions.

Costs

58. The applicants do not ask for costs. I make a costs order nisi that there be no order as to costs between the parties, such order be made absolute after 14 days if no application is made to vary the said costs order.

Appendix