ANLING LTD AND OTHERS v. HULTUCKTONG ENTERPRISES LTD AND OTHERS

LDCS 1000/2015

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LAND COMPULSORY SALE MAIN APPLICATION NO. 1000 OF 2015

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J U D G M E N T

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Background

1.  This is an application for compulsory sale of all the undivided shares of and in the following lots (hereinafter collectively referred to as “the Lots”) for the purposes of redevelopment pursuant to section 3(1) of the Land (Compulsory Sale for Redevelopment) Ordinance, Cap 545 (“the Ordinance”):

(1)	Inland Lot No 2242, erected thereon a 14-storey building known as Po Wah Building (hereinafter referred to as “Po Wah”) with the street numbers of 46-56 Queen’s Road East, 2A Anton Street and 1A Landale Street;
(2)	Sections A, B and C of Inland Lot No 2244, erected thereon three pairs of 6-storey tenement buildings with the street numbers of 2-4, 6-8 and 10-12 Anton Street (hereinafter referred to as “2-12 Anton”); and
(3)	Sections C, D, E and F of Inland Lot No 2245, erected thereon two pairs of 6-storey tenement buildings with the street numbers of 5-7 and 9-11 Landale Street (hereinafter referred to as “5-11 Landale”).

Po Wah, 2-12 Anton and 5-11 Landale are hereinafter collectively referred to as “the Buildings”.

2.  Thus, with the pair of tenement buildings at 1-3 Landale Street missing in the application (“the Application”), the Lots comprise a site likened to the Chinese character “凹” with its base abutting Anton Street and the right side abutting Queen’s Road East.

3.  Po Wah is served by 2 lifts and 2 common staircases with the occupation permit (“OP”) issued on 26 September 1959.  According to the building plans and the Deed of Mutual Covenant (“DMC”) of Po Wah, there are:

(1)	7 shops on G/F (each being assigned 1/107 equal and undivided share),
(2)	8 residential units on each of the 1/F to 12/F (each being assigned 1/107 equal and undivided share),
(3)	3 Penthouses and Roof (altogether assigned 3/107 equal and undivided shares),
(4)	Portion of the Roof (being assigned 1/107 equal and undivided share).

4.  Each pair of the 6-storey tenement buildings at 2-12 Anton is served by 1 common staircase, the OP of which was issued on 8 May 1961.  According to the building plans and the DMC of 2-12 Anton, there are:

(1)	6 shops on G/F (each being assigned 1/14 equal and undivided share among one pair of tenement buildings),
(2)	6 residential units on each of the 1/F to 5/F (each being assigned 1/14 equal and undivided share among one pair of tenement buildings),
(3)	The Space underneath the Staircase from G/F to 1/F whereby
	(i)	that in 2-4 Anton is assigned 1/14 equal and undivided share;
	(ii)	that in 6-8 Anton is assigned 2/14 equal and undivided share; and
	(iii)	that in 10-12 Anton is assigned 1/14 equal and undivided share;
(4)	the Roof of 2-4 Anton and the Roof of 10-12 Anton is each assigned 1/14 equal and undivided share while the Roof of 6-8 Anton is given no equal and undivided share.

5.  Each pair of the 6-storey tenement buildings at 5-11 Landale is also served by 1 common staircase, the OP of which was issued on 20 September 1957.  According to the building plans and the DMC of 5-11 Landale, there are:

(1)	6 shops on G/F (each being assigned 1/6 equal and undivided share of one tenement building),
(2)	6 residential units on each of the 1/F to 5/F (each being assigned 1/6 equal and undivided share of one tenement building).

6.  At the time of the Application filed on 23 January 2015, the applicants owned:

(1)	81.3084% of the undivided shares of Po Wah;
(2)	94.2857% of the undivided shares of 2-4 Anton;
(3)	94.2857% of the undivided shares of 6-8 Anton;
(4)	80% of the undivided shares of 10-12 Anton;
(5)	91.6667% of the undivided shares of 5-7 Landale;
(6)	83.3333% of the undivided shares of 9-11 Landale.

7.  By the time of trial, the applicants have acquired all the outstanding undivided shares and the exclusive possession of the units given an undivided share except those owned by the following respondents (denoted with the prefix “R” in numerical order):

(1)	R1 owns:
	(i)	1/14 undivided share allotted to G/F of 12 Anton;
	(ii)	1/14 undivided share allotted to 1/F of 12 Anton;
(2)	R2 owns:
	(i)	1/6 undivided share allotted to G/F of 7 Landale;
	(ii)	1/6 undivided share allotted to G/F of 9 Landale;
(3)	R3 owns 1/6 undivided share allotted to G/F of 11 Landale;
(4)	R5, being the survivor of the joint owners of R4 & R5, owns:
	(i)	1/107 undivided share allotted to G/F, Shop A, Po Wah;
	(ii)	1/6 undivided share allotted to 1/F, Shop A, Po Wah;
(5)	R11, being the survivor of the joint owners of R10 & R11, owns 1/107 undivided share allotted to 1/F, Block D, Po Wah;
(6)	R19 holds 1/107 undivided share allotted to 8/F, Block D, Po Wah as trustee for the following:
	(i)	Half share for himself;
	(ii)	Half share for Cheung Tak Kuen (R34) who sold his beneficial interest to the 2nd applicant;
(7)	R24 holds as trustee for the deceased R33, whose estate comprising the interest below where no one is prepared to be appointed and the Tribunal has given appropriate orders to enable the Tribunal to treat R33 as a missing owner:
	(i)	1/5 share of 1/14 undivided share of 2-4 Anton with the exclusive right to use The Space underneath the staircase from G/F to 1/F of 2-4 Anton;
	(ii)	1/5 share of 1/14 undivided share of 2-4 Anton with the exclusive right to use The Roof of 2-4 Anton;
	(iii)	1/5 share of 2/14 undivided share of 6-8 Anton with the exclusive right to use The Space underneath the staircase from G/F to 1/F of 6-8 Anton;
	(iv)	1/5 share of 1/14 undivided share of 10-12 Anton with the exclusive right to use The Space underneath the staircase from G/F to 1/F of 10-12 Anton;
	(v)	1/5 share of 1/14 undivided share of 10-12 Anton with the exclusive right to use The Roof of 10-12 Anton;
	(vi)	1/5 share of 1/107 undivided share of Po Wah with the exclusive right to use Block A, 12/F of Po Wah; and
	(vii)	1/5 share of 3/107 undivided share of Po Wah with the exclusive right to use the Three Penthouses and Roof of Po Wah.

8.  R1, R11, R19, R28 (the mortgagee of R2), R29 (the mortgagee of R3) and R33 have not filed any opposition or taken part in any hearing.

9.  The only “active” respondents are R2, R3 and R5.  R2 & R3 settled on the 1^st day of trial and R5 settled on the 3^rd day of trial.  Consent Summonses were filed.  Their Notices of Opposition and any evidence in opposition relating to the Application were withdrawn.

Whether the Applicants are entitled to make the Application

10.  Section 3(1) of the Ordinance requires an applicant to have not less than 90% of the undivided shares in a lot before he can make an application.

11.  Section 3(5) of the Ordinance provides that the Chief Executive in Council may, by notice in the Gazette, specify a percentage lower than the percentage mentioned in section 3(1) in respect of a lot belonging to a class of lots specified in the notice.

12.  The Land (Compulsory Sale for Redevelopment (Specification of Lower Percentage) Notice was gazetted on 22 January 2010 and came into operation on 1 April 2010 (“the Notice”).  Section 3 of the Notice lowered the threshold for compulsory sale in respect of the classes of lots specified in the Notice from 90% to 80%.  Those classes of lots include: “a lot with each of the building erected on the lot issued with an occupation permit at least 50 years before the relevant date (ie the date of the application under the Ordinance)”.

13.  As mentioned, the OPs for Po Wah, 2-12 Anton and 5-11 Landale were issued on 26 September 1959, 8 May 1961 and 20 September 1957 respectively (namely, not less than 50 years before the date of the Application).  The Notice is applicable and the threshold percentage should be 80%.

14.  We are satisfied that the applicants were entitled to make the Application under section 3(1) of the Ordinance.

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

15.  Pursuant to section 3 of the Ordinance, the Application was accompanied by a valuation report (“Application Report”) prepared by Mr Charles C K Chan of Savills Valuation and Professional Services Limited (“Mr Chan”), the applicants’ valuation expert, containing the assessments of the values of all units (which are conveniently termed as the existing use values, the “EUV” of all units) in the Buildings on the Lots as at 2 December 2014.  The report was prepared not earlier than 3 months before the filing of the Application in accordance with section 3 of the Ordinance.

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

17.  At trial, after the withdrawal of the expert evidence in relation to R2, R3 and R5’s opposition, there was no expert evidence filed by the other respondents in these proceedings; there is valuation evidence of 4 valuation reports[1] prepared by Mr Chan only.  Mr Mok, counsel for the applicants, simply called Mr Chan to prove the applicants’ case.

18.  Mr Chan explained his valuation method and the assessment process to arrive at the EUV of each unit in the Buildings in the Application Report dated 2 December 2014[2].

19.  In his valuation of the EUV of the domestic units of the Buildings, Mr Chan adopted the following methodology:

(a)	He selected 6/F, Block B, No 54 Queen’s Road East and 3/F, No 7 Landale Street (“the Reference Domestic Units”) as the reference units for the purpose of valuing their unit prices;
(b)	The unit prices of the Reference Domestic Units were first assessed by making reference to market comparables served by lifts and by staircases only respectively.  After making what he regarded as the necessary adjustments (for time, location and environment, building age, floor level, top floor effect, size, view, lighting and ventilation, noise effect, physical condition and building management, etc) for all these comparable transactions, he arrived at the unit price of the Reference Domestic Units at $135,000/sq m (as revised)[3] and $129,000/sq m (as revised)[4] respectively;
(c)	He further considered the floor difference, size, noise, and internal conditions of the Reference Domestic Units and the remaining domestic units under the Application and made adjustments to arrive at the EUV of all the domestic units.

20.  In assessing the EUV of the G/F units, by making reference to market comparables, Mr Chan adopted the following methodology:

(a)

He selected G/F, Block C of Po Wah and G/F, No 7 Landale Street as the Reference Shop Units.  The unit prices of the Reference Shop Units were first assessed by making reference to market comparables fronting Queen’s Road East or otherwise.  After making what he regarded as the necessary adjustments (for time, location, size, building age, frontage, layout and headroom) for all these comparable transactions, he arrived at unit price of the Reference Shop Units at $837,000/sq m and $750,000/sq m respectively[5];

(b)

He then used the unit rate of the Reference Shop Units to assess the other ground floor units.

21.  Mr Chan updated the Application Report by a supplemental report dated 10 June 2016 (“Supplemental Report”)[6] in which he revised the EUV of all units in the Buildings after taking into account the inspection of most residential units and the updated property index prepared by the Rating and Valuation Department.  In the meantime, the Tribunal affirmed the market reality approach in valuation in Cheer Capital Limited v Unibase investment Limited & Others, LDCS 5000 & 6000/2013 (unreported, dated 12 June 2015) and Mr Chan decided to review the EUV of various units of Po Wah, including (1) the unauthorised structures in G/F of Block A, (2) the non-domestic use of 1/F of Block A, (3) the enclosed yards for the various shop units on G/F and (4) the enclosed common area on 4/F (ie “Treatment 2” in the Supplemental Report).

22.  Indeed, this same principle was adopted by the Tribunal in Gainfield Investment Limited & Others v Legend Time Limited & Others, LDCS 16000/2014 (unreported, dated 17 October 2016).

23.  About the same time, in Newbigin (VO) v SJ & J Monk (A Firm) [2015] 1 WLR 4817, Lewison LJ discussed “the reality principle” in these terms:

“It is a well-known principle of valuation, not confined to rating, that in principle you must value the property as it stands on the valuation date. This is the principle of reality; or as classicists prefer to call it, the principle that property must be valued rebus sic stantibus. This principle can be displaced by contrary instructions in the statute or contract under which the valuation takes place.”[7]

24.  We agree with the various assessments by Mr Chan and the EUV of the units is reproduced from Mr Chan 2^nd Supplemental Report dated 18 September 2017[8] at Appendix A hereto.

25.  The total EUV is $1,522,802,000.[9]  We are satisfied that the EUV of the minority owners’ units and interest as assessed by Mr Chan are not less than fair and reasonable and are not so when compared to the EUV of the applicants’ units.

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

26.  In determining the Application, section 4(2) of the Ordinance empowers the Tribunal to make an order for sale if it is satisfied that:

(1)	the redevelopment is justified due to age or state of repair of the Buildings; and
(2)	the applicants have taken reasonable steps to acquire all the undivided shares in the Lots (including negotiating for the purchase of the undivided shares owned by the respondents on terms that are fair and reasonable).

Section 4(2)(a) - Age and State of Repair

27.  For the age and state of repair requirements, this Tribunal has taken into consideration the expert evidence of Mr Benson Wong (“Mr Wong”), the Chartered Building Surveyor and Mr So Kin Shing (“Mr So”), the Structural Engineer adduced by the applicants.

28.  Mr So conducted structural assessment of the Buildings and prepared 3 Structural Assessment Reports dated 6 June 2016 for Po Wah, 2-12 Anton and 5-11 Landale.  Mr Wong conducted condition survey of the Buildings and also prepared 3 Condition Survey Reports dated 8 June 2016.  None of the respondents had adduced any expert evidence in this connection.  Mr Wong and Mr So found that:

(1)	The Buildings were all constructed more than 50 years ago, with obsolete designs on structural and other requirements, and have now come near the end of their designed lives.
(2)	The Buildings have become obsolete in many aspects both physically and functionally and some of the items of obsolescence carry obvious safety and hygiene implications.
(3)	The Buildings are not in tenantable condition and require a very huge amount of repair costs to be restored to a tenantable condition.
(4)	The huge amount of repair costs, and the inevitable disturbance to the occupiers during the lengthy period of repair, tends to show the deterioration of the Buildings is very serious and has reached a state which is beyond economic repair.
(5)	No reasonable owner would spend the very huge amount to repair the Buildings instead of deciding to redevelop.

29.  We accept the unchallenged evidence of the applicants in these respects and are satisfied that redevelopment of the Lots is justified due to age and state of repair of the Buildings.

Section 4(2)(b) - Reasonable Steps Taken

30.  The applicants are under an obligation to take reasonable steps to negotiate on terms that are fair and reasonable for the purchase of all the undivided shares of the Lots under section 4(2)(b) of the Ordinance.

31.  By reference to the Witness Statement of Ms Fong Wai Yee dated 10 June 2016 on behalf of the applicants, it is undisputed that the applicants had made batches of offers to the various respondents since 10 December 2014, each accompanied by the advice letter of Mr Chan setting out the assessments based on which the offers were made.

32.  The latest round of offers was made on 10 October 2017.

33.  In assessing the reasonableness of the offers, Ribeiro PJ of CFA has laid down the following guidance in Capital Well Ltd v Bond Star Development Ltd (2005) 8 HKCFAR 579:

“33. In making that assessment the Tribunal is not conducting a valuation exercise. It does not need to adjudicate upon any disputes about the correct valuation principles to be applied. It does not itself arrive at any conclusion as to what figure represents the correct valuation. It merely needs to be satisfied that, on the evidence available, the offer falls within the range of what may broadly be regarded as fair and reasonable compensation for the interest in question. It is obviously necessary to recognise that there will often be differences of opinion on that matter……” “36. ......We are of course not suggesting that it is necessary for the offer to “beat” the valuation as if it were a payment into court. What the Tribunal must do is to consider whether, in the circumstances of each case, the offer falls within a band of what represents a fair and reasonable assessment of the value of the minority owner’s interest reflecting a proportionate share of the redevelopment value of the whole site……”

34.  Further, in Intelligent house Limited v Chan Tung Shing & Others [2008] 4 HKC 421, the majority owner relied on its valuation expert (who happened to be Mr Chan) to formulate some of the offers.  The Tribunal ruled that:

“Further, it is not disputed that Savills is a reputable firm of valuers … In our view, it is also reasonable for Intelligent House to rely on Savills’ expert opinion to formulate the purchase prices offered to the minority owners. There is also no reason for us to believe, nor is there such evidence to suggest, that the advices from Savills were not properly made based on professional valuation of the EUV and RDV of the minority owners’ units.” (§334(3))

35.  Of particular interest in the present case is that just before the trial, R24/25 entered into sale and purchase agreement to sell to the applicants the interests of R25 and those held by R24 as trustees for 1 of 5 deceased brothers.  And as said in §9 above, on the 1^st day of trial and the 3^rd day of trial, R2/3 and R5 respectively settled with the applicants for the acquisition of their units.

36.  In the circumstances of this case, we are satisfied that the applicants have taken reasonable steps to acquire all the undivided shares in the Lots; such steps include the applicants’ latest offers to the respondents who have not participated in the trial.

Order for Sale

37.  We are satisfied that redevelopment of the Lots is justified in terms of both age and state of repair of the Building.  We are also satisfied that the applicants had taken reasonable steps to acquire all the undivided shares of the Lots and had negotiated for the purchase of the respondents’ shares in their respective units on terms that are fair and reasonable.  In the circumstances, we agree that an order for sale should be granted in favour of the applicants.

Reserve Price for the Auction

38.  In the 2^nd Supplemental Report dated 18 September 2017, Mr Chan adopted the Residual Method to assess the redevelopment value (“RDV”) of the Lots at $2,055,000,000.  Residual Method is the assessment of land value by deducting the development costs (including construction costs, professional fees, financial costs and profit, etc) from the estimated gross development value of the proposed development, as if completed, as at the date of valuation.

39.  The Lots, with a total site area about 1,187.50 sq m, are situated within a well established commercial / residential area bounded to the southwest by Queen’s Road East, to the north by Johnston Road and to the east by Wan Chai Road which has been zoned “Residential (Group A)” under the draft Wan Chai Outline Zoning Plan No S/H5/27 gazetted on 2 August 2012 (“the Zoning Plan”).  Under this designation, while residential development with the lowest 3 floors for office / commercial use is always permitted, a wholly office development would require planning permission from the Town Planning Board.

40.  Also, by reference to the Zoning Plan, the Lots are subject to a maximum building height of 110 metres above Hong Kong Principal Datum.  A minimum setback of 1m from the lot boundary fronting Anton Street shall be provided.

41.  As instructed by the applicants, and on the basis of a residential scheme provided by Mr Robert Lam, the Authorised Person of the applicants, Mr Chan assumed that the Lots could be redeveloped into a 28-storey commercial / residential composite building with retail / commercial units on G/F to 2/F, communal podium garden on 3/F, club house on 4/F, M&E room on 5/F and residential units on 6/F to 27/F.  Details of the hypothetical residential development with the proposed total gross floor area of 12,322 sq m and plot ratio of about 10.3764 and the residual valuation were set out at Appendix 5 of the 2^nd Supplemental Report[10].

42.  The residual land value is assessed at $2,055,000,000, which is equivalent to an accommodation value of about $166,775/sq m gross floor area.  The residual valuation is reproduced at Appendix B.

43.  In our earlier decision dated 4 August 2017, leave was granted for R2, R3, R24 and R25 to adduce expert evidence on 3 additional areas, namely town planning, traffic impact and plot ratio and gross floor area for the purpose of assessing the possibility of a wholly office development as opposed to the commercial / residential composite building assumed by Mr Chan.  But following the Consent Summons as mentioned in §9 above, all such expert evidence has been withdrawn.

44.  According to the Hong Kong professional valuation standards[11], hope value for such office development can only be included as part of the market value when there is a reasonable prospect as reflected by at least 50% chance of success that the land can be put to use.  A mere chance is not accepted unless the probability threshold can be met.  The reference to “at least 50% chance” was also adopted in various jurisdictions such as in Canada.  In Farlinger Developments Limited v East York (Borough) (1975) 9 OR (2d) 553, 61 DLR (3d) 193, 8 LCR 112, the issue was whether the appellant could reasonably expect a change in zoning permitting development as desired as the basis of determining compensation for the market value of its land which had been expropriated.  Howland JA of the Court of Appeal of the Ontario Supreme Court of Canada held at §38 of the judgment that:

“From these authorities it would seem to be established that the highest and best use must be based on something more than a possibility of rezoning. There must be a probability or a reasonable expectation that such zoning will take place. It is not enough that the lands have the capability of rezoning. In my opinion probability connotes something higher than a 50% possibility.”

45.  In Transport for London v Spirerose Ltd [2009] 1 WLR 1797 (HL) which concerned determination of the market value of land with the prospect of a planning permission[12] for the purpose of compulsory acquisition, the House of Lords held that unless 100% certainty of redevelopment can be substantiated, a discount rate with only hope value should be awarded to reflect the chance that planning permission would not have been granted.

46.  In fact, Spirerose and its line of authorities[13] were discussed briefly in Siu Sau Kuen v Director of Lands [2013] 6 HKC 557.  Fok JA had this to say at §35[14]:

“I would accept … that these [cases] each concerned development potentials or possibilities that already existed as at the relevant valuation date. As such, they do not establish any proposition that wholly future potentialities, i.e. the validity of future redevelopment that could not be shown as at the date of the resumption to be likely within a reasonably foreseeable time scale, should be taken into account or reflected in the valuation. …”

47.  Thus, in the absence of any evidence to support the prospect of office development with permission from the Town Planning Board, we accept that the market value of the Lots reflecting its redevelopment potential on its own, i.e. the RDV of the Lots is $2,055,000,000, which should be the reserve price for the auction of the Lots.

Order

48.  By reason of the above, this Tribunal comes to the following decisions:

(1)	The Tribunal is satisfied that the EUV of the minority owners’ units and interest as assessed by Mr Chan, the applicants’ valuation expert are not less than fair and reasonable and are not so when compared to the EUV of the applicants’ units;
(2)	The Tribunal is satisfied that redevelopment of the Lots is justified due to the age and state of repair of the Buildings, and that the applicants have taken reasonable steps to acquire all the undivided shares in the Lots including those of the respondents;
(3)	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 section 4(1)(b) of the Ordinance;
(4)	Mr Chow Wing Kin Anthony and Ms Chow Suk Han Anna, nominated by the applicants, be appointed trustees (“the Trustees”) to discharge the duties imposed on trustees by the Ordinance in relation to the sale of the Lots and the Trustees be authorized to charge such remuneration for their services in accordance with the terms set out in the letter of Messrs Guantao & Chow Solicitors and Notaries dated 3 October 2017;
(5)	For the purposes of the sale of the Lots by public auction under section 5(1)(a) of the Ordinance:
	(a)	The sale of the Lots be on the particulars and conditions substantially the same as those in the draft Particulars and Conditions of Sale to be approved and initialed by the Tribunal; and
	(b)	The reserve price be set at $2,055,000,000;
(6)	Subject to further extensions 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 shall be completed and made fit for occupation within a period of 6 years after the date on which the purchaser of the Lots becomes the owner of the Lots; and
(7)	Liberty to the applicants, the respondents and the Trustees to apply to the Tribunal for further directions.

Costs

49.  We make a costs order nisi that there be no order as to costs.  Unless any parties apply by summons to vary, the costs order nisi shall be made absolute upon expiry of 14 days from today.

Appendix A

EUV of Po Wah Building, Nos. 46, 48, 50, 52, 54 & 56 Queen’s Road East, No. 1A Landale Street And No. 2A Anton Street:

EUV of Nos. 2, 4, 6, 8, 10 & 12 Anton Street:

EUV of Nos. 5, 7, 9 & 11 Landale Street:

Appendix B

Residual Valuation

[1] These include the Application Report, a Supplemental Report dated 10 June 2016, a Rebuttal Report dated 21 July 2016, which is no longer relevant and superseded by Mr Chan’s Second Supplemental Report dated 18 September 2017.

[2] D1/1-90.

[3] See Mr Chan’s Second Supplemental Report dated 18 September 2017, D4/744.

[4] See Mr Chan’s Second Supplemental Report dated 18 September 2017, D4/745.

[5] See Mr Chan’s Second Supplemental Report dated 18 September 2017, D4/742.

[6] D1/91-253.

[7] Although this judgment of the English Court of Appeal was overturned by the Supreme Court ([2017] UKSC 14) on the facts found by the English Tribunal that the premises were undergoing reconstruction at the material day, and it was therefore entitled to alter the rating list to reflect that reality, there is no real inconsistency between the two decisions in terms of principle.

[8] D4/747-751.

[9] See Mr Chan’s Second Supplemental Report dated 18 September 2017, D4/728.

[10] D4/755.

[11] Commentary (7) & commentary (8) of paragraph 2.1 of Valuation Standard 3 of the Hong Kong Standards 2012 Edition.

[12] A certificate of appropriate alternative development under section 17 of the Land Compensation Act 1961.

[13] Such as Waters & Others v Welsh Development Agency [2004] ULHL 19, [2004] 2 All ER 915, [2004] 1 WLR 1304 (HL); Raja Vyricheria Narayana Gajapatiraju v The Revenue Divisional Officer, Vizagapatam [1939] AC 302, [1939] 2 All ER 317 (HL); Cedars Rapids Manufacturing and Power Co v Lacoste & Ors [1914] AC 569, [1914-15] All ER Rep 571 (PC)

[14] [2013] 6 HKC at 567F-G

[15] Market value of 4D comprises of $10,740,000 and market value of encroached common area at $111,000.

[16] The stated figure represents market value in 100% share. Market value of each 1/2 share is $5,160,000.

[17] The stated figure represents market value in 100% share. Market value of each 1/5 share is $1,254,000.

[18] Market value of 4E comprises of $4,700,000 and market value of encroached common area at $111,000.

[19] The stated figure represents market value in 100% share. Market value of each 1/2 share is $1,815,000.

[20] Market values of the two separate units in “Three Penthouse and Roof” are $5,980,000 and $6,860,000 respectively. The stated figure represents market value in 100% share. Market value of each 1/5 share is $2,564,000.

[21] The stated figure represents market value in 100% share. Market value of each 1/5 share is $394,000.

[22] The stated figure represents market value in 100% share. Market value of each 1/5 share is $394,000.

[23] The stated figure represents market value in 100% share. Market value of each 1/5 share is $380,000.

[24] The stated figure represents market value in 100% share. Market value of each 1/5 share is $190,000.

[25] The stated figure represents market value in 100% share. Market value of each 1/5 share is $186,000.

[26] 41 months including 15 months for demolition.

LDCS 1000/2015

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LAND COMPULSORY SALE MAIN APPLICATION

NO 1000 OF 2015

___________________

________________________________

REASONS FOR DECISION

________________________________

1.  Before us is an application by the 2^nd, 3^rd, 24^th and 25^th respondents (collectively referred to as the Rs) by way of summons (“the Summons”) for leave to adduce expert evidence on 3 additional areas, namely town planning, traffic impact and plot ratio and gross floor area (“3 Areas”).

2.  Upon hearing from all parties present, it is ordered that:

i) Leave be granted for R2, R3, R24 and R25 to adduce expert evidence on or before 2 August 2017 on maximum plot ratio and maximum gross floor area by Mr K M Mo (“Mo”) .

ii) Leave be granted for R2, R3, R24 and R25 to adduce expert evidence on or before 16 August 2017 on:

(a) town planning by Ms Anna Chow (“Chow”); and

(b) traffic impact by Mr S L Ng (“Ng”);

iii) Messrs. Vincent T.K. Cheung, Yap & Co., solicitors for R24 and R25, be appointed as the coordinator on experts in the 3 Areas for R2, R3, R24 and R25 and the costs arising out of such coordinating work be reserved.

iv) Applicants and R2, R3, R24 and R25 do file rebuttal expert reports in the 3 Areas on or before 13 September 2017.

v) The experts of applicants on one part and R2, R3, R24 and R25 on the other part on the 3 Areas, do hold without prejudice meeting after the filing of the aforesaid rebuttal reports and file Joint Statements on matters agreed and disagreed (with the reason for disagreement) on or before 4 October 2017.

vi) The applicants do lodge and serve paginated trial bundles on or before 6 October 2017.

vii) The applicants do lodge and serve written opening submissions and authorities (if any) on or before 9 October 2017.

viii) Unless otherwise discontinued, the respondents do lodge and serve written opening submissions and authorities (if any) on or before 12 October 2017.

ix) The pre-trial review fixed on 21 August 2017 at Court 2 be vacated and be re-fixed to 6 October 2017 at 11 am Court 2.

x) Save and except those orders which had been varied by this order, all other orders in Order dated 22 March 2017 do stand.

xi) Costs order nisi that costs of this application be no order as to costs.

xii) 26^th, 27^th, 30^th, 31^st of October 2017 and 2^nd and 3^rd of November 2017 be reserved for the trial as well[1].

xiii) Detailed reasons for decision to be handed down in due course.

3.  This is the reason for our ruling.

Background

4.  Mr Wayne Lee (“Lee”) was appointed as the single joint valuation expert for R2 to R8, R15, R16, R24 and R25 in this case on 15 January 2016. In the Valuation Report on RDV dated 10 June 2016 (“RDV Report”), Lee opined that one of the proposed optimal developments would be an office/commercial development model (“Office Model”). This is not accepted by the valuation expert of the applicant who opined that the only viable development model is one for residential/commercial model (“Residential Model”).

5.  According to Lee’s assessment, the Office Model can bring about higher RDV but that entails consideration of a successful application for planning permission for the Lots under Section 16 of the Town Planning Ordinance Cap. 131 (“S.16 Application”) since the Lots are zoned “Residential (Group A)” under the draft Wan Chai Outline Zoning Plan No. S/H5/27 and the proposed change of use to office/commercial etc would require permission from the Town Planning Board.

6.  Besides, the maximum gross floor area and the maximum plot ratio for the Lots would be governed by provisions of the Buildings Ordinance Cap. 123 and its ancillary regulations. Matters such as classification of site, provisions of open space, service lanes and setback would impact upon the maximum gross floor area permitted. The likelihood of success of the S.16 Application, traffic impact assessment and the maximum gross floor area (ie the 3 Areas) are highly significant in assessing the RDV of the Lots. And Lee confirmed that the 3 Areas would be outside the scope of his expertise. Such a fact was made clear to the Rs in the letter dated 27 February 2016 from Lee.

7.  In the Order dated 18 April 2016, leave was granted to the applicants and R2, R3, R6, R7 and R8 to adduce further expert evidence and call no more than one expert witness on each side in each of the 3 Areas. If R2, R3, R6, R7 and R8 failed to agree on the appointment of a single joint expert amongst themselves, each of the respondents who wished to adduce expert evidence on particular discipline should write to the Tribunal for nominating no more than two experts of their choice in order of priority, together with their resumes and proposed fees. The Tribunal would then appoint a single joint expert for the respondents in that discipline, with or without a hearing (A/74-81). 

8.  By a further order dated 11 May 2016, Chow, Ng and Mr Siu Tong Lam (“Lam”) were appointed as the single joint experts for R6-R8 in the 3 Areas respectively. It was also ordered that “no respondents will be entitled to appoint their own expert on the 3 additional disciplines save and except they agree to appoint the aforesaid as a single joint expert together with R6-R8 and share the fees of the experts as may be agreed between all the respondents participating in the appointment” (A/82-87) (“Order dated 11 May 2016”).

9.  R2 did not join in the appointment of Chow, Ng and Lam because of dispute with R6-R8 on the sharing of fees while R24 and R25 had indicated not joining the engagement of experts in the 3 Areas at the hearing on 18 April 2016. The explanation offered in the supporting affirmation for the Summons is that it was unnecessary for them to do so because R6-R8 would have procured the reports in any event and R24 and R25 did not want to increase costs which might become payable by the applicants under the compensation approach.

10.  The applicants and R6-R8 had arranged their respective experts to file and exchange expert reports, rebuttal reports and Joint Statements on the 3 Areas (except no Joint Statement had been prepared in the area of maximum plot ratio and maximum gross floor area due to some disagreement between the 2 experts).

11.  On 6 March 2017, R6-R8 had settled the proceedings with the applicants. By 3 consent summonses, leave was granted on 9 March 2017 and 21 March 2017 for R6-R8 to withdraw their Notice of Opposition and the expert evidence on the 3 Areas. This was being done without any prior notice to the other respondents.

12.  At the hearing on 22 March 2017, this case was set down for trial commencing on 9 October 2017 with 8 days reserved upon indication by the legal representatives of the Rs that the case should be ready for trial. The trial date was subsequently refixed to 16 October 2017 due to change of circumstances (for details, refer to Reasons for Decision dated 19 May 2017).

13.  The Summons was then taken out, in the sequence of by R24 and R25 on 8 May 2017, by R2 on 28 June 2017 and by R3 on 3 July 2017.

Respondents’ Argument

14.  Senior Counsel Mr C Y Li appeared for R24 and R25 and Counsel Mr Desmond Leung appeared for R2 and R3.

15.  It is the submissions of the Rs that the order sought in the Summons is relevant to an issue in the proceedings, namely the optimal development model in fixing the RDV, hence it is necessary and justified since it can assist the Tribunal in resolving the matter or issue. The unilateral settlement of R6-R8 without prior notice and the withdrawal of the expert evidence on the 3 Areas without consultation of the Rs is a change of circumstances which justified the Summons. If not, the Rs will suffer severe prejudice as there will not be necessary expert evidence to back up the Office Model contended by Lee. When the difference in RDV between the 2 models is so substantial, the minority owners will be deprived of their rights to a fair and reasonable compensation.

16.  By granting leave to the Rs to adduce the expert evidence in the 3 Areas, no prejudice will be caused to the applicants or jeopardise the trial since Chow and Ng will be retained and they had already filed their reports before. Lam refused to act for the Rs so Mo will be engaged instead but Mo held similar opinion as Lam save for a few points and Mo’s report is expected to be quite similar to the one prepared by Lam. Subject to addressing new matters raised by Mo, it is also expected that the reports of Chow and Ng will be more or less the same as those already been filed.  According to the timetable suggested by Rs, the expert evidence on the 3 Areas as well as the updated valuation reports would have been completed at the latest by 4 October 2017 which is well before the scheduled trial on 16 October 2017 and would not derail the trial. There is nothing to indicate that the expert evidence to be adduced in the 3 Areas would affect the preparation of the updated reports and Joint Statement by the valuation experts. The experts of the applicants in the 3 Areas had already investigated the matter and prepared their reports. There is no evidence to support the contention that the building expert would require at least 6 weeks to prepare his rebuttal report. It is accepted that with the evidence of the 3 Areas being introduced, the 8 days fixed for the trial will be tight but the days can still be maintained with 6 more days be reserved to cater for the additional evidence.

Applicants’ Reply

17.  Mr Y C Mok appeared for the applicants. Mr Mok submitted that the Rs should not be allowed to adduce expert evidence on the 3 Areas since the Rs did not raise the issue about the 3 Areas in their Notice of Opposition and the Summons is an attempt to raise the issue not pleaded.  In any event, the Rs had previously made a deliberate decision not to join R6-R8 in the appointment of the experts in the 3 Areas and the Order dated 11 May 2016 should be a bar to such an application.

18.  Furthermore, the Rs’ application is far too late after the trial date is fixed when they were made aware of the necessity of the evidence in the 3 Areas since 29 February 2016 and the settlement of R6-R8 in March 2017. Granting the order sought in the Summons would inevitably move the litigation goalposts and cause a proliferation of expert evidence, with a real risk of at least derailing the current timetable. No evidence of prejudice to the applicants is required and the applicants did suffer significant financial costs on the money already spent on the acquisition of the units in the Lots.

Discussion

19.  In reaching the decision and the order dated 19 July 2017, it is stated that “this Tribunal agreed with the contention of the R2, R3, R24 and R25 that leave should be granted for them to adduce expert evidence in the 3 areas (specified below) on the ground that such evidence is relevant to an issue in this proceedings and also to safeguard that the minority owners’ interests are protected by payment of fair and reasonable compensation if a compulsory order is made whereas no prejudice is likely to be caused to the applicants”.

20.  That the issue concerning the 3 Areas had not been pleaded in any of the respondents’ (including R6-R8) Notice of Opposition is not surprising since this issue was only raised after Lee was engaged, a time after the Notice of Opposition had been filed. R7 and R8 had, as a result amended their Notice of Opposition to include such a defence but not for the other respondents. Be that as it may, the fact that this is a live issue between all the parties was crystallised at the time R6-R8 took out the summons for leave to adduce expert evidence on the 3 Areas in March/April 2016. Even though the Rs had eventually not involved in the engagement of experts in the 3 Areas, that they are relying on the opinion of Lee which required the assistance of the experts in the 3 Areas is beyond argument. It would be absurd to say that the Rs who had indicated their reliance of Lee’s opinion on RDV are not taking issue on the 3 Areas just because of the fact that they had not so pleaded in their Notice of Opposition. The purpose of the pleadings is to allow the other side to know the case they have to meet and the applicants are not taken by surprise by the issue on the 3 Areas even if this was not pleaded. We do not agree that the Summons should be dismissed on such a pleading point.

21.  The Rs may have decided to take a pragmatic approach in not joining the appointment of the experts in the 3 Areas in view of the fact that R6-R8 had already taken up the task or taking the advantage of a “free ride”, yet they should not be deprived of such a chance when R6-R8 settled with the applicants and withdrawn all the expert evidence on the 3 Areas, a change of circumstances that this Tribunal cannot ignore. Even though the Rs were all along legally represented and may well be sophisticated investors, or the settlement by R6-R8 and its consequences should be within the anticipation of the Rs, the Rs should not be deprived of the right in putting all the evidence before this Tribunal for a just resolution of dispute in accordance with the substantive rights of the parties.

22.  A claim under the Land (Compulsory Sale for Redevelopment Ordinance, Cap 545 (“LCSRO”) has the distinct characteristics that the interests of the minority owners have to be protected in the sense that the rights of the minority owners to be compensated by a fair share of the sale proceeds after the statutory justification for a compulsory sale order is shown must be safeguard. The amount of the compensation turns on the RDV set after consideration of the expert evidence. If the Rs are not allowed to adduce the expert evidence on the 3 Areas at trial, the contention by Lee on the Office Model cannot be substantiated. There is no dispute that the difference between the Residential Model and the Office Model amounts up to $1,360 million. Without the expert evidence on the 3 Areas, this will impact on the compensation and the minorities’ right to a fair compensation cannot be protected. This is contrary to the intention of the legislature to safeguard the protection a minority should have. Given such distinct characteristics required under the LCSRO, the authorities relied upon by Mr Mok in the determination of late interlocutory applications are to be distinguished and cannot be applicable.

23.  We also do not accept that the Order dated 11 May 2016 is to the effect that the Rs, who had not joined in the initial appointment of the experts in the 3 Areas, should be debarred from adducing expert evidence on the 3 Areas after those filed by R6-R8 had been withdrawn. This Tribunal had the chance of listening to the recordings of the hearing on 22 March 2017 and confirmed that HHJ Wong had, at the hearing, reminded the Rs of the need for them to adduce any evidence on the 3 Areas and had specifically mentioned that, if need be, the Rs can take out application based on the “liberty to apply for further directions” order made on the day.  So, it is already envisaged at the hearing that there may be an application like the Summons even after the trial date had been fixed.

24.  Yet, we agree with Mr Mok that the Rs had delayed in the taking out of the Summons till May 2017 with hearing fixed for July 2017.  Judging from the timetable suggested by the Rs at this hearing, however there is no delay or derailing of the trial since the original hearing dates are maintained and the timeline for the evidence, though may have been put back a bit, will have no effect on the trial dates originally fixed. And if the order sought in the Summons is granted, the original 8 days allotted for trial will not be sufficient and another 6 days is required for the trial to complete.  Given the fact that the court diary can accommodate a 6 days’ time slot close to the original 8 days keeping the original trial dates intact, and in consideration of the protection the minorities should have as guaranteed by the LCSRO, such a lengthening of the trial is acceptable and should be entertained.

25.  Mr Mok had empahsised at the hearing the fact that the Rs failed to produce the report of Mo and the applicants, as well as this Tribunal, had not been told what are the few points that Mo is in disagreement. Without details of the same, this may have impact on the timetable to be fixed since Mo’s new evidence may raise new issues which may have an impact on the valuation expert’s evidence. There may be a risk of experts not agreeing on the Joint Statement and if there is disagreement between the 3 pairs of experts, the applicants may have to come back to apply for vacating the trial dates to deal with the new evidence. It is also stated in the applicants’ affirmation in opposition that their Building Surveyor required at least 6 weeks to prepare a rebuttal in reply. 

26.  We agree with the Rs that even without a Joint Statement between any pair of experts, the trial can still proceed. For Chow and Ng, they had been engaged by R6-R8 and had already adduced their reports.  Even with the new evidence from Mo, it is quite unlikely that they would say something much different from their report filed. As for the new evidence likely to be adduced by Mo, it is the evidence of R24/R25 that Mo has perused the reports previously prepared by Lam and basically holds similar opinion as Lam, though with different views on a few points discussed in Lam’s report. Given such an indication, Mo’s evidence should still be in the same framework as in Lam’s report save it may well be a different view on certain points leading to the conclusion. And this Tribunal cannot accept the applicants’ Building Surveyor’s estimate of time required for the rebuttal report before having sight of Mo’s report.

27.  Lastly, we found no prejudice is likely to be caused to the applicants by granting the order sought in the Summons and even if there is any, balancing the likely prejudice to both parties, the prejudice suffered by the Rs in being deprived of the protection guaranteed by the LCSRO outweighs that of the applicants.

28.  Having considered all the above, we have made the order at §2 above at the end of the hearing.

29.  As for costs of the Summons, to indicate the disapproval of this Tribunal in the late application, we made a costs order nisi that there shall be no order as to costs for the Summons including this hearing. Unless any of the parties applies by summons to vary it, the costs order nisi shall be made absolute upon expiry of 14 days from the handing down of this reasons for decision.

[1] The original extended trial date on 26-27, 30-31 Oct & 2-3 November is subsequently vacated with 13, 15-17 & 20-21 Nov 2017 be reserved for the extended trial instead

LDCS 1000/2015

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LAND COMPULSORY SALE MAIN APPLICATION

NO 1000 OF 2015

___________________

___________________

_________________________________

REASONS FOR DECISION

_________________________________

1.  Before me is an application by the applicants by way of a summons filed on 20 April 2017 (“the Summons”) for further directions to bring the proceedings to trial in light of my order made on 7 April 2017 for the originally scheduled trial dates be vacated and the hearing date be refixed in consultation with counsel’s diary (“7 April Order”).

2.  Upon hearing from all parties present, it is ordered that the trial of this case should be fixed in the earliest available date in the court diary without any accommodation of counsel’s diary with detailed reason for decision to be handed down in due course.  This is the reason for the decision.

Background

3.  On 22 March 2017, HHJ K W Wong made the order setting this case down for trial commencing on 9 October 2017 with 8 days reserved and with consequential directions for pre-trial review and various time line for the filing of documents in contemplation of the trial (“22 March Order”).  At that juncture, R2, R3, R24 and R25 were represented by their respective solicitors and had indicated to the court that they have not yet retained counsel but would find and retain counsel who would be available to fit the trial dates originally fixed.

4.  Due to a change of personnel and unforeseen circumstances, the 7 April Order was made directing parties to approach the Listing Officer on or before 21 April 2017 for a new trial date to be fixed.  On 11 April 2017, it was also ordered that a direction hearing should also be fixed for the consequential variation of the time for compliance with the other directions in the 22 March Order.

5.  Parties attended the office of the Listing Officer on 19 April 2017 but the earliest date for trial that suits all counsel falls in March 2018 since counsel for R2 is only available from February 2018 but counsel for R24/25 is not available in February 2018.  As for the 1-hour direction hearing, counsel for R24/25 would only be available in July 2017.  However, the earliest available date in the court diaries for a trial of 8 days is November 2017.

6.  Since there is no agreement amongst the parties as to the refixed hearing dates, the applicants take out the Summons.

Applicants’ Argument

7.  Mr Mok for the applicants submitted that it is manifestly unreasonable and unfair to the Tribunal, the applicants and the other respondents to allow the availability of counsel only recently engaged by one or more respondents to frustrate or otherwise further substantially delay the trial any longer since it has been more than 2 years since the commencement of the proceedings in January 2015. 

8.  Relying on the case of DBS Bank (Hong Kong) Limited v Sit Pan Jit (unreported, HCA 382/2009, 26 April 2013), it is submitted that an order that the hearing date to be fixed in consultation with counsel’s diaries is not absolute and the court should only give effect to the parties’ wishes to the availability of counsel as far as may be convenient to the court diaries, which shall have priority.  Since the court diaries can accommodate a date in November 2017 and solicitor for the respective respondents had confirmed that they would instruct counsel who can fit the originally scheduled trial date, there is no justification to further delay the trial to March 2018 simply to accommodate the diary of counsel instructed by R2 and R24/25.

9.  Even if counsel for R2 and R24/25 are not available before March 2018, there should not be practical difficulties for them to engage other counsel for the trial since their counsel were only instructed lately and the need to ensure continuity of representation of counsel would have a relatively low degree of prejudice (if any) to the respondents.  Even if the existing counsel retains by the respondents had given any opinion and/or advice in relation to this application, the new counsel would in any event have the benefit of such previous work and there could not be duplication of effort or expense.

10.  The applicants asked for a trial date be finalized at this hearing without any reference to any counsel’s diary and for consequential directions to be made as well for the preparation of the trial.

R2’s Reply

11.  Ms Cheng for R2 submitted that the 7 April Order had specifically provided that fixing of a date should be in consultation with counsel’s diary and see no urgency of this case for a date to be fixed without accommodation to counsel’s diary.  Given there is only a 3 months’ difference from November 2017 to March 2018, there shouldn’t be any prejudice to the applicants nor any serious delay.

12.  It is also Ms Cheng’s submission that the consideration in the case of DBS Bank is different with our case since a trial date had already been fixed in that case with the plaintiff seeking to set it aside.

R3’s Reply

13.  Ms Lin for R3 indicated that R3 takes a neutral stance in this application since R3 had not retained any counsel yet.

R4 & R5’s Reply

14.  Mr Wan the representative for R4 and R5 also indicated that he had no preference as far as the trial date is concerned.

R24 & R25’s Reply

15.  Mr Lam for R24 and R25 submitted that this is an unfair application by the applicants to suggest fixing a date ignoring availability of counsel for the respondents.  A delay from November 2017 to March 2018 is not an exaggerated period of time in light of the fact that there are 13 respondents still remained in this case and 3 law firms acting for some of the respondents. 

16.  As for the case of DBS Bank, Mr Lam had no argument with the findings in the case but just ask this court to look at all the circumstances of this case.

Discussion

17.  I agree with the applicants that the case of DBS Bank and Paragraph 5(3) of Practice Direction 7.1 (“PD 7.1”) are highly relevant in my consideration of the Summons before me.

18.  PD 7.1 reads:

“ 5. The Fixture List

…

(3) An order that the date be fixed in consultation with counsel instructed or expected to be instructed for the hearing of any action does not bind the Court or the Clerk of Court to secure the agreement of such counsel.  It requires the Court or the Clerk of Court only to give effect to their wishes so far as may be convenient to the court diaries, which shall have priority.”

19.  In the case of DBS Bank, the plaintiff asked for a re-schedule of the trial dates already fixed by the Clerk of Court without accommodation to counsel’s diary but just give priority to the court diaries in face of disagreement between the parties.  Deputy High Court Judge Ng found that even if there is an order for consulting counsel’s diaries, there is nothing wrong to fix the trial dates in face of the disagreement and in giving priority to the court diaries on the consideration of public interest:

“18. …Even before the Civil Justice Reform (and more so afterwards), an important objective of the administration of justice is for cases that are ready for trial to proceed to trial as soon as possible…parties who come to court for resolution of their dispute expect a trial to take place speedily once the case is ready (and insofar as finite judicial resources permit) so that the party who is eventually vindicated by such trial will be able to enjoy the fruits of any judgment in his favour as soon as possible.

19. …

20.              In my view, the provision in paragraph 5(3) of PD7.1 is eminently sensible and in accordance with the above considerations.  The court recognizes that parties may wish to instruct preferred counsel for the trial, but such wishes cannot dictate the fixing of the trial dates.  The Clerk will give effect to the parties’ wishes so far as may be convenient to the court diaries, which shall have priority.  There is a public interest that trials should be heard as soon as possible…”

20.  Applying PD 7.1 and the rationale in DBS Bank, even though the 7 April Order had directed that the trial date for the present case should be fixed in consultation with counsel’s diary, adopting Mr Mok’s description, this is not absolute and this court should consider the public interest that trials should be heard as soon as possible once it is ready.

21.  At the hearing before the 22 March Order was being made, R2, R3 and R24/25 were all represented and their respective solicitors had indicated and confirmed that this case was ready for trial and they would retain counsel (if so instructed) who would be available to accommodate the trial dates fixed then.  So there is no argument that this case was ready for trial as early as in March 2017.

22.  When the parties were before the Listing Officer on 19 April 2017, the earliest possible date in the court diary would be November 2017 whilst the trial date would be March 2018 if counsel’s diary were accommodated.  The respondents’ argued that there is only a 4 months’ difference from November 2017 to March 2018 which is insignificant.  Such a contention is in direct contradiction to the public interest consideration enunciated in the case of DBS Bank. 

23.  In any event, 4 months’ difference is also the scenario in DBS Bank and DHCJ Ng did not find this to be a relevant factor in the public interest consideration.  Given the fact that the court diaries can accommodate an earlier date, fixing the trial to a later date, no matter how insignificant the difference, would make the right to have the trial to be heard as soon as possible illusory. 

24.  And this is a compulsory sale case where the applicants had acquired more than 80% of the undivided shares in the lots of land involved.  The financial investment by the applicants and the financial costs pending the trial of this case is substantial.  Another 4 months’ delay can cause substantial prejudice to the applicants.

25.  R2 and R24/25 had indicated at this hearing that they had already engaged counsel for the trial and the trial date should be fixed accommodating their counsel’s availability. Since both R2’s and R24/25’s counsel were being instructed after the original trial date had been fixed, their involvement in this case must be minimal. Even if they had already been deeply involved, quoting DHCJ Ng in DBS Bank, “the new team will have the benefit of the previous work done by the existing team of counsel engaged by the plaintiff” (at §29) and the work done by the counsel already instructed will not be wasted.  Neither had the respondents raised the issue that there will be difficulties in engaging other counsel to take up this case.  I see no disadvantage is likely to be caused to the respondents.

26.  Having considered all the above, I have made the order at §2 above at the end of the hearing.

LDCS 1000/2015

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

APPLICATION NO. LDCS 1000 OF 2015

___________________

___________________

___________________

D E C I S I O N

___________________

1.  The 7 applicants altogether hold not less than 80% of the undivided shares in each of the 8 adjacent lots together with the buildings standing thereon (collectively referred to as “the Lots” and “the Buildings” respectively). By the Application dated 23 January 2015, they applied to the Tribunal for sale of all the undivided shares in the Lots and Buildings pursuant to the Land (Compulsory Sale for Redevelopment) Ordinance, Cap 545 (“LCSRO”). The Buildings are over 50 years old as their occupation permits were issued between 1957 and 1961.

2.  The Buildings are situated at prime location of Wan Chai near Admiralty. They are on the north eastern side of the Queen’s Road East bounded by Anton Street and Landale Street. According to the valuation attached to the Application, the existing use value (“EUV”)[1] of the Lots and the Buildings are in the region of $1.43 billion[2]. At the time of the Application, there are 34 respondents, including shop and residential unit owners, mortgagees and other potentially interested parties. It is fair to say the applicants are not doing well with their acquisition of the ground floor shops which are the most valuable part of the Buildings. About half of these shops remain in the hands of the minorities. According to the applicants’ own valuation, the EUV of a shop ranges from around 20 million to 53 million.

3.  After the time for filing of notice of opposition has expired, the applicants listed this Application for a call-over on 7 September 2015. At that hearing, directions were given for certain respondents to attempt mediation with the applicants and filing of notice of opposition. There is no dispute that the following 3 areas, namely, valuation, building condition and structural assessment of the Buildings, require expert evidence.

4.  Apparently, there were then over 10 actively defending respondents/groups of respondents. If no restriction is placed on experts, the tribunal will be flooded with experts when each party/group is to engage its own expert on each area. The trial may become a trial of experts and will be too clumsy to be manageable. It is most undesirable and cannot be right from a case management point of view.

5.  In Good Faith Properties Ltd v Cibean Development Co Ltd[3], the Court of Appeal (“CA”) has indicated that the tribunal should exercise a firmer case management particularly on expert evidence in compensation cases where the costs of defending are generally paid by the applicant, and with a view to avoid delay. The tribunal had expressed to the parties its said concern at the first call-over. It was indicated to the parties that they should at least explore the option of a single joint expert (“SJE”) on each discipline for each side, i.e. the applicants’ and respondents’ sides. The parties are invited to address the tribunal on the feasibility of the tribunal’s proposed approach at the next hearing scheduled for 17 November 2015 in case the respondents could not agree on this issue.

The Argument on 17 November 2015

6.  It is not in dispute that there are still some 20 defending (or potentially defending) respondents comprising a total of 13 groups. Of these 13 groups, there are now 8 legal teams representing 12 respondents. The remaining 5 groups comprising 8 respondents are all acting in persons. According to Mr Yip, solicitors for the applicants, they expected that a total of 8 to 9 groups of respondents will be contesting the proceedings until trial. The other respondents did not seek to dispute otherwise. So far, 3 groups representing 8 respondents have proposed to appoint 3 different valuation experts. Apart from a group (comprising 3 respondents) who at the direction hearing expressed they are not going to adduce valuation evidence, there are at least 8 respondents whose position is unclear. Assuming they will be appointing any of the already appointed ones or simply not appointing any valuation expert, there are still a total of 4 experts[4] on the area of valuation.

7.  On the other hand, 5 respondents comprising 3 groups have indicated they will jointly appoint a surveyor to do the condition survey report and an engineer to do the structural condition report. Assuming no other respondents will do the same, there are at least a total of 4 experts on these 2 areas when the Application goes to trial.

8.  The question therefore remains – whether it is proper and fair in the circumstances for the tribunal to limit the number of experts to be called by the parties to one SJE on each discipline for each of the applicant’s and respondents’ side. In other words, why do we need 4 experts or more on the single area of valuation?

Discussion

9.  The applicants embrace the aforesaid SJE approach. Mr Yip submits for the applicants that:

i) This tribunal has jurisdiction to limit the number of experts to be called by each side of a litigation;

ii) The limitation on the number of experts in the manner proposed is consistent with the underlying objectives of the Rules of High Court (“RHC”) and a proper exercise of the case management power to achieve such objectives. It is also in line with what has been directed by the CA in Good Faith; and

iii) Support can be lent from the English CA case of Various Claimants v Various Defendants Related to Giambrone[5]. In that case it was said by the English CA that the 142 claimants should have been entitled to one single expert on foreign law had the matter been managed from the outset, and compelling reason needed be shown for more than one expert in relation to the same issue on each side.   

10.  It is fair to say that all respondents appreciate the difficulties generated as a result of too many experts attending court on a particular subject. However, 8 out of 9 groups[6] oppose the proposed SJE approach. Quite a number of parties rely on the submission of Messrs Lo and Lo lodged on behalf of R7. The submission of the opposing parties can broadly be summarized as follows:

i) Good Faith does not prohibit the parties from adducing their own expert evidence.  On the other hand it stresses the importance of expert opinion to be adduced by the minorities. It is only when there is reason to believe that the parties’ experts are generating unreasonable differences instead of providing helpful assistance that the tribunal should consider appointing a SJE or even a court expert. It is therefore pre-mature for the tribunal to limit the number of experts to be called by the respondents in the meantime. The tribunal should allow each party/group to pick the experts of their choice and submit their reports. The tribunal may, after reviewing the issues stated in the joint statements of experts on areas of agreement and disagreement, direct appointment of SJE pursuant to Good Faith if the issues generated are unreasonable; and

ii) Many of the minorities’ properties are valuable shops. A different set of assumptions or variables used by a different valuation expert may impact significantly on the valuation arrived at which will mean a lot to a minority. A party would not feel comfortable and may lose faith in an expert not of his choice. 

11.  It has to be emphasized that expert evidence, unlike factual evidence and being opinions in its nature, would only be admitted in order to assist or educate the court on a subject which it does not have any expertise. The court needs the expert’s special knowledge or experience on an area that he has acquired (but the court has not acquired) in order to help it arriving at its conclusion. Since an expert’s role is to assist the court, he cannot discharge his duty to the court unless he provides the opinion on which he has an expertise independently, impartially, unbiased and uninfluenced by the party who pays or instructs him. By reasons thereof, while a party may wish to engage an expert of his choice to support his case, due to the nature of expert evidence this expert cannot be the appointing party’s advocate. Since an expert is there to assist and educate the court he owes an overriding duty to the court and should not be a “hired gun” with a view to advancing a party’s case.

12.  The issue of partisan experts has been a concern and a subject matter of the Civil Justice Reform. The misunderstanding of the an expert’s role is so deep-rooted that it is considered necessary to cause a cultural change among lawyers, experts and litigants. The relevant principles have now been entrenched in O.38, r.35A, 37B and 37C of RHC. Now an expert has to declare that he understands his paramount duty to the court and such being a continuing obligation when he accepts his appointment as an expert.

13.  Given the duty of an expert to the court and the nature of his opinion, for the fairly and expedient disposal of the cause, it will be unnecessary for opinions on the same subject matter to be repeated by a number of experts simply because there are numerous parties. The worth of an expert’s opinion lies in the reasoning and reliability of facts/data based on which he comes to his conclusion. Although the court is not well qualified in the area of expertise of an expert, we are experienced and well trained in detecting whether the reasoning and logics of an expert can stand. Further, the panel of the tribunal hearing the Application comprises a member who is a valuation expert. We consider it unnecessary for numerous experts to express their views on the same matter simply because each adopts different assumptions. We believe a well qualified expert knows the reasonable range of assumptions to be applied and the extent the valuation of a unit relative to others can be stretched.

14.  With the above principles for which expert opinion is required in mind, the tribunal should do active case management with a view to achieve the following underlying objectives of the RHC[7]:

i) To increase the cost-effectiveness of any practice and procedure to be followed;

ii) To ensure that the proceedings can be dealt with expeditiously as is reasonably practicable;

iii) To promote a sense of proportionality and reasonable procedural economy in the conduct of proceedings;

iv) To ensure fairness; and

v) To ensure that the resources of the court are distributed fairly.

15.  O38 r. 36(1) RHC provides that leave of the court is required when a party seeks to adduce expert evidence. O.38 r.4 provides that the court may, at or before trial, limit the number of expert witnesses to be called. It is set out in O.35 r.3A(1)(b) that at any time before or during trial, the court may by direction limit the number of witnesses, including expert witnesses, that a party may call on a particular issue having regards to a number of factors including complexity and simplicity of the case set out in O.35 r.3A(2) RHC. These provisions are sensibly drawn up and provide a very wide power to enable the court to deal with a large variety of situations where expert opinions are required. In the tribunal’s judgment, given the nature of expert evidence discussed above and the court’s duty to achieve as far as possible the underlying objectives of the rule, expert evidence shall be restricted only to that which is reasonably required to resolve a particular issue. It is further stipulated under O.38 r.4A(1) RHC that:

“In any action in which any question for an expert witness arises, the Court may, at or before the trial of the action, order 2 or more parties to the action to appoint a single joint expert witness to give evidence on that question.” (Emphasis added)

16.  It is therefore beyond doubt that, by the combined effect of the aforesaid rules, the tribunal has power to limit the number of experts to be called, either generally or specifically in respect of a particular issue where expert evidence is required. It is also apparent that the tribunal has power to direct a SJE be appointed for 2 or more parties in a proceeding either for one side or both sides. There is no good reason to restrict that “parties” referred to in O.38 r4A (1) RHC applies to only “parties of both sides”. It is also applicable to parties of the same side. 

17.  Like most of the compulsory sale cases, the respondents will be contesting the issue of EUV of their own units and RDV[8] of the Lots. However, even though a respondent may own only a unit in the Buildings, the valuation required for the purpose of disposing of the valuation issue should cover all units of the entire Buildings. It is because, in the event the tribunal directs a sale of the Lots and the Buildings, a minority will be sharing the sale proceeds, on a pro rata basis, by reference to the EUV of all units of the Buildings. Inevitably, valuation of EUV of all units comprised in the Buildings needs be carried out no matter how many or what kind of units one may own. Needless to say, the expert is also required to cover the RDV of the Lots. If the tribunal allows all the groups/parties to adduce valuation reports, the 4 reports will cover precisely the same areas requiring valuation opinion.

18.  It is noted that in Good Faith, although there were 4 applicants, there was only 1 respondent. It is a “one on one” situation. From the first instance decision[9], it did not appear that the respondent had adduced evidence on the age and state of repair of the building. It only put the applicants to strict proof of these 2 aspects and contested vigorously the valuation. Each side had appointed one valuation expert, and the trial lasted for 18 days.

19.  In the present case, it is anticipated that the age and state of repair will be 2 other heated disputed areas. 4 experts, 2 from each side will be called on these 2 areas. No doubt valuation will be another hotly disputed area. If 4 more valuation experts were to be called, assuming for the purpose of discussion that there are 9 groups[10] contesting the trial and each is entitled to cross-examine an expert, it is the tribunal’s rough estimate the trial will last for at least some 28[11] days! It is a most conservative estimation. Given the experience in Good Faith, if this case is not actively managed from the outset and counsel’s cross-examination properly controlled, 28 days will be a meaningless under estimation.

20.  It has been suggested by the respondents that the tribunal should not limit the filing of expert evidence for the time being and should wait until after perusal of the joint statements of the experts identifying the areas of disagreement for the purpose of the trial. Assuming they were to proceed as suggested, it will be about some 5 months[12] later before the tribunal is in a position to know whether the experts are assisting the tribunal by narrowing down the issues or they are just doing the opposite. If by then the unfortunate scenario occurs, the whole process has to start again by appointing one SJE for both sides, or for a side. The time and costs incurred in the first round will be totally wasted. It is noted that even though when SJE is appointed, it would not prevent a party from challenging the opinion of that SJE, though as correctly pointed out by Lam VP in Good Faith[13] the grounds of attack will be rather limited.

21.  In the tribunal’s judgment, this tribunal is not giving effect to the underlying objectives of the rules if it permits what has been suggested by the respondents. The Application, with numerous interest groups represented by different legal teams or acting in person, will then not be proceeding in an expeditious and a cost-effective manner. This tribunal is well aware of the comments of Lam VP in Good Faith that in many cases, the expert opinions put forward by one side need be calibrated in the wake of the opinions from another expert[14]. This tribunal also shares Lam VP’s views that in most cases, a minority’s objection would not be too meaningful unless he adduces expert evidence to support his opposition[15]. These comments are in any event binding on the tribunal. However, this tribunal does not consider active management by limiting the number of valuation experts inconsistent with the aforesaid comments. This tribunal understands the importance of valuation evidence to the parties, and that valuable landed properties are now being compulsorily acquired. This tribunal also realizes if only one SJE is appointed for both sides from the beginning, the controversy likely to be generated will be so immense, rendering the option totally unrealistic. However, that does not mean that the tribunal should therefore allow whatever number of experts to be appointed as the parties wish. Certain control needs be in place.

22.  After taking into account the role of an expert and with a view to generating a meaningful debate on valuation in our adversarial system, this tribunal considers a SJE on each discipline for each side, who have a general common interest in the subject matter, a pragmatic and fair expert direction as a start. The tribunal appreciates a litigant may feel comfortable with an expert of his choice. Therefore the parties will not be deprived of the opportunity to be involved in the choice of the SJE and give joint instructions. We believe that a professional, independent and impartial expert should be willing to consider reasonable comments and suggestions by any party which in the expert’s professional judgment can be advanced no matter he is jointly or solely appointed. On the other hand, a self-respecting, professional and impartial expert, again no matter solely or jointly appointed, should be prepared to exclude something the validity of which is considered by him doubtful. He should not allow himself to down-grade to become a party’s advocate. In the tribunal’s judgment, the interest of a party will not be compromised by appointment of a SJE in the manner proposed.

23.  It has to be remembered that by so directing, the right of a party challenging the SJE’s opinion would not be taken away. After all, valuation opinion is, to a certain extent, a subjective judgment and an inexact science. Different experts are likely to come up with different valuation because of bona fide disagreement. However, a note of caution must be stated. As remarked by the learned Lam VP (then Lam J) in Chinachem Charitable Foundation Limited v Chan Chun Chuen[16], such disagreements should only be based on independent professional judgments instead of being client interest driven. A party launching unreasonable and/or trivial challenges to a SJE’s opinion with a view to put in from the backdoor its own valuation evidence is unlikely to be entertained and likely to be met with an adverse costs order.

24.  Various Claimants v Various Defendants Related to Giambrone[17] is a complex professional liability claim by some 142 claimants against solicitors. However, the great numbers of claimants were initially divided into 2 groups and instituted proceedings in different venues and at different time. The 2 sets of proceedings were ultimately “managed” and were directed to be tried together. However, when they jointly attended the case management conference, one set of 51 claimants had already obtained expert evidence on Italian laws. At the end, the case management judge only allowed the other group of 91 claimants to put in expert evidence on issues not yet covered by the 51 claimants. In other words, only one expert opinion would be allowed to cover one subject matter. These 91 claimants lodged an appeal to the English CA.

25.  It was considered by the Master of the Rolls that it was a rare case for the appeal court to interfere with a case management decision. The English CA expressed that it was procedurally unfair to the 91 claimants who were not given an opportunity to be involved in the selection and giving of instructions to the experts. However, the learned Master of the Rolls went on to say:

“§17 … If this had been managed litigation from the outset (that is to say, if the claims of all 142 claimants had been the subject of managed litigation from the beginning), then almost certainly the judge managing the case would have said that all the claimants were entitled to have only one expert dealing with Italian law. A compelling reason has to be given for granting permission to parties to rely upon more than one expert in relation to the same issue. There may be particularly complicated cases where such an exceptional course is justified. But nobody has suggested that the Italian law issues in this case fall into that exceptional category.

…

§20. It is unfortunate that there probably will be two experts giving evidence on Italian law on behalf of the two groups of claimants. This has come about for the historical reasons that I have already explained. I hope that, once all the experts’ reports have been disclosed and exchanged, it will be possible for them to narrow the issues. It may be that, when Notary Valente and the PM claimants’ expert have had an opportunity to consider their respective reports, they will be able to narrow the issues between them and indeed obviate the need for more than one of them to give evidence.” (Underline added)

26.  From the above quoted paragraphs it is apparent that the decision in Giambrone to allow 2 experts for the claimants is an exception rather than norm. It was considered by the English CA that had the case been managed from the very beginning, unless there is a compelling reason, there should only be one expert representing the claimants’ side. The appointment of 2 experts for 2 groups of claimants on a subject was described by the English CA as unfortunate, and it was hoped that at the end, only one expert for that group would be called to give evidence. Although there is no express provision in the RHC similar to the English CPR 35.1 which provides expressly that expert evidence shall be restricted to that which is reasonably required to resolve the proceedings, in the tribunal judgment the above-quoted provisions of our RHC have the same effect[18]. The tribunal cannot see why there should be 3 expert opinions on precisely the same matters from the groups of respondents.

27.  There has been suggestion by Mr Lau acting for R2 that expert valuation opinion is different from foreign law opinion. With due respect the tribunal cannot discern any rational difference, save that they concern 2 different areas, from his submission.

28.  There is no reason why the same principles above should not be applicable to the expert evidence on building condition and structural assessment. 

Conclusions and Directions

29.  By reasons of the above, in the circumstances of this case, the tribunal considers appropriate to give the following expert directions:

i) Leave be granted to the applicants and the respondents to adduce expert evidence and call no more than one expert witness on each side in each of the following 3 disciplines, namely, (1) valuation; (2) building condition; and (3) structural assessment (if so advised);

ii) The respondents who are minded to adduce expert evidence at trial have to try best endeavour to agree on the appointment of a single joint expert in each of the disciplines mentioned in (i) above for the respondents side and report the outcome of such appointment to the tribunal on or before 21 December 2015;

iii) If the respondents who are minded to adduce expert evidence at trial cannot agree on the appointment of a single joint expert in any of the disciplines above for the respondents’ side, each of the respondents who wish to adduce expert evidence on that particular discipline should write to the tribunal nominating at most three experts of their choice in order of priorities, together with their resumes and proposed fees on or before 7 January 2016 with copies to all other parties. The tribunal will then appoint a single joint expert for the respondents for that discipline, with or without a hearing;

iv) Any submission regarding the appropriateness or otherwise of a proposed expert, if known in advance to a party, shall be submitted together with the party’s written submission referred to (iii) above;

v)     After the appointment by the tribunal of a single joint expert for the respondents in a particular discipline, all instructions to the said expert should be given jointly, and for this purpose, the respondents who intend to adduce expert evidence in respect of that particular discipline should nominate among themselves a party/group to co-ordinate among themselves their communication with the said appointed expert;

vi) A copy of this direction (together with its Chinese translation) should be served on all respondents, unless service on the respondent has been ordered to be dispensed with by the tribunal or that proceedings against the respondent have been discontinued prior to the date hereof;

vii) A respondent will be debarred from adducing expert evidence at trial on a particular discipline requiring expert opinion unless he/she participates in the above appointment process or is willing to abide by the decision of the respondents or that of the tribunal in accordance with respectively (ii) or (iii) above; 

viii) There be liberty to apply for further directions;

ix) Costs of the direction hearing on 17 November 2015 be reserved.